Insurers advised to invest for knowledge
Insurance and reinsurance firms should deploy their capital not only to boost income but to add knowledge to their businesses.
And top lawyers from a specialist US law firm last night outlined to business executives the benefits of corporate venture programmes, which aim to invest in newer areas than is traditional in the industry.
Tom Dawson, of American law firm Drinker, Biddle & Reath, said that investment in technology start-ups — like firms specialising in cyber crime, could earn money and help the insurance sector better manage their risk exposure.
Mr Dawson explained that low interest rates and poorer yields on investments meant companies were looking further afield for ways to boost income.
He added: “Increasingly, over the past few years, as returns have come down on investments, there has been some movement, at least on the part of US companies, to reach out a little bit more for yields and think about trying different things with some of their investment assets.”
Mr Dawson added that firms had also turned to hedge funds and private-equity firms to increase investment companies.
He said: “One other way to look for returns and higher yields is to invest, and it could be minority or majority, in companies.”
Mr Dawson was speaking as he prepared for a Bermuda Foundation for Insurance Studies (BFIS) conference at the Hamilton Princess, staged with Drinker Biddle & Reach.
The guest speakers, who highlighted the different types of corporate venture programmes being used and how they could drive growth and innovation, were Eric Steager, managing director of the Independence Blue Cross Strategic Innovation Portfolio, and Ian Goldstein, a Drinker, Biddle & Reath partner in charge of the firm’s corporate venture team.
Mr Steager said companies had started to invest in areas undergoing rapid change, like healthcare.
He added: “You get exposure to new technologies, you have direct influence in the type of companies you are trying to stand up and build and you become a partner with them.
“It’s more around a strategic rationale to venture with these companies.”
And he cited apps for hi-tech items for Apple watches that can help people live healthier lives.
Mr Steager added: “It can even be partnering with auto companies with self-driven cars — that may be an ecosystem that can be insured. It’s looking five to ten years out rather than how you can get 300 basis points on my capital today.”
Mr Dawson said he had had “a lot of conversations in the last few days about cyber security” and how the insurance sector could get in to the area and what kinds of exposure they should aim for.
He added: “Maybe you should be getting some really smart guys out of the big cyber security firms to make better decisions on who you’re going to insure and for how much.
“You get smarter, you know more about the field — it’s not so much the return, but changing the way you think about the opportunity.”
Mr Goldstein pointed to the Comcast merger with NBC Universal in 2009, where the investment arm of NBC Universal was rebranded and used to push the firm as a “thought leader” and “a player in technology generally”.
He added: “You can transfer that to an insurance company writing cyber risk who wants to be seen as a leader. You can see them using that for being branded as a thought leader in that particular area.”
And Mr Steager said that “dumb money” “doesn’t work in today’s environment.”
He added: “It really needs to be intelligent capital, smart capital. You want to do more than just acquire companies.”
And Mr Goldstein said: “One of the key takeaways we want people to leave with is, if there they are going to think about starting a programme like this, they need to know their strategic goals and how the programme aligns with its strategic goals.”
Mr Steager added: “Money is a commodity — it doesn’t add value to these start-ups. They need guidance.”