Beyond pricing: new growth levers to succeed in a softer market

“The growth mindset has not left the building.”

Key points:
Routes to growth in current market
Increased carrier M&A activity
Follow market disrupted

Pricing is softening. Trading conditions are becoming more challenging. Yet despite this , insurers are unwilling to abandon the growth ambitions that have defined the past several years.

That’s the assessment of KPMG’s Ben Harris and Paul Merrey, who explain to AIRMIC Today why growth remains firmly on the agenda – and the levers insurers are pulling as they seek new ways to maintain momentum.

“Market conditions are turning faster than the growth mindsets of the executives that are leading those businesses,” said Harris, head of commercial & specialty insurance at KPMG 

For most of the past few years, the market cycle has enabled many to grow by simply tracking the market. Rising rates created favourable conditions for carriers simultaneously to deploy capital, expand portfolios and improve performance.

Those conditions are changing.

“Strategy number one, of putting capital just behind the underwriting and basically setting the sail so the wind can take you forward, that’s not there in the same way it has been in the last four years,” he said.

That does not mean insurers are slowing down. It means they are looking elsewhere.

“The traditional follow market continues to be  disrupted.”

Growth without the tailwind

The first response has been to return to some familiar growth strategies, including finding new pockets of business.

Merrey, partner and strategy lead at KPMG UK, points to four routes to growth in the current market: customer segments, geographies, product lines and distribution opportunities.

“We’re seeing some players that are either strong in personal lines or large commercial moving into that middle ground of SME insurance,” he said.

Others are expanding their presence in markets such as the US and Bermuda, while many are reassessing their portfolios to identify classes where they see further expansion potential.

Distribution is also attracting renewed attention.

“As is typical in a softening market, people are looking more at some broker facilities and other ways of accessing business,” said Merrey. “MGAs have been a key focus over the last few years and that continues.”

Yet some of the most significant changes are taking place behind the scenes, within the London market itself.

“We expect to see further activity on an M&A front.”

A changing follow market

The follow market is one area undergoing rapid change.

For decades, follow capacity has been a defining feature of the London market. Today, Harris sees that model evolving as broker facilities continue to grow and technology enables more automated participation.

“The traditional follow market continues to be  disrupted,” he said.

Large cross class facilities provide insurers with  scale and top line premium, while algorithmic and data-driven models are enabling carriers to participate more selectively and at greater speed.

As a result, insurers are having to make deliberate choices about how they deploy capital and where they want to participate.

“Carriers need to ensure they have a very deliberate strategy for how they want to play in the follow market,” Harris said.

At the same time, firms are examining how their businesses are structured and whether capital can be used more efficiently.

“People are looking at the way the business is being assembled, breaking it apart and seeing whether they can reassemble it in a more capital-efficient way,” Harris said.

That might involve separating underwriting expertise from balance-sheet capital, making greater use of fee-based underwriting models or taking advantage of structures that make insurance risk more attractive to investors.

“The London market has done exceptionally well in recent years,” he added. “As an asset class, people are starting to look at it favourably.”

For some insurers, however, the fastest route to expansion might be acquisition.

Merrey expects deal activity to remain a feature of the market as organisations look to add specialist capabilities, strengthen distribution or establish a stronger presence in areas where they see long-term opportunity.

“We would expect to see further activity on an M&A front over the next few years as organisations seek to continue on their growth path,” he said.

The real battleground

Underlying all these strategies is a broader transformation challenge.

“We’re seeing digital, data and AI become an increasingly important battleground,” said Merrey.

Insurers that invested in underwriting workbenches, cloud-based platforms and modern technology infrastructure during the hard market are now in a stronger position to deploy AI, enrich data and improve risk selection.

Others might find themselves trying to modernise at a time when market conditions are becoming less forgiving.

“We could see a gap opening up between those now starting to deploy use of AI for data analysis at scale versus those that are not,” Merrey said.

For Harris, the key word is “agility”. As technology continues to evolve, he said, insurers will need the ability to adapt quickly rather than rely on fixed long-term transformation plans.

That might prove critical in a market where growth remains the objective, but the route to achieving it is becoming more complex.

Merrey compares it to driving at speed on a more demanding road.

“They’re keeping the foot on the accelerator,” he said. “They’re having to be far more skilled at swerving their way around all of the obstacles they’re facing.”

The industry’s challenge now is not whether it can continue to grow, but how. With rate-driven expansion becoming harder to achieve, insurers are being forced to find new routes forward. Those that execute well might continue to thrive. Those that do not could find the market becoming a far tougher place in which to compete.

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