The Problems Reinsurance companies have constituted the largest part of many investment portfolios of top-performing hedge funds. This is no surprise, as they are efficient wealth-generating enterprises, spanning over multiple continents and creating farabove-average returns for their investors at minimal risk.
Moreover, in today’s world of overpriced assets and stocks, reinsurance portfolios are one of the very few avenues that still follow value investing.
Billionaire investors like Warren Buffet have included reinsurance and insurance businesses as a major part of their portfolio, and returns from these investments have hugely contributed to the extreme ballooning of their net worth that we see today.
Due to large capital and stringent regulatory requirements, these markets have long been out of reach for regular investors. This has also contributed to the spreading wealth gap:
The prevalent structure of the insurance industry holds innovation back. The power only lies in the hands of established insurance oligopolies.
Even though the needs of the market have changed over time, over-regulation and inefficient bureaucracies have made it difficult to launch innovative insurance products into the market.
A multitude of reasons account for this delay in the process:
A long list of rules and regulations are in place for new insurance products.
The inherent archaic nature of the insurance industry lacks adequate automation.
Insurance and Reinsurance companies are not receptive to new age products requested by the Innovative companies such as InsurTechs and Brokers.
As a result, entrepreneurs and technologists fail in placing new solutions into the markets and customers remain dissatisfied.
This structural barrier is also limiting for smaller and retail investors who are unable to get a access into stable insurance portfolios. This just keeps the cycle of wealth within the internal circle of the insurance industry, i.e. well-established, long-term insurance companies.
Additionally, brokers have the relevant market knowledge since they understand precisely what customers need. Through this, they are able to design well-thought out solutions but cannot launch in the market due to the structural bureaucracy and also inefficient underwriting.