The insurance and reinsurance industry will have to change the way it does business, a top executive has warned.

Kathleen Reardon, chief executive officer of Hamilton Re, said that more than a third of premiums written were used to fund the distribution of products and services — which would have to be cut.

Ms Reardon added: “Clearly, the cost of doing business in our industry is far too high. We have to find ways to be more efficient.”

And she said that if the industry did not work out a way to cut costs, other industries would.

Ms Reardon added that Hamilton Re chief strategy officer Bob Deutsch had told an audience at an industry panel last week that the industry lagged behind in technology.

In a speech at the Bermuda Insurance Institute’s Christmas lunch, Ms Reardon said: “Bob feels there’s every likelihood that our competitors aren’t going to be other insurance companies. They’re going to be companies like Google.

“I agree — and I see this as a real opportunity for our industry to shift the insurance paradigm.

“This applies to insurers, reinsurers and brokers. In the 21st century, the relationship between technology and added value is clear. It’s symbiotic. We live in a digital world and data is currency.

“Those of us who figure out how to leverage technology for our respective clients’ benefits are going to be the ones who succeed.”

Ms Reardon — this week announced as one of only 25 female executives tipped as “Women to Watch” in an international awards scheme — was speaking at the Bermuda Insurance Institute lunch held earlier this week.

She told industry representatives: “We should know our clients better than they know themselves. Telematics and predictive analytics will help us do this.

“Those of us who harness technology will revolutionise the way we do business. Those of us who don’t risk becoming irrelevant in today’s market.”

Ms Reardon added that a “tsunami” of new capital entering the market had been feared as a threat.

She said brokers Aon Benfield had earlier this year said $59 billion of alternative capital had entered the marketplace — an 18 per cent increase on the first six months of the year, while traditional capital increased by only six per cent over the same period.

She said: “This has prompted some industry soul-searching, but as we end 2014, there’s general agreement that alternative capital is here to stay and that it’s an important component of responding nimbly to the needs of our clients.”

Ms Reardon added that large-scale cyber attacks, pandemics like Ebola and the hacking of the massive Sony Corporation were new risks the industry would have to deal with.

She said: “The exponential advances in technology have far outpaced the industry’s ability to respond with knowledge and discipline.”

Ms Reardon told the audience that Hamilton Insurance Group CEO Brian Duperreault, a former US Army soldier, had compared cyber risk to “a war” — a risk the industry has never covered.

She said: “This has significant implications for insureds, who may have to figure out how to manage this type of risk themselves.”

But Ms Reardon said that she was optimistic about the industry’s future — despite “horror stories”.

She added: “We’re in a horrible market cycle, but this is nothing new. We’ll get through this like we always do.

“The insurance industry is like a roller coaster. There will always be highs and lows and the main thing is to hold on and enjoy the ride.”

Ms Reardon said: “In spite of continued pressure on terms and conditions, and in spite of shrinking margins, companies are maintaining their underwriting discipline.

“They’re thinking through their exposures and rejecting unreasonable requests. They’re being very cautious about expanding coverage.”