Swiss Re’s proposed purchase of Guardian Financial Services is, I believe, not just another sign of growing consolidation in the insurance industry. It’s also a pointer to the increasing importance of digitalization. Here’s why:
Swiss Re plans to merge U.K.-based Guardian with its Admin Re business. Announcing the deal, which is awaiting regulatory approval, the giant Swiss reinsurer described Guardian as an excellent fit with its strategy as well as Admin Re’s capabilities and infrastructure. Digitalization will play a key role in both aspects of the deal.
Like many big reinsurers, Swiss Re is eager to diversify. It wants to lessen its dependence on the volatile and capital-intensive reinsurance market, where profits continue to be squeezed, and expand into more stable and lucrative sectors. Increasingly pervasive and sophisticated digital services enable insurers to enter new markets, develop new products and reach new customers more quickly and effectively than ever before.
Swiss Re is likely to draw on its extensive technology resources not only to consolidate the operations of Admin Re and Guardian but also to expand its reach in the U.K. “run-off” or “closed book” policy administration business. The critical mass achieved by the proposed merger, together with heightened brand awareness, will certainly boost Swiss Re’s presence in this attractive market. But it’s likely to be the effectiveness of Swiss Re’s digital services that will determine the long-term success of this expansion.
Apart from its strategic importance, digital technology will be crucial to Swiss Re’s plans to enhance the capabilities and infrastructure of the combined Admin Re and Guardian operations. Life and pension carriers are already rigorously applying digital technology to drive down costs and bolster efficiency. Further improvements will enable Swiss Re to deliver products and services in the “run-off” market at lower cost than either Admin Re or Guardian could achieve in the past.
A further potential benefit of digital technology is Big Data. The acquisition of Guardian is expected to bring Swiss Re around 900,000 annuity, life insurance and pension policies in the U.K. and Ireland. This will push up Admin Re’s total policy number to more than four million. There’s a wealth of information there. Big Data analytics will enable Swiss Re to gain valuable consumer insights that could open the way for a variety of new business opportunities. Don’t be surprised if Swiss Re begins using this information to develop new products, enhance customer services and even venture into the direct insurance business.
In my view, Swiss Re’s plan to buy Guardian is not only about increasing profits and assets in the short term. Digital technology would enable Swiss Re to use the acquisition of Guardian as a springboard into a variety of new markets. Other insurers are likely to follow its example.