BILTIR International Life and Annuity Conference

Tackling risk head-on

The industry that exists to manage risk has become too cautious in its approach and must step up its efforts to close the protection gap and tackle emerging risks such as cyber, according to Inga Beale, the former CEO of Lloyd’s. Bermuda:Re+ILS reports.

“We have to get that balance right so that insurers keep serving our purpose.” Inga Beale

Re/insurers must stop shying away from risk—that was the stark message from Inga Beale, speaking at Bermuda International Long Term Insurers and Reinsurers’ (BILTIR) International Life and Annuity Conference in September.

It may seem a strange proposition: an industry whose raison d’être is to embrace and manage risk on behalf of its clients is avoiding risk. But that is precisely what it is doing, according to the former chief executive officer of Lloyd’s.

Beale has worked in the re/insurance industry for 38 years, and insists it has given her a wonderful career. Sharing a stage with Beale at the BILTIR event, Michael Consedine, chief executive of the National Association of Insurance Commissioners, compared his presentation to performing as the “opening act for the Rolling Stones”.

In recent years Beale has become increasingly concerned about the industry’s failure to tackle the protection gap. “In order to fix the problem, we have to stop shying away from risk,” Beale says.

“The older I get, the more concerned I become about the gaps we’re not filling,” she explains.

“Whether it’s in the personal space or right up to the heavy commercial industrial type of insurance, we should challenge ourselves as to whether we’re serving our purpose any more.

“It’s not only that we hire people who are like us, but people who are not like us feel excluded.”

“When we are prepared to take on less than 10 percent of the risks businesses face—that’s the piece that worries me.” Cyber insurance is a case in point. Cyber risk is an issue of growing importance, as an increasing proportion of the world’s economic value comprises not factories and other things you can reach out and touch, but intangible assets such as intellectual property and data.

When the risk of cyber attacks started to become a hot-button issue for insurance, Beale had been at Lloyd’s only a relatively short time. Many other high profile re/insurance chief executives saw the risk as uninsurable and wanted to pass it on to the government, Beale notes, but she took a different view.

“If we can’t find a solution for every new risk that comes along, we’re doomed—and we are not serving our purpose,” says Beale.

“We know there is finite capital in the industry, of course there is, but we have to have an appetite for taking on the new risks.” That might mean taking new approaches, be that public-private partnerships or something else, but one way or the other, re/insurers cannot abdicate responsibility, she warns.

“We need to seek those opportunities now and not keep avoiding the risks.”

Beale believes it is regrettable that the industry has typically responded to big risk events by tightening terms and conditions and restricting coverage at precisely the moments when its clients needed that coverage most.

Now, with COVID-19 threatening to throttle the global economy, she fears the same thing is happening again.

The industry can find a way to manage the risk of pandemics, Beale says, despite the significant challenges it presents around scale and correlation—particularly if the industry works together, something she believes re/insurers do better than anyone.

“Somehow we have to get that balance right so that insurers keep serving our purpose,” she says. “We’ve got such great brains in our sector, we know how to model risk, so we should be prepared to take it on, particularly if we do it collectively and collaboratively.”

Sylvia Oliveira, chair of BILTIR, agrees with Beale's broader assessment of the issues facing the industry.

“As the coronavirus continues to unfold, the world’s life insurers and reinsurers are facing one of its toughest challenges to date,” she says.

“Bermuda has a well-earned reputation as a global centre of insurance innovation and is poised to successfully navigate this challenging period in the industry’s history.”

No change please, we’re insurers

The instinct to turn away from new risks is reflected in the industry’s reluctance to embrace other forms of change too, notes Beale—namely, its failure to embrace the disruptive potential of digitisation.

The re/insurance industry has let itself down when it comes to embracing digitisation, she argues.

“We are not smart enough at using the data,” she says. “We have to start taking all the pain points out of our processes.”

Recalling her years working in the P&C sector, Beale notes Lloyd’s had worked hard to reduce the time taken to complete the claims process to less than 30 days, from a time when it took more than a year on average.

Digitisation represents an opportunity to go even further, she says. “This is what we should be doing and there’s a great opportunity for us.”

The insurance industry, Beale argues, tends to segment and price risk according to where customers are located, rather than focusing on their needs and buying behaviour.

“We haven’t been good at putting customers at the centre of our strategies,” says Beale. “If we did that, we would have got onto digitisation much more quickly.

“We could have built things around what customers wanted—particularly in the personal lines space—and we could have been much faster.”

Diversity matters

Beale laments the industry’s glacial progress in embracing diversity, and supports affirmative action as a way to catalyse change and make the re/insurance industry a more diverse place that better reflects the communities it operates in and serves.

As a young underwriter, Beale herself benefited from affirmative action, she says, describing the episode as being “a life-changer”.

Having lacked confidence and felt intimidated by the male-dominated environment she found herself in at the start of her career, she admits she even turned down her first promotion, fearing she was not up to the task. It was only years later, Beale says, that she realised she had been offered that promotion as part of an initiative to promote women and ethnic minorities.

“I certainly would not have become the chief executive officer of Lloyd’s if I wasn’t part of that initiative,” she says.

“It’s not only that we hire people who are like us, but people who are not like us feel excluded and they are affected negatively.

“I’m a firm believer that we need to do something proactive,” she stresses, calling for re/insurers to be as diverse as the customers they serve.

Lloyd’s had a de facto policy of 100 percent male quota for three centuries, Beale points out, something that will take time to roll back—for women and for people of colour. Once women and people from minority groups have been given the opportunities to progress in these roles there will be no more need for special treatment, she says.

For now, the industry needs all the help it can get, with executive level diversity officers another way to help push the industry in the right direction, although she stresses that real change requires everyone at companies to work together, from the executive level down. The industry should also look at other groups of minorities who may feel under-represented, she says.

“I wanted a target for LGBTQ people, and one for race, so we can start measuring and showing the differences and then take positive action to redress inequalities,” notes Beale.

“Pushing the diversity agenda has been one of the most difficult things I have ever had to take on, but I believe progress will benefit not only the employees who get a chance they wouldn’t otherwise have, but also the companies that employ them.”

“You need new people who have different voices with different skills,” she concludes. “They are unlikely to all come from the same group.”

Image: clemares exposito

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October 2020

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