With a historic year to reflect on, Intelligent Insurer asked re/insurance leaders what they think the key developments have been for the industry in the past 12 months. The company leaders also share their expectations for the year ahead in terms of rates and trends, and for their own businesses.
Johan Slabbert, MS Amlin Underwriting
The COVID-19 pandemic was the most challenging, and monumental, event for the insurance industry to grapple with in 2020, says Johan Slabbert, chief executive officer of MS Amlin Underwriting.
He calls the arrival of the first vaccine “a light at the end of what has been a long tunnel” but adds: “I fully expect the pandemic’s presence will continue to be felt throughout 2021 and beyond.”
However, Slabbert is more optimistic than many, adding: “It is important to note that the impact of COVID-19 on the re/insurance industry will be fleeting, rather than enduring. Our industry has weathered many storms and while our profit and loss statements for 2020 may not make for happy reading, I believe that businesses’ underlying assets—and the strength of our industry—will recover and prosper as we move forward.
“In resolution of COVID-19 claims, we have to take into consideration certain factors set to impact the market.”
For the head of MS Amlin Underwriting these factors include adjusting and settling individual business interruption (BI) losses and focusing on loss prevention. “The biggest debate to result from this year’s events has been the issue around BI coverage. Even though the UK Supreme Court judgment will give direction to the BI conversation, it will not resolve all aspects and provide clarity to all coverages. This will take some time to resolve,” Slabbert says.
“Additionally, the non-disclosure of the receipt of furlough payments or small business grants in the UK will be an issue for re/insurers to contend with.”
He says it’s evident from non-BI claims that re/insurers will need to “remain vigilant” to all the available information and evidence to ensure they make mutually fair decisions on BI claims.
One of the most important lessons from the past year, according to Slabbert, is that many policy wordings were neither robust enough nor clear enough to be easily understood by all parties, as well as remaining defensible in almost any circumstance, for the protection of both client and re/insurer.
“Moving forward, the market will need to work to decrease the length of the link between intention and interpretation, as it currently stands too wide to be helpful for insurer and insured,” he says.
“Many policy wordings were neither robust enough nor clear enough to be easily understood by all parties.”
Johan Slabbert, MS Amlin Underwriting
Rates and trends
Early indications for insurance rates in 2021 suggest the industry will continue to see some rate increase, Slabbert says. “This was on the cards prior to COVID-19 and is not driven by pandemic BI coverages. Thus, re/insurers will not be recovering losses from COVID-19 through rate increases, as they might ordinarily do after natural catastrophes. The rate increases I anticipate are not significant and losses seem to be following suit.”
He expects some rate increases will be offset by a variety of COVID-19 impacts, including changes to asset valuations, lower volumes and lower levels of activity in 2021. “Clearly our global economy is fragile and a number of elements could drive the rates back down.”
In terms of trends for 2021, Slabbert points to research indicating that COVID-19 is not the only pandemic many of us will see in our lifetime.
“Our industry needs to evaluate lessons learned and how we can better manage not only a future pandemic, but events that present a high level of interconnectedness of risk.
“But the show must go on. Our industry is facing other challenges that need our attention, such as social inflation, climate change and the frequency of natural catastrophes, as well as the reduction of technical skills in the industry.
“I expect to see the continuation of insurtech businesses launching, as well as new intermediaries or risk carriers, but as ever it’s only those who break the mould of ‘risk differentiation’ who will succeed.”
On what he’d like to see or achieve in 2021, Slabbert is clear: ”At MS Amlin, we want to get back to business. We believe it’s time to look to the future, and the opportunities ahead.
“I hardly ever set New Year resolutions as my motto is to make every day count. If we can achieve that, then every year has a good chance of success.”
He adds: “Re/insurance businesses are made up of three main elements. The first is capital; owned by investors or a parent company. The second is an insurance or reinsurance licence; owned by the regulator.
“The last is people—the only thing owned by the business and what ultimately defines the company and its ability to compete and provide value. The skill of our people and their ability to utilise capital and adhere to licence rules to produce a return for shareholders and deliver solutions to policyholders is what completes the re/insurance circle, and any re/insurance business’s greatest asset.
