What's on your Christmas list this year and why?
Stephan Ruoff, the chief executive of Tokio Millennium Re:
The string of major natural disasters has not only left the reinsurance industry facing one of its most expensive years on record, but also painfully revealed insurance protection gaps that should not be there. Millions of American homeowners will still be facing a tough holiday season this year following the devastating floods from hurricanes that tore through large swathes of the US and Caribbean earlier this year.
TMR has been vocal about using traditional reinsurance capital in combination with capital markets to provide a deep pool of capital to address and reduce remaining protection gaps. However, I want to see the matchmaking between capital and risk become much more efficient on my Christmas list this year. Capital markets participation has already started to become a source of funding to help narrow the insurance protection gaps that exist in parts of the developing world or for populations that are vulnerable, developing, under-insured or particularly prone to natural disasters.
The insurance and reinsurance industries, as well as some political institutions, have launched several initiatives, such as the ClimateWise scheme backed by The Prince of Wales’s Business & Sustainability Programme, Lloyd’s, the ABI, and other insurance market participants. Also, the Insurance Development Forum, and various UK & German initiatives for disaster relief have been introduced to help close existing insurance protection gaps, while at the same time addressing new or changing risks that will provide further opportunities for the reinsurance sector to stay relevant. These combined efforts need to be continued and even expanded.
Kelly Lyles, chief executive, client & country management, Insurance, XL Catlin:
It’s probably not what Eartha Kitt would wish for, but at the top of my list is rate adequacy; being paid a fair price for the risks we take, and with no one market operating in isolation.
Also, keeping our trophy cabinet well stocked is always nice as it reflects the talent and commitment of our people.
Adam Safwat, vice president, underwriting & business development of IGI:
A call for the return of disciplined underwriting is not just on my Christmas list, but on the list of many in the market. The build up to Christmas in many households also brings the benefit of promoting good behaviour, and the insurance industry is currently faced with a real opportunity for the market to raise underwriting standards and return to a hard market, which has eluded the industry for too long.
The ingredients are there to set the stage for a hard insurance market after the series of catastrophic natural disasters seen in the third quarter, combined with a poor economy. While there is plenty of rhetoric in the market for more sensible underwriting, the delivery is not always reliable – after all, the insurance and reinsurance markets are notorious for having a short-term memory. When push comes to shove, market pressures and factors such as management, budget and shareholder expectations can create an environment for bad pricing decisions during a negotiation process. The practise of pricing business at below the technical rate and even below the cost of capital is unfortunately all too common in the market, but it is important to remember that while memories are short, paybacks can be long in insurance and reinsurance.
Also, despite the industry having suffered perhaps the heaviest spate of losses from natural catastrophes in the third quarter, along with the subsequent Californian wildfires, the true tally of losses has yet to be realised in the global market. Therefore, the true impact on underwriting profits and potentially capital, will not be fully realised for the January renewals, despite predictions that this year may turn out to be the costliest ever for insurers. Compensating steps and the groundwork for pricing according to market realities needs to start right now.
However, many people in the market will not have ever experienced a hard market. Many younger brokers have never have had to trade in a hard market, but that could all be about to change.
In my letter to Santa, I would be asking for the stalwarts of the industry to deliver on their promises, and to apply some reason in their approach to underwriting, or we will miss the opportunity to return to a more disciplined, harder market.
Iain Bremner, managing director, Barbican Managing Agency:
From a market perspective, one of the things near the top of my Christmas list is the hope that the rate increases spawned by the catastrophic impact of HIM, as well as other devastating events such as the California wildfires, can be sustained. We expect to see strong rate increases in loss-affected lines at 1/1, plus a general adjustment of pricing across the broader market.
From a Barbican perspective, as managing director of Barbican Managing Agency Limited (BMAL), my aim is to continue to seek opportunities to expand and capitalise on current and emerging market potential. That may be through extending Barbican’s reach into new territories or bolstering our range of products or overall client service offering.
As always, we will continue to focus on attracting and developing market-leading talent. We have built a team with a wide range of expertise and experience at all levels within BMAL, and will look to further strengthen that talent base and help staff to achieve their potential.
David Gittings, chief executive of the Lloyd’s Market Association:
On the back of a very long run of years without major catastrophes but with serious market competition – both in London and between international re/insurance centres – we have seen rates fall by as much as 50% in some lines and areas of business, even as policy terms and conditions expanded. Any rises would be welcome, but we believe significant rises will be essential to underpin the long-term financial health of the Lloyd’s market. In part that is because we have just borne the brunt of the Q3 storm and earthquake losses and paid billions in claims with great alacrity.
We continue to have a strong appetite for catastrophe risk, whether through insurance or reinsurance. We believe that maintaining a balanced, profitable spread portfolio of business is essential to the health of the market, and ultimately benefits Lloyd’s customers.
Julian Tighe, chief executive, Asta:
We would like Father Christmas to bring future-oriented innovation at Lloyd’s, in the form of a new ring-fenced operating environment and establishment model for new, smaller-scale syndicates, and perhaps even for Lloyd’s Accredited MGAs. Such businesses would be located in the Lloyd’s market itself, with the new operations taking advantage of all the energy and vitality of the underwriting room. It could spawn a new generation of Lloyd’s underwriting business leaders that currently have few options if they wish to “go alone”.
Such a model could be a facilitator to the success of independent underwriting in the market, because without the benefit of a corporate cornerstone, capital constraints and the challenges of meeting the legal and regulatory requirements make a smaller launch increasingly difficult. We believe that in the absence of continued independent, entrepreneurial underwriting, Lloyd’s risks becoming vanilla, and losing its innovative edge and worldwide lead pedestal.
