Value chain compression a hot topic at Monte Carlo

Value chain compression is an increasingly hot topic in the reinsurance market, but larger brokers can be reluctant to make changes. That is the view of Jason Howard, chief executive officer of Beach, speaking to Monte Carlo Today.

“You can have a client spending $100 on the front end, but the ultimate carrier is getting only a percentage of that—usually 60 percent. That is just inefficient,” he said.

“There are so many pieces to the chain: you can have a risk that goes from the client to a broker, to a regional broker, to a wholesale broker, possibly to a managing general agent in the US, into a London market through a London broker, then to the reinsurance market.

“There are so many people taking bites in the sequence, it’s inefficient. That chain needs to be compressed: people who are not providing value need to leave the chain.

“We have been saying this for a while. We are quite keen to compress the chain, but if you are a large broker who has interest all along the chain you might say ‘yes, it needs to compress, but not me’.”

Howard expects technology to play an important role in compressing the chain.

“Technology allows you to jump over loads of steps in the chain, and if we don’t do it someone else will,” he said.

He noted that another efficiency-related issue is the increasing demand from clients to bundle risks together.

“We are placing many more multiline covers than we did before,” he said. “We are still in a soft market, therefore it’s incumbent on all players in that marketplace to make money as they can.

“We are working with our clients to get as many economies of scale and efficiencies in their reinsurance placement as possible.”

He sees a desire for value and efficiency as a key issue for Beach’s reinsurance clients.

“It doesn’t mean they want to spend less, it just means they want to get the best value for what they are buying,” he concluded.