“We need to ensure that they all emerge post COVID-19 with physical and mental health intact.”
“We believe it’s time to look to the future, and the opportunities ahead.”
Franz Josef Hahn, Peak Re
Franz Josef Hahn, chief executive officer of Peak Re, agrees with the broad industry consensus that 2020 was a year of unprecedented challenge and change, with higher than average catastrophe losses, the outbreak of the COVID-19 pandemic, and lowering of interest rates across the globe.
“There is no doubt the year 2020 will go down in history as one of the most tumultuous for society and for the insurance industry,” he says.
Highlighting how severe weather added to the upward momentum of the current price cycle, Hahn adds: “2020 included many natural disasters globally, causing 2,200 deaths and $75 billion in economic loss during the first half of 2020 alone. The Asia-Pacific region recorded the highest deaths during this period, and two of the most expensive events in terms of economic losses: Cyclone Amphan in India’s Bay of Bengal ($15 billion) and seasonal floods in China ($6 billion).”
Hahn says that an active North Atlantic hurricane season brought, as of December 1, 2020, 30 tropical storms with 13 that evolved into hurricanes and a further six into major hurricanes.
“The total economic damages are estimated to be over $41 billion. Other major loss events, including European windstorm Ciara, hailstorms in Australia and wildfires across Western US, are adding to the total cost of 2020. Coming close on the heels of above-average losses in 2019, this is adding momentum to a tightening market in 2021,” says Hahn.
He is clear that the trend for a hardening market has been exacerbated by COVID-19 and lower interest rates. “While the industry continues to grapple with high natural catastrophe losses, the COVID-19 pandemic is adding further pressure on re/insurers’ technical results.
“The final loss from the pandemic will not be known for some time, but industry estimates are putting this in the range of $30 to $100 billion. Reported losses attributable to COVID-19 through the third quarter stood at over $25 billion.”
This is happening against a dire macroeconomic backdrop, he says. “Despite some green shoots of recovery since the third quarter of 2020, a resurgence of infection cases in the last quarter points to a long and sluggish recovery for most major economies.
“It can be reasonably expected that interest rates will remain at their current low level for an extended period of time. The pressure on investment income renders it necessary that re/insurers look for better technical results.”
“The pressure on investment income renders it necessary that re/insurers look for better technical results.”
Franz Josef Hahn, Peak Re
Capital and Asia
Hahn believes that this confluence of events, including low interest rates, high insurance losses and low underwriting margins, is conferring increasing pricing power to re/insurers in a hardening market.
“In order to support growth and partake in this price-hardening market, it is estimated that re/insurers have raised a total of $35 billion of new capital in the first half of 2021. This testifies to increasing confidence in market fundamentals and that the industry remains well-capitalised,” he adds.
However, Peak Re’s leader says, in spite of the setback of COVID-19, the outlook of Asia’s insurance market remains positive due to an expected fast recovery, the rise of the middle classes, low insurance penetration and significant exposure to natural catastrophe risks.
“In order to cater to the growing need for protection of Asian consumers and corporations, the re/insurance industry has been strengthening its capacity and expanding risk-sharing platforms.”
He also looks with optimism to the development of insurance-linked securities (ILS), sidecars, collateralised reinsurance and other platforms that offer capital market investors new options to participate in Asia’s growing insurance market. These products also give re/insurers more financial flexibility and diversified funding sources, he explains.
“A strong investor base in Asia, who are attracted by the non-correlation of insurance and financial market risks, underpins an increasingly vibrant market for third-party capital.”
Striking a positive note for the Asia region, he says: “With this significant opportunity for continued growth through the next decade, regional financial centres are investing heavily in their capabilities to house and execute new capital structures including ILS.
“Hong Kong for example has recently introduced legislation to create a bespoke streamlined regulatory framework for the issuance of ILS through the formation of special purpose insurers. It is expected that more conducive regulations will follow to realise this opportunity,” Hahn explains.
For Peak Re specifically, Hahn says, the reinsurer has been leveraging capital markets to increase its financial flexibility and diversify its funding sources. “In December 2018, the company launched Asia’s first sidecar (Lion Rock Re) to provide collateralised retrocession and enhanced underwriting capacity. This was followed with the renewed and upsized Lion Rock Re in 2019, and the creation of Peak Capital in mid-2020 to strengthen the company’s capabilities in the ILS market.