The incubator would provide an environment where underwriters could try new products, make mistakes, and learn from them, and from their peers. Having the well-established surrounds of Lloyd’s all about them would help to ensure that effective systems are put in place to support their development and the delivery of their business plan, but without effecting the market’s much admired financial strength and probity.
We must remember that a key characteristic of the Society of Lloyd’s is to help entrepreneurial start-ups get, to innovate, and to develop new classes of business. Lloyd’s was the original ‘Silicon Valley’ of the insurance world, and needs to rekindle those roots in way that allows for the modern world. The desire to avoid the disasters of the past should not stifle innovation, which is our lifeblood.
Ståle Hansen, president and CEO, Skuld:
We would very much like to see a further upturn in the shipping market. Our optimism is cautious in some sub-segments, but we expect continued improvement, which will be good news for our members. Similarly, we wish for continued improvements in the energy sector, which has taken a battering. On the insurance front, just as we have seen indicators of overcapacity in shipping, we all recognise excess capital in the insurance market. The removal of some capacity would be a positive development.
On the corporate side, Skuld follows a clear long-term strategy focussed on diversification, both geographically and within the product range. We are always assessing opportunities, but there’s nothing concrete on our agenda today. Because we are a rather specialised service provider, we hope to continue attracting the best talent in the industry. We strive relentlessly to offer even better service to our members and clients each year, but delivery is only a product of the people we employ.
Erik Abrahamsson, CEO, Digital Fineprint:
We’ve recently moved into an office near London Bridge that’s three times the size of our previous one, so we’re now looking to fill it with fresh new talent - in particular software engineers, data scientists and sales people. We are expanding internationally, signing up new partners for the platform and are creating new insights from our data assets every day.
Following our angel round which was closed in December last year we are now coming closer to closing our next funding round which would make this Christmas unforgettable.
Samit Shah, insurance solutions manager, BitSight:
With regards to cyber insurance, third-party cybersecurity risk awareness is on my Christmas list this year. While there is still tremendous value in focusing on your portfolio clients and their security posture, recent breaches that resulted from insecure vendors underscore the interconnected nature of data sharing and the necessity to gain a better understanding of who your insureds do business with. Establishing and implementing a strategy around not just individual companies, but also those they do business with will strengthen the cyber insurance industry as a whole.
Along these lines, greater information sharing in cyber insurance is also near the top of my Christmas wish list. Information sharing in cybersecurity has always been a problem because companies and industries are reluctant to disclose when they have had a security or privacy incident, and this is no different in the current cyber insurance landscape. In order to take this industry to the next level and increase adoption rates, information sharing should be encouraged.
Nigel Teasdale, head of motor, law firm DWF:
Having waited relatively patiently all year, in my letter to Father Christmas I have asked for the legislation to be passed enacting the Government's proposed changes to the discount rate and whiplash claims. Let's see if he can fit those down the chimney…
Secondly, I would like to see a smooth implementation of GDPR across the industry. It is important that alongside protecting the rights of individuals we are able to maintain and if appropriate enhance the necessary databases that have been painstakingly developed over the years to counter insurance fraud.
Failing that I'll settle for a driverless car. While continuing to work with insurers to help the Automated and Electric Vehicles Bill to progress through parliament, I'm excited by the new technology and would be keen to get behind the wheel.
Peter Allen, partner, Moore Stephens:
Talent. Unemployment rates in many developed economies are at a lifetime low. The global surplus of investment capital provides unlimited opportunities for the entrepreneurial. Technological innovation has properly arrived in our industry for the first time since the telex. It has never been cheaper or easier to fly somewhere, or hire space when you get there. As a result most senior executives can name any number of potential business opportunities where the constraint is not demand or capital but the immediate presence of a credible leader to make it happen.
Michael Tripp, head of financial services, Mazars:
More time to stop and think as reflection can help generate more effective outcomes and productive relationships. AlsoAlso, more global reach as the world shrinks!
Luzi Hitz, CEO, PERILS AG:
The three wishes on my Xmas list relate to the market in general. Firstly, I would like to see less talk and more action around the need for market innovation. The re/insurance industry is keen to grow. However, without innovation this will not be an easy task given the centuries old business model which underpins the sector. Everyone recognises this, but to date we have seen more in the way of proclamations on the need for innovation, closing the protection gap, embracing new technologies etc. rather than concrete action to deliver on these. . We need to address this imbalance quickly.
My second wish is that there be more joined-up action both within and beyond the re/insurance industry. Insurance and reinsurance are large, specialised industries and a lot of the people working in the sectors have done so their whole lives. Cross-fertilisation from other industries or between the different silos of lines of business within a re/insurance organisation is very limited. We need to address this. Why not have a Cat modeller work with a casualty team and vice versa? Why not hire someone with modelling expertise in the energy industry to work with insurance risk models? This approach could result in more out-of-the-box thinking and could lead to greater insurance innovation.
My third wish concerns a more common-sense approach to risk models in general and Cat models in particular. I do not believe that risk models which the re/insurance industry are using are of poor quality; rather the challenge is more about how the models are used. The industry needs to apply a more sophisticated approach to how it uses these modelling capabilities. It cannot simply be a process of entering the data and applying the modelled results. We need to have expert model users who can anticipate modelled outcomes and analyse these results using basic plausibility checks to ascertain whether they are comfortable.
Johannes Martin Hartmann, chairman of the board of directors, VIG Re:
Maybe a deferred go live for IFRS 17. The implementation will be a challenge to many companies – but good business for consultants and IT providers.
The second thing that I would add to is that the first signs of reinsurance markets terms becoming somewhat more technical will not vane again but become more persistent.