Part 4: The long shadow of the FCA BI test case

From the impact of the UK FCA business interruption test case, and similar cases around the world, to the ongoing hardening market, 2020 is expected to leave quite a legacy.

After a year that will remain in the collective memory for years to come, Intelligent Insurer asked re/insurance industry leaders to tell us what the main developments have been for the industry in the past 12 months and how they think this will affect 2021.

From the crucial role of technology to the ongoing fallout from the UK Financial Conduct Authority’s business interruption test case, our interviewees had plenty to say about this unprecedented year, and what they hope to see in the year ahead, in the final instalment of the series.

Christian Stobbs, Markel International

There has been no greater global peacetime business interruption (BI) than that caused by COVID-19. It goes without saying that every business has been affected in some way, says Christian Stobbs, managing director, Asia, Markel International.

Consequently, every business owner is more cognisant of its business’s vulnerability to such long tail events. Nevertheless, there are silver linings from this crisis that can reshape our society and industry for the better, he says, outlining the way forward for the insurance Industry.

When it comes to greater awareness of long tail risk, Stobbs says: “As insurers, we acknowledge that we cannot provide solutions for all of COVID-19’s eventualities. However, the insurance industry’s wide-ranging role in society is ever more clear during these uncertain times—we have continued to support communities and businesses by paying claims and insuring against risks.

“Greater awareness of such long tail risk will encourage businesses to be better prepared for future scenarios, which is clearly a role that the insurance industry can support.”

He says that with its current capital base, insurers cannot provide total protection against a pandemic on the scale of COVID-19, adding: “But in the long run, we need to work with governments to bridge the pandemic protection gap.”

In the short term, he says, regulators and industry players need to provide clarity on cover. “For example, court disputes over policy coverage in the UK and Australia have not reflected well on insurers and our wide variety of wordings.”

He says: “Following the success of Lloyd’s admirable efforts to address the issue of ‘silent cyber’—by affirming whether cyber is or is not covered—we need to ensure that there is similar clarity for policyholders when it comes to pandemics and communicable diseases.”

Developing client trust in the new normal will be key. Stobbs explains: “Another phenomenon observed in 2020 is the move towards remote work arrangements—what was initially a temporary stop-gap measure has evolved into a new normal. Although the industry had a relatively seamless transition to working remotely, the challenge going forward will be striking a balance between meeting virtually and in person.

“Operationally, settling claims and pricing risk remotely have been smooth and uncomplicated. However, the success of our business industry is largely built on trust—between clients, brokers, insurers, and reinsurers. The best way to establish such trust is when you can look people in the whites of the eyes and break bread together.

“Despite the advent of numerous virtual solutions, trust built over a physical meeting is difficult to replicate in the virtual world.”

He says it is “uncertain” how reduced physical interaction will affect corporate culture: the way people interact, the respect people show each other, the examples people set and the humour exchanges.

“At Markel, we acknowledge the importance of this face-to-face contact with our clients and colleagues. In Asia, we have been back in our offices regularly to ensure our culture and team bonds are strong—and that we’re frequently meeting clients physically.”

“We need to work with governments to bridge the pandemic protection gap.”

Christian Stobbs, Markel International

Pricing and growth

Looking at the continued short-term pricing pressures, Stobbs says that while there is much market speculation on insurance rate movements, he is not overly worried as to whether it’s a hard or soft market.

“What matters is that, as insurers, we price every risk appropriately. The nuances of rising or falling prices are, for us, purely a function of the availability of capital in specific classes.

“To date, COVID-19 has not been a capital event and insurers’ capital has not been eroded in any material way. As such, we are not expecting it to have a material impact on pricing in the long run.

“Nevertheless, the economic downturn has raised the risk-adjusted return requirement for capital providers. This will be a short-term driver of rating, and we expect the trend of rising prices to persist in 2021.”

In 2021, he says, Markel’s vision to be the best specialist insurer remains unchanged.

“We seek to rule the niches where we operate, and we recognise that aside from having strong technical understanding, local capabilities are increasingly important.

“Today, almost all conversations I have with brokers and clients in the region reveal a preference to speak with local decision-makers who operate in their time zone.”

Stobbs says that to be visible and accessible to Markel’s clients in the region, the insurer has been investing in building up on-ground capabilities in Asia.

“Within our core specialist areas, we have added highly skilled talents to our Asia offices, and all of them are empowered to make decisions.

“Our offices work as a group and have strong support from our London headquarters. Together, we help to liberate businesses from the unknown to allow them to perform at their best.

“I am also looking forward to more collaborations with our peers at Lloyd’s in Asia. At the core of Lloyd’s value proposition is syndication. Despite a few high-profile exits in Asia, Lloyd’s continues to grow in the region with new syndicates and investments.

“It is encouraging and exciting to see a renewed sense of collective ambition and purpose at Lloyd’s.”