“In 2021, Peak Capital will continue to focus on innovative capital market solutions to support an efficient capital structure, and to create gateways for investors to access the ILS market.”
“Peak Capital will continue to focus on innovative capital market solutions.”
Franz Josef Hahn
Andrew Bart, Crawford & Company
In 2020 COVID-19 clearly necessitated a significant shift in approaches to digitisation, and a pivot in how companies operate, across every industry, says Andrew Bart, president, international loss adjuster at Crawford & Company.
“While the insurance market has been a slow adopter of digital solutions compared to other financial services industries, the pandemic has served as an accelerator for digital change and has significantly compressed development and integration times.
“At Crawford, there has been a big increase in the use of digital capabilities, including remote loss inspections, video capture capabilities and robotic process automation, as well as a sharp rise in the adoption of self-service functionality by clients. This has enabled us not only to manage claims despite pandemic-related restrictions, but in some instances do so more efficiently,” Bart says.
For example, he adds, the firm introduced a process to handle very large numbers of low-level claims with little or no human intervention.
“This innovative approach was built in a relatively short time and is a great example of adapting to a changing environment. In another case, we responded successfully to a substantial catastrophe, with 60 percent of claims handled remotely and generating very positive feedback from the client.
“We recognise there are wider market shifts taking place, not just those instigated by the pandemic, but changes to customer demands and interaction. Customer expectation is a major disrupter and we are continually looking at ways to adapt our business to address those evolving expectations.”
He says that in 2021, the re/insurance industry will clearly still be addressing the ramifications of COVID-19 and many of the changes it has brought about will continue. “For example, we do not expect to return to the occupation of offices in the same way once we emerge from the pandemic, given the lessons learned from remote working.
“There will be multiple opportunities to create efficiencies through the greater adoption of digital tools and the integration of more data-driven solutions. The move to digital solutions, which has accelerated in 2020, will inevitably continue—and there is clear industry appetite for this.”
“The firm introduced a process to handle very large numbers of low-level claims with little or no human intervention.”
Andrew Bart, Crawford & Company
Bart says it is vital that Crawford & Company is able to combine its expertise and these advanced technologies to deliver a better, more efficient experience for the customer, the firm’s clients and the market in general. “We have embraced the opportunity to effect change and will continue to do so.”
The company will continue to enhance its own digital capability and having made significant investments in recent years to enhance its digital platforms, the firm will look to implement these new data capabilities across its global operations.
He adds: “From a talent perspective, we are 100 percent committed to growing our talent pipeline and expanding our specialist teams across loss adjusting and other areas of our business to ensure we have the most comprehensive range of expertise across all sectors.
“It is widely recognised that the loss adjusting industry needs to address head-on the talent challenge it faces. There is a diminishing pool of resources and that must be refilled. At Crawford, we are taking a leading role in the development of new talent, not only opening the door to new entrants but creating clear career paths to retain and enhance that talent.
“We need to have a diverse workforce and drive a more inclusive culture to promote a positive work environment where all employees feel respected and valued within their teams and better reflect the range of diverse customers we serve.
“We see this as a key differentiator moving forward and essential to the health of the industry as a whole,” he says.
As to his New Year resolutions, Bart says that as the insurance industry and the world at large return to some sense of normality, he hopes to capitalise on the removal of restrictions to spend much more of his time meeting with people across the business and our clients, and less time staring at his screen.
“That ability to interact physically is not only a core part of the way our market functions, but a core part of promoting mental wellbeing. This has been a very trying period and it is important that we all look to re-engage with each other once it is safe to do so.”
Concluding his thoughts on 2020, Bart says that the pace of industry change during the last 12 months has been “more rapid than at any point during my 30-year career”.
Looking ahead, he says: “As we emerge from the pandemic during a period of incredible disruption, we must embrace that disruption both at Crawford and across the wider market.
“We must recognise the need to innovate and grasp the opportunities to disrupt our own businesses for the benefit of our employees, clients and insureds.
