2020 IN REVIEW
Part 1: Reflecting on a most unusual year
With time to look back on what has been an unprecedented year, re/insurance industry leaders share their thoughts on the highs and lows of 2020, from rising rates and an increase in scrutiny of ESG policies to the accelerated use of technology.
In this article industry leaders also share their predictions for trends in 2021 and what their own organisations plan to achieve in the year ahead. This is the first in a series of four articles of industry reviews of the year and predictions for 2021.
After a year of extreme challenges, Intelligent Insurer asked re/insurance leaders for their thoughts on the changes and opportunities seen during 2020 and how it will affect the industry going forward.
Matthew Wilson, Brit Insurance
Matthew Wilson, chief executive officer of Brit Insurance, says it’s important not to lose sight of the positives when thinking about the main developments over the past 12 months that will change the industry.
“In particular, the market has adapted and continued to successfully trade through the pandemic far more effectively than almost everyone would have predicted.
“The way in which technology such as Lloyd’s PPL has stepped up to the mark with face-to-face trading not possible, has demonstrated the viability of the London Market’s plans to modernise. We’ve seen a number of significant milestones in the move towards a more digital future, including our own launch of Ki, Lloyd’s first fully digital and algorithmically-driven syndicate, and I expect this to galvanise further innovation in the London Market,” Wilson says.
For Wilson, events in 2020 have accelerated the market’s modernisation drive by a number of years, while Lloyd’s recent Blueprint Two outlined the next stage of its strategy to build the most ‘advanced insurance marketplace in the world’.
“While COVID-19 will have a major impact on the sector’s financial results in 2020, the immediate future looks much more promising.”
Looking ahead to 2021, he says there is a hard market across most business sectors, and he expects this to continue into 2021.
“The dynamics behind this are well trailed, from the opioid crisis, social inflation and the prospect of recessionary driven claims in the casualty market, to a sustained period of natural and manmade catastrophe losses in the property market. On top of this, there have been significant COVID-19-related claims in 2020, leading to Lloyd’s fourth consecutive year of underwriting losses, which is entirely unacceptable and unsustainable.
“With the prospect of a continued low interest rate environment, there needs to be an even greater focus on underwriting profit, to generate the returns shareholders demand,” he says.
Wilson adds that from Brit’s perspective, the underlying market dynamics are now appealing and the firm has plans to grow both its primarily lead syndicate, 2987, and 2988, its third party syndicate.
“Having launched Ki as a standalone business with $500 million of backing from Blackstone and Fairfax, we are well placed to grow significantly into the hardening market.”
“The underlying market dynamics are now appealing and the firm has plans to grow.”
Matthew Wilson, Brit Insurance
In terms of trends for 2021, Wilson says the way his firm and the wider industry continues to work and transact will fundamentally change. “We have seen how well people have been able to work remotely during the various COVID-19 lockdowns, and employers will shift to more flexible working, especially if they want to retain the best talent.
“It may also result in more creative use of office space; Lloyd’s is beginning its consultation on the future use of the underwriting room, which we welcome.”
There is certainly a place for face-to-face trading, Wilson adds, saying that relationships will always form an important part of the London Market ecosystem.
“But lockdown has proved that the vast majority of risk can be placed in a more efficient manner and that has to be a quantum leap forward towards a digital future."
One example of the shift towards making digital business easier to do is Brit’s own Ki. In 2021 it will digitally integrate into a number of brokers’ own placing platforms in addition to PPL and Whitespace.
“In December, Ki underwrote its first follow risk, with capacity being offered and accepted in six seconds. Lloyd’s is often seen as the last bastion of tradition in the City of London. I’d prefer it to be synonymous with innovation and inclusion,” says Wilson.
The chief executive points to a clear strategy for 2021, explaining that the firm wants to grow with a focus on leading the business that it writes. Other resolutions for 2021 include continuing to innovate and invest in technology that empowers and supports Brit’s underwriters, as well as enhancing its distribution footprint through partnership and collaboration with brokers and coverholders.