He concludes: “Together, we will innovate, collaborate, and ultimately share risk to create a braver world.”

“I am also looking forward to more collaborations with our peers at Lloyd’s in Asia.”

Christian Stobbs

Matthew Harrington, BLM

The most significant event of 2020 was undoubtedly the COVID-19 pandemic and this will continue to play out in 2021, says Matthew Harrington, senior partner at law firm BLM.

He tells Intelligent Insurer that the BI test case brought by the UK Financial Conduct Authority (FCA) is central to the fallout of the pandemic for the re/insurance industry because it goes “far beyond” the technicalities of the selected policy wordings. The case presents a huge reputational challenge for the industry as a whole which needs to be addressed—and quickly, he adds.

Harrington says that in 2021, he expects rates to continue to harden, but not uniformly nor across all lines due to wider economic factors.

“The financial reality of the UK economy in 2021 combined with the fact that swathes of UK businesses will be trying to recover from the impacts of lockdown mean it will be increasingly difficult for insurers and brokers to pass on the kind of rates increases needed to offset years of soft market conditions,” he says.

His trends to keep a close eye on in 2021 include the intentional and unintentional impacts of the FCA’s proposed new rules on the way general insurers price products and what that might mean for price comparison websites (PCWs) and for ‘customer churn’.

“For 2020, data analytics firm Consumer Intelligence estimated that 75 percent of consumers use a PCW for motor insurance and 64 percent use one for home insurance. It’ll be interesting to see if and how this distribution channel evolves in response to the FCA’s new rules and any potential loopholes,” he explains.

Harrington says that when we all return to a post pandemic world, the industry is going to have to think carefully about the digital infrastructure it has put in place this year and decide which parts of it to keep.

“Many of us have operated in a completely digital world in the last nine months but human interaction and contact is very important and a great strength of the insurance industry. We’d like to see the claims sector taking the best of 2020’s ways of working and integrating it with that all-important human element.”

On top of this, he says, there are a number of other issues the law firm will be monitoring closely in the New Year.

“A significant issue will be Brexit and data protection. A central issue at the heart of Brexit negotiations between the UK and EU remained the free flow of personal data. Any personal data which has been processed prior to the end of the Brexit transition period will still need to comply with the EU’s General Data Protection Regulation in relation to that ‘set’ of data.

“The more steps companies take to plan for a post-Brexit data ecosystem now, the easier it will be to demonstrate compliance.”

“The industry is going to have to think carefully about the digital infrastructure it has put in place this year.”

Matthew Harrington, BLM

Talbir Bains, Volante Global

Talbir Bains, chief executive and founder of Volante Global, says that COVID-19 and the ongoing rate developments have affected the perception of managing general agents (MGAs) in the insurance market.

“We are currently in a hardening market and that upward rate trajectory is likely to continue into 2021 and beyond. Such a marketplace can be challenging for MGAs, particularly as improved conditions drive much greater carrier scrutiny of standard MGA commission structures, which many increasingly view as untenable.

“The market impact of COVID-19 will inevitably heighten that scrutiny, as companies question the rationale for paying such additional fees.

“As a result, there will be considerable impetus for change to the traditional MGA model.”

He says the vehicle plays a critical market role in providing carriers with access to niche sectors and opportunities for greater diversification. However, the ongoing viability of that role will be dependent on the sector operating in a much more cost-effective way and with greater alignment with the carriers that support them.

On steps practitioners could take to ensure that the MGA model is fit for purpose during all phases of the insurance cycle, Bains says the MGA sector must overhaul the commission structure. “It is simply not sustainable, particularly given current market dynamics.

“We recognised this when we developed the commission framework that Volante Global is built upon. Fundamentally, any fees that are paid should only be to ‘keep the lights on’. Over and above that, commissions should be 100 percent contingent on underwriting profit. We believe that is the only way to demonstrate full commitment to the carrier.”

Bains explains that when the carrier sees a return on its capacity then the MGA can generate profit.

“Such an approach creates pressure to perform and maintain underwriting discipline, and that pressure is what our underwriters thrive on and ensures our full focus on combined operating ratio. Only when we demonstrate clear underwriting value to our carriers do we see a return,” he says.

This brings up the need for greater carrier alignment. “Most MGAs operate as satellite entities rather than strategic partners to their carriers, yet that is not the basis of a long-term relationship,” he says.

“If there is not a true alignment of underwriting objectives underpinned by full transparency and regular interaction, the MGA will not become an integral part of the carrier framework.”

At Volante, Bains says, the carrier relationships are built to last across market cycles, with capacity provided on a multi-year basis.

“We work in partnership with our carriers and provide them with full underwriting oversight and promote active participation in our strategic decision-making. That for us is the only way to ensure the longevity of the carrier relationship.”

With 2021 just around the corner, Bains says that the current market environment undoubtedly creates a broader horizon of opportunity than his MGA has seen for a while.