“At Crawford, we are confident that we will evolve to meet these rapidly changing market needs. We are very excited about the opportunities we see to invest in our people and our capabilities, as we continue in our purpose to help restore and enhance lives, businesses and communities.”
“It is important that we all look to re-engage with each other once it is safe to do so.”
Alastair Speare-Cole, QOMPLX
With everyone looking expectantly to 2021, linking insurtech innovation and client experiences to delivering profit and volume for carriers will be key, says Alastair Speare-Cole, president and general manager of the Insurance Division of QOMPLX.
“After a tumultuous year filled with challenges and media scrutiny, the insurtech sector is currently dealing with a number of insecurities. Currently, the insurance industry is self-conscious about its poor image, especially regarding innovation and client experience,” he says.
Speare-Cole explains that while many incumbents have sought out insurtechs in the hope they can engage with new ideas, new data and new technologies, the challenge remains in how to build to scale at an acceptable loss ratio to repay investments.
“In 2021, insurtechs will need to think about how to carve out the best route to clients; to engage directly, to engage via brokers, or to find some other form of partnership. In a competitive insurance market volume and profit may often seem like opposites. The art is to achieve both at the same time.”
Speare-Cole says there will need to be continued education around parametric covers as the industry moves into the new year.
“Regarding parametric insurance coverage, in 2020 the rate of new ideas has outstripped the volume of business created by them. The word ‘parametric’ used to imply that the trigger was based on a figure or index, but this year it has become a trigger which can be objectively established.
“This wider definition has come to include personal accident policies, where for instance the loss of a limb could trigger a lump sum payment.”
Speare-Cole adds: “This year there has been considerable discussion and creativity around the range of perils, but as a result, many have found it increasingly difficult to explain these novel types of coverage to insureds and advise them on how to engage.”
For example, QOMPLX has had its own difficulties, he says, with brokers articulating to clients that a £10,000 parametric solution may deliver the same level of cash to a business that a £500,000 indemnity policy delivers when the insured has taken four months to negotiate a similar sized settlement.
“In 2021, industry leaders will need to focus on educating clients around parametric covers and work with brokers on how to present these new options to insureds.”
“There will need to be continued education around parametric covers.”
Alastair Speare-Cole, QOMPLX
Forbes McKenzie, McKenzie Intelligence Services
Forbes McKenzie, chief executive officer of McKenzie Intelligence Services (MIS), says that 2020 was like no other. “We have witnessed the most active hurricane season on record, seen multiple destructive earthquakes and devastating wildfires as well as manmade disasters like the Beirut blast, and we have all felt the global impact of the COVID-19 pandemic,” he says.
“The ongoing impacts of the latter have forced all industries around the world to adapt to remote working, and digital workstreams. And if there is any good to be drawn from this crisis it is the fact that we have seen practitioners embracing technology like never before to work day to day with colleagues and transform processes for the better.”
At the same time, McKenzie says, the various natural and manmade catastrophes—not least the unprecedented hurricane season—during which the weather agencies ran out of letters for named storms—highlighted how real-time intelligence, geospatial data and aerial, drone and satellite imagery are vital in claims and exposure workflows.
“We deliver intelligence on a global scale allowing insurance and commercial clients across the world to make informed decisions, and there has been a significant cultural shift towards trusting in such technology and its ability to offer real-time insights remotely—this year alone we have provided intelligence against 70 events and delivered financial exposure analysis worth over $1 billion to global insurer clients,” he explains.
In 2021, McKenzie expects to see more partnerships and the continued development of the relationship between insurtech and insurers “as the value of technology begins to turn the dial in terms of efficiencies and cost savings”.
“We curate geospatial data from space and the ground to create actionable intelligence, improving the accuracy of financial exposure data by up to 93 percent, and I expect to see increased use of drone data augmented with satellite and other data sources for post-catastrophe insights and exposure management,” he says.
For McKenzie, 2021 presents real growth prospects for his company. “We have international expansion in our sights during 2021 and we’d love to see further adoption of geospatial intelligence in insurance workflows continue to grow during the year, carrying on the megatrend of the last few years.
“It’s great to be able to look back at such a momentous year and reflect on what MIS and the industry have achieved against such a challenging backdrop.”