Wilson adds: “From a Lloyd’s and London Market perspective, it is essential that the industry returns to profitability. The progress that has been made in a digital future needs firm foundations.”
“The progress that has been made in a digital future needs firm foundations.”
Mike Keating, Managing General Agents’ Association
As 2020 drew to a close, Mike Keating, chief executive officer of the Managing General Agents’ Association (MGAA), says he believes the industry is experiencing “a market reset” in terms of rates, operational structures, programme and product design and, last but not least, the way industry professionals work.
“Undoubtedly the move to working from home will have a lasting impact on how the industry structures itself, and few, if any, companies will ask their employees to return to a five-day week in the office. I think more will adopt 3/2 or even 4/1 working patterns complemented by some of the technology we’ve become so familiar with over the past 10 months.”
Keating says that Zoom and Teams videoconferencing have functioned as great alternatives to phone and email, allowing people to see each other for remote meetings, but he is clear that they are “no substitute for the face-to-face interactions our profession was built on or to further embed or expand existing distribution networks”.
Virtual events may not have caught the imagination to the same degree as virtual meetings but following two successful MGAA online events in the past two months, and the advent of a ‘Virtual British Insurance Brokers’ Association’, Keating thinks plenty of events will adopt a blended approach in 2021.
“A hybrid of online and in-person offerings provide event organisers with a greater degree of flexibility in how and where they run their events, and could open up attendance to people from further afield who would usually struggle with travelling to different areas of the UK,” he says.
“The MGAA is hosting a virtual Meet the Market Event on March 2, 2021, which will be open and accessible to all UK brokers to engage with our MGAA members.”
Although the industry has been able to pivot and adjust to these new circumstances, Keating emphasises that the reaction of the insurance market to the pandemic, and the UK Financial Conduct Authority business interruption court case, will continue to have an impact long into the future and he says there will be an increased scrutiny of policy wordings.
“It will be here that managing general agents (MGAs) have an opportunity to demonstrate their agility and technical expertise in responding to change. MGAs are proficient in developing their own wordings, and the partnership between them and their capacity providers will be even more important next year.”
“I expect to see greater opportunities for high performing MGAs.”
Mike Keating, MGAA
Keating adds that he expects to see a continued uptick in insurance rates in 2021, which could last even longer for some financial lines “and we’re currently not seeing providers breaking cover or being opportunistic”.
Higher rates might not be such good news for customers—sustaining these rates will be positive for sustaining the organic growth of brokers and insurers, he adds.
“The positive rate environment will be attractive to new capital and we may well see new entrants provide capacity to participate in this upward trend. We know however this will eventually lead to market softening in line with our now well-accustomed cycles.
“It’ll be a very interesting and educational time, particularly for younger brokers who won’t have experienced a hard market before, and it will be important to adhere to their key principles of open communication and using their market knowledge to help clients to understand and navigate these changes in premium and potentially cover reduction.”
There is a wealth of experienced brokers across the industry, Keating says, to support young broking talent and reinforce the need for excellent insurer relationships as well as providing clear and professional advice.
The trends Keating expects to see more of in 2021 will come against the backdrop of a market reset accompanied by hardening rates and capacity challenges.
“I expect to see greater opportunities for high performing MGAs who can exhibit strong underwriting performance and add real and relevant value to capacity providers, either in terms of niche product expertise and /or increased distribution.
“The requirement to deliver positive underwriting earnings will be even more paramount with the tolerance of accommodating marginal performing portfolios likely to be significantly reduced.”
Keating’s resolution for 2021 is to meet with as many of the association’s members as possible throughout the year, in person.
“I intend to have some really good conversations about how we can ensure that they are getting value from their membership. Of course, I’ve met many over Zoom and spoken to them on the phone, but nothing beats sitting across the table from someone and having an open conversation—I miss that.”
For the MGAA, he aims to achieve growth across all of the organisation’s membership tiers and says the association will continue to strengthen its benefits proposition to ensure existing members benefit from support in whatever way they need it, and that the MGAA can attract new members to be part of the growing association.
