mike-papworth-head-of-the-property-casualty-miller-insurance
Mike Papworth, head of property casualty, Miller Insurance
13 September 2021Insurance

Climate change and increased rates: today’s menu for re/insurers

COVID-19 has, without doubt, upended much of the world since it surfaced nearly two years ago. As societies and economies shut down and, some in cases, are recalibrated, the insurance sector has had to look not only at its own business models, but how it goes about practising them.

This has been on the mind of Mike Papworth, head of the property casualty business unit of Miller Insurance, who joined Intelligent Insurer on the Re/insurance Lounge, the on-demand platform for interviews and panel discussions with industry leaders.

Papworth has been in the insurance business for over three decades. He joined Greig Fester in 1989, leaving to join Miller Insurance (then named Benfield) in 2008 after it was acquired by Aon. Papworth is a qualified chartered insurer and a reinsurance broker by trade.

He said that cancelling the Monte Carlo Rendez-Vous 2021 is unfortunate, but that the industry is finding new ways to function as normally as it can.

“All of us have struggled to generate new business,” he said. “New business, particularly in an industry as competitive as ours, depends on trust—being able to see your client face to face, and being able to negotiate with them.”

Some of that has been lost in the new norm of doing everything over an internet connection.

“Being able to have a conversation beyond that Zoom call where you only have half an hour or an hour—some nuances that you would pick up on in the transaction come through far better in a face-to-face meeting,” he said.

“COVID-19 wordings and pandemic-exclusion wordings are becoming a hot topic because there isn’t yet global consensus on which wordings to use.” Mike Papworth, Miller Insurance

Mature capital

However, there have been benefits. “We now operate in a far more efficient way,” Papworth said, adding that there are no longer situations where brokers have to queue for two hours at Lloyd’s. “Frankly, if that never comes back I’m quite happy with it.”

Whatever the industry looks like after all this is over, the chances are that it will not look like it did before. Papworth believes that a hybrid model of travelling and telecommuting will evolve.

“There was an argument that we may have over-travelled before, and that there was a bit too much going on. But to stop it completely has certainly been difficult for me. I think there’ll be a hybrid model where our trips will be longer, more effective, and less frequent,” he explained.

There is still plenty happening in the industry. Papworth pointed to the surfeit of new companies and capital that have come into the market in recent years. Compared to previous incursions by outsiders, he thinks that the new players are wiser and more prepared, less naïve than those who came before. Although, historically, rates have decreased when this has occurred, he thinks that this is not currently the case.

“The new capital and the new players are proper, mature, good capital, and they’re not naïve in entering this market—thinking that they’re going to make a lot of money by doing a bit of underwriting.”

The other reason Papworth gives for rates not decreasing is that the rating models are backed by increasingly complex, solid data. This, in turn, helps with underwriting and leads to market maturity.

He believes that, when it comes to setting rates, the balance of power may lie with the buyers, who will push back on recent increases. This will lead to tenders or, at least, a more competitive edge.

The world will continue to be dominated by the pandemic’s waves. It is an issue that the insurance industry is still thinking about and recalibrating for.

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“We have to support emerging markets in this transition from a coal-based energy policy to something more sustainable.”

“A careful lens is being put on the pandemic and COVID-19 wordings,” Papworth said.

“My day job is mainly dealing with big industrial risks. In my portfolio, COVID-19 was already excluded since pandemic exclusions came in. But for smaller businesses and the more generic casualty, there were numerous exclusions. COVID-19 wordings and pandemic-exclusion wordings are becoming a hot topic, because there isn’t yet global consensus on which wordings to use.”

Environmental, social and corporate governance (ESG) factors and climate change is another hurdle. Switching from a carbon-based economy to a more sustainable one is akin to turning a large ship.

“It’s a new area for us, how we’re going to deal with that responsibility. Global environmental movement Extinction Rebellion wants us to pull out now, but the proper answer is that we have to support emerging markets in this transition from a coal-based energy policy to something more sustainable.

“This can’t be done overnight, but how we deal with it is now a hot topic in our industry,” concluded Papworth.

To view the full Re/insurance Lounge session click here

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