“There has been a significant cultural shift towards trusting in such technology.”
Forbes McKenzie, McKenzie Intelligence Services
Bryn Barlow, ISG
Bryn Barlow, partner at ISG, says the biggest change in 2020 was the way we all work and how insurers have had to adopt the technology to support that. “That will have a huge impact in 2021—on supply and demand sides of the insurance industry,” he says.
Barlow highlights the success of DeepMind’s protein mapping work in November 2020, explaining that this advance underpins the progress in AI and machine learning. “This kind of advance is transforming our understanding and pricing of risk, with new risk categories being introduced as a result.
“We see about 10 percent of the insurance value chain ‘automated’ by technology—which is above the level of robotic process automation that automates the most routine tasks—compared to about five years ago. This will increase to more than 30 percent by 2025/26 as computing capacity increases and the cost of processing declines,” he says.
The proportion of enterprise risk insured will decline as enterprises use technology to model risk scenarios more proactively, and then mitigate it either physically, or digitally, rather than financially.
He believes that the industry will adapt to focus its talent on algorithmic commerce in the back office, and create value with client-specific insight. “The pandemic has shown us that—thanks to technology—working patterns can change. Not all of this ground will be given back post-COVID-19.”
Premium levels and trends
Looking ahead, Barlow expects that life and non-life premium levels will recover with between 5 and 8 percent growth during 2021 and 2022. This recovery will be strongest in Asia as increased risk awareness and growing life and non-life exposures develop alongside social inflation. But he adds that commercial insurance premium levels will be hit by cost-focused clients, and inflation driven by protracted claims.
“All the signs are that pricing will continue to build on the early gains seen in aspects of the market in the second half of 2020. The highlights are generic indicators such as: low interest rates supporting COVID-19 economic action; industry trends around claims inflation; line of business and geographic exits reducing capacity; and credit and surety line increases.
“The structural implications of loss creep from poorly assessed secondary perils and tightening capacity in the retro market add more impetus.”
Capital reserves have been let out over the last few years, says Barlow, and there’s an increasing understanding that risk exposures are not adequately priced across the portfolio, which will help, and terms and conditions will also be reviewed.
In terms of trends for 2021, he says, there will be more of the same activity around technology adoption.
Demand for technology ‘as-a-service’ has doubled in the last three years across EMEA, and this is expected to repeat in 2021, according to Barlow.
“We saw a brief hiatus in the growth of investment by insurers in fintech and regtech across the region in the third quarter of 2020, but the deal flow is strong, and I think more than $2 billion will be placed by insurers and reinsurers into digital capability in 2021.”
“Commercial insurance premium levels will be hit by cost-focused clients.”
Bryn Barlow, ISG
Barlow believes that trends around the human side of the insurance industry will be more profound in the coming year, with far fewer entrants into the workforce interested in careers in the traditional model of insurance. “I’ve seen research that put this at less than 5 percent being interested in an insurance job.”
Barlow explains that employees want a different type of engagement model in return for their labour. “Our research suggests that up to 50 percent of the workforce will work through Open Talent platforms—such as UpWork, Fiverr, Topcoder and Freelancer.com—by 2025.
“Portfolio careers and project-based assignments, aka the gig economy, will have a bigger impact on the work model than COVID-19 ever could.”
Barlow highlights how mental wellbeing will become an important driver of employee engagement, alongside social purpose, diversity and environmental stewardship. “We hope that businesses will use the energy and creativity freed up by technology adoption to focus on these areas.”
In conclusion, he says, in 2020 ISG navigated a big storm as an employer and a provider of solutions to clients. He is proud that the company was able to protect its teams and deliver “some amazing results” in challenging conditions.
“I want to continue this, Brexit notwithstanding, and make sure all the good stuff we have learned doesn’t fall by the wayside. Travel less, engage smarter, stay healthier and learn more are all on my list of things to achieve.
“In client terms, the four forces of outsourcing, automation, talent platforms, and retained staff development create a great set of opportunities which we are looking to harness to our mutual advantage.
“We’re launching digital platforms and data-driven insights for European insurers this year, and I’m keen to continue collaborating.”
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