“Nothing beats sitting across the table from someone and having an open conversation.”
Simon Konsta, Clyde & Co
The change of administration in the US and the hotly anticipated global climate change conference, COP26, scheduled to be held in Glasgow, UK, in November 2021, will accelerate the willingness of insurance and banking regulators around the world to cooperate in setting expectations and enhancing regulation regarding climate risk, according to Simon Konsta, partner at law firm Clyde & Co London.
He says that as a consequence, in 2021 there is likely to be a sharp rise in climate change litigation against companies and their executives, and in particular, much reduced tolerance for greenwashing—the practice of making unsubstantiated or misleading claims about the environmental status of a business or its products, practices, or services.
“Regulators in Europe and the US are expected to crack down harder on greenwashing in 2021 as environmental, social and corporate governance (ESG) stocks—those perceived to perform better against ESG metrics—demonstrate superior market performance and attract ongoing high levels of investor interest,” Konsta says.
“The Task Force on Climate-related Financial Disclosures (TCFD) and the US Securities and Exchange Commission are both running consultations on how to improve ESG and climate change financial disclosures which are expected to report in 2021.”
Konsta adds that in addition to this, in 2021 regulated businesses, including re/insurers, will be required to give detailed consideration to how they will comply with the Supervisory Statement on TCFD reporting requirements, or alternatively to explain their non-compliance. He says this is a move that could invite significant reputational damage.
“A growing number of regulatory and prudential authorities are pressing the case for mandatory ESG disclosure regimes, but in the meantime, several leading bodies including the UK-based non-profit Climate Disclosure Standards Board and the US-based non-profit Sustainability Accounting Standards Board have agreed to reconcile reporting regimes around TCFD, to recommend disclosures and illustrative example metrics.”
Greenwashing on the rise
Konsta warns that greenwashing is on the rise, and says that examples are already being brought to light.
“The ramifications of the Volkswagen ‘Dieselgate’ scandal in 2015 continue to be felt. The first claim was recently heard in the German Federal Court of Justice in Karlsruhe leading to an order that Volkswagen pay more than €28,000 to an owner of a diesel minivan in a judgment that opened the floodgates to further claims and awards,” he says.
“There is likely to be a sharp rise in climate change litigation against companies and their executives.”
Simon Konsta, Clyde & Co
As another example of the already reduced tolerance of greenwashing, in January 2020 ENI, a state-backed energy company, was fined €5 million by Italy’s Competition and Market Authority for claiming its palm oil-based diesel was “green” when the production of palm oil is driving deforestation, adds Konsta.
At this time of mounting consumer expectation (and protection), he says ESG mis-statements constitute a legal and reputational vulnerability. “In a world of increasingly accessible litigation funding and an ever more sophisticated claimant bar with access to collective consumer redress remedies and class actions, consistent and accurate reporting around climate, sustainability and ESG promises will be essential.
“COVID-19 has demonstrated that systemic risks to the established order of things are very real. Society and the financial community have witnessed first-hand the need to build resilience into systems and businesses. It is also being argued that COVID-19 has also underscored the importance of ESG to corporate success,” he adds.
Boards are “alert” to these factors, he adds, and says there is no doubt that the overwhelming majority will address and adopt ESG in a way that enhances longer-term shareholder value.
“But corporate history also tells us that the pressure to meet stakeholder expectations, particularly in an increasingly ‘comply or explain’ environment, can lead to mis-steps or worse.”
Konsta says the re/insurance industry is very much putting its house in order, and says that the number of instructions received by specialist climate teams at Clyde & Co offices as far afield as London, Europe, and the US has more than doubled in the past three years.
“Re/insurers are keen to work on responses to notifications and are starting to think about the position they will want to take as potential liabilities and losses rise, not just relating to oil and gas majors, but to businesses in other sectors too.
“Banks, financial institutions and other regulated industries are coming rapidly into focus as the requirements for financial disclosure become more exacting around investment in fossil fuel assets. Now that some re/insurers are starting to pull back from supporting legacy industries including oil and gas, coal and dependent infrastructure, the carriers and reinsurers that continue to be involved with these industries can also expect to come under fiercer scrutiny.”
