The COVID-19 pandemic has deeply impacted the insurance sector and many companies are divesting parts of their business. Highly specialized firms have identified a market gap, making a lucrative business out of legacy insurance portfolios that investors can also profit from.
Insurance is one of the few sectors that has managed to avoid being disrupted by digitalization. In fact, most insurers have been able to keep their business models intact in recent years.
That could be changing. The worldwide COVID-19 pandemic has had an impact on business. Higher investment performance can no longer easily offset declining premiums. Nor can global diversification, particularly in the prevailing environment of low or negative interest rates.
Completely New Business Models
Disruptive measures are needed to maintain profitability and the necessary capital quotas. These could be in the form of mergers, takeovers, disposals, or partial divestments of business units. Or it could be a completely new business model.
Whatever the case, regulation in the EU, which continues to strengthen, is likely to accelerate the force exerted by such trends among the 2,500 or so general insurance companies in Europe.
Swiss Software Company’s Digital Platform
Highly specialized companies are jumping into the market gap created by legacy insurance portfolios. They manage business risks and administration until the last policy expires in a legacy portfolio.
One of the leading companies doing that is Hamburg-based Gossmann & Cie. Because of digitalization, it can precisely forecast future commitments and risks in the years leading up to expiry, as company founder and chief executive Arndt Gossmann explains in an interview with finews.com.
An ideal way to do that is to use the Legacy 2.0 digital insurance platform, developed with Zurich software company Deon Digital. It automates and rationalizes processes with data-driven, scalable, cloud-based software using Distributed Ledger Technology (DLT).
Digital Backstop
«Legacy 2.0 is a shift in paradigms with regards to run-off insurance policies», Gossmann explained. «The platform is the digital backbone of the company».
The legacy insurance business has huge potential. According to PwC in its «Global-Run-off-Study 2021», business volumes in Europe and the United Kingdom are expected to rise above $300 billion. Worldwide, total volumes are seen at $900 billion, with an expected market growth rate of about 10 percent a year.
New Investment Class
Gossmann & Cie. is also launching an Insurance Liability Management Fund (ILMF) as the legacy insurance business is a new investment class. It is extremely attractive in the current interest rate environment given it has extraordinarily little correlation with financial market movements or recessionary economic conditions.
ILMF invests in investment businesses whose policies are nearing expiry or which have been divested. The fund receives the premiums that the insurer pays to deconsolidate legacy assets and Gossmann aims to achieve low double-digit returns with it.
Zurich Branch Planned
«Reliable, accurate forecasting and the lack of correlation with external macro-economic conditions are an important way to ensure the success of the portfolio and the fund», the company’s founder explained.
Switzerland, with its high density of family offices, independent assets managers and banks is almost pre-destined to be a distribution point for such a product, Gossmann explained further and that is why he plans on opening a branch in Zurich this year.