He argues that the path to better sustainability and ESG in the way businesses are run is “unequivocally in society’s interests”. Those businesses that get it right will prosper and constitute better-insured risks. But, he adds, caution is needed to identify those that stray into greenwashing. The cost of association with those businesses could be high.
“Caution is needed to identify those that stray into greenwashing. The cost of association with those businesses could be high.”
Ian Lloyd, iprism Underwriting
Pandemic-enforced lockdowns and the widespread transition to working from home in re/insurance was a key feature of 2020 for Ian Lloyd, managing director at iprism Underwriting.
This was a significant test for technology and one that will have longer term repercussions such as “a greater expectation of more flexible approaches to the way we work and do business”, he says.
For the year ahead, Lloyd expects insurance rates will continue to harden in some areas such as PI and construction driven by increasing costs. “However, I expect the small and medium-sized enterprises space to remain competitive despite brokers and insureds facing a perfect storm of rate increases and a sustained economic downturn,” he adds.
Lloyd highlights the impact of ongoing economic hardship on small businesses as a trend that will continue into 2021. He says that as a result many are likely to struggle and may continue to cut out “optional” covers to reduce insurance costs.
In 2021, he says that iprism Underwriting will continue to adapt its existing products and develop new future-focused solutions that meet the changing needs of clients. “These will reflect the new normal we’ve become more accustomed to, such as online independent retailers and home courier services.”
He adds: “In order to remain relevant in these changing market conditions, managing general agents will need to be nimble and react to the economic realities of 2021. Those that don’t may fail.”
“iprism Underwriting will continue to adapt its existing products and develop new future-focused solutions.”
Ian Lloyd, iprism Underwriting
Jonathan Bines, AFL Insurance Brokers
Reflecting on 2020, Jonathan Bines, chief executive officer of AFL Insurance Brokers, says the development of the year that’s going to change the industry is the obvious one: how people work.
“There was of course already a movement towards working from home or remotely and during 2020 this was taken to the extreme, meaning that we will most likely never experience the previous ‘normal’ way of working again.
“We can expect plenty of venturing back into the office environment that we were all used to as 2021 unfolds, but I think our industry, in London at the very least, will never look the same in terms of how we all go about our day-to-day working lives,” he says.
In 2021, Bines says that he expects insurance rates to continue to trend upwards in general, with different classes continuing to feel varying levels of upward pressure.
“We are already seeing the predictable flow of new entrants into the market and, in time, we will see rates stabilising but unlikely not until beyond 2021.
“A good portion of the market have of course been through this cycle at least once, so it’s not a new experience—although there do seem to be plenty on the insurer side voicing their determination to ensure technical underwriting levels are never breached again. We’ll see.”
Bines expects that in 2021 the industry might well start seeing an accelerated, tangible and practical use of technology. He adds: “There is a fair amount of fatigue around the whole insurtech chat when it comes to all of the weird and wonderful applications that have been thrown into the mix.
“We will see a more focused effort towards the more obvious and less fashionable use of technology.”
Jonathan Bines, AFL Insurance Brokers
“But I do think that we will see the use of technology, to get the basics done better, increasingly back at the table.
“I am all for the innovation and the excitement of the heady insurtech dreams because some of them will come true and change the industry forever.”
Again, he adds a caveat, saying: “I am sure however that for some time, to a degree, they have clouded matters and we will see a more focused effort towards the more obvious and less fashionable use of technology.”
For the broker, 2021 brings “the potential for a broader industry acceptance that people won’t, don’t need to, and shouldn’t go back to working as we always did pre-March 2020”. He says that, as ever, the right answer ends up being one of balance.
“I believe we can find the right combination of making sure we get together for all the good reasons, which come with seeing our teammates and clients, but that more than ever we have the opportunity to recognise everyone’s individual situations are different and—if we put our mind to it—we can create environments that get the best out of everybody.”
Image: Shutterstock / Denis Belitsky