“The sustainability of current opportunities will be dependent on maintaining underwriting discipline.”

Talbir Bains, Volante Global

“This stems from improving rates, movement of capacity across numerous markets, and the evolving risk horizon,” he explains. “However, we have to recognise the associated downside and that the sustainability of current opportunities will be dependent on maintaining underwriting discipline.”

The hardening rate environment must be considered against the backdrop of an extended soft market, he cautions, suggesting certain questions must be asked first.

“Are the rate hikes adequate or simply a rate correction to address woefully inadequate pricing in prior years? These may seem like viable near-term opportunities for capacity deployment, but the long-term repercussions of poor underwriting decisions could be significant. The margin for error in the current market is non-existent.”

Looking beyond direct underwriting opportunities, there is also a huge opportunity for the broader industry to transform the way it operates as it emerges from the pandemic, Bains says. “We have seen our entire market transitioning to remote working and operating in a much more digital-oriented way, with resulting improvements in efficiency and productivity.

“As an industry we must reflect on these lessons and emerge from the pandemic as a stronger, more efficient, higher performing marketplace.”

Stable and secure

Bains says his MGA is entering 2021 in a “very secure and stable position”.

“Since our launch in 2017, we now maintain 17 underwriting teams operating from a capacity base of $1.8 billion from a range of A and AA rated carriers. In 2020, we will have written approximately $200 million in premium.

“As we transition into a hardening market, we are able to do this seamlessly. This is due to the security of our multi-year capacity agreements, level of underwriting performance, and strength of relationship with our carriers. While current market conditions can result in capacity retraction in the delegated authority space, these factors effectively insulate Volante Global from that.”

Bains says his firm will continue to deploy capacity in a considered way. “Yes, we see numerous growth opportunities, but our focus will be on ensuring rate adequacy in everything we write, managing line sizes and delivering growth at a sustainable price per unit of risk.

“In 2021, we will continue to bed down our MGA model, which is based on underwriting discipline, strong governance, profit-based commissions, close carrier alignment and transparency throughout.

“We believe that this model sets a new MGA benchmark, and we are currently focusing on numerous projects that we believe will push that market benchmark even higher.”

“Our focus will be on ensuring rate adequacy in everything we write.”

Talbir Bains

James Willison, WCL

Acknowledging the devastating human toll of the COVID-19 pandemic, James Willison, managing director at WCL, says it is a situation no-one wanted. Yet, he says, this dark period has also turned out to be the inflection point the re/insurance market needed to modernise its processes and systems.

“Through necessity, everyone has moved to remote working and electronic trading. The market may not have envisaged that it would take a pandemic of this scale to force the hand of the London Market to embrace the digital revolution, but the ‘new normal’ working conditions caused by COVID-19 could permanently shift working patterns in the future and make companies adopt e-trading,” he says.

There has already been a big shift to trading via digital platforms and to automating processes where possible, Willison says. “We are seeing the coming of age of the industry’s electronic placing platforms, which enable brokers and insurers to quote, negotiate, bind and endorse business digitally.

“Lloyd’s of London in particular has been pushing the market to modernise and has created initiatives and technology to allow the 333-year-old insurance market to trade digitally. The increased take-up of digital platforms has been a long time coming and will bring new challenges in 2021.

“Integration and interconnectivity will be key themes next year, and consistent and minimum data requirements will be vital.”

Willison adds that companies have had to adapt their recruitment practices and figure out new ways of recruiting and onboarding virtually.

“WCL has recruited three new employees during lockdown and did so via video interviews and getting contracts signed by email.”

The pandemic has reshaped risk management practices in the industry. “Many companies dealt with the impact of COVID-19 in different ways, prioritising and balancing risk and taking decisive action to protect their people and businesses.

“WCL had a business continuity plan in place, and the lockdown certainly tested our processes and systems to operate remotely.

“However, as the scale of the pandemic unfolded, we had to evolve and implement practical steps to protect the wellbeing of employees from this once-in-a-lifetime crisis—for example, flexible working arrangements, work-from-home care packages, and new avenues of communication,” he explains.

He believes that it’s likely that COVID-19 could permanently shift working patterns in the future. “Videoconferencing—a technology that has been available for a very long time—has come into its own. Like other technologies that the market has been forced to adopt, it works very well, increases productivity and keeps everyone connected. People who have started using them in the crisis may carry on once normality returns.

“That said, we are an industry that has always relied heavily on face-to-face relationships. There are huge benefits to cutting out burdensome commutes and spending more time at home with the family, but how are we going to create an environment to build trust with new relationships?”

“Blueprint Two has recognised the need for modern technology.”

James Willison, WCL

Willison is looking at what insurance rates might do in 2021.

He says: “Risk across the board has increased because of COVID-19. Clearly there is still come uncertainty around the pandemic, which will continue to result in the hardening of rates across the board. We are also still seeing natural catastrophes and extreme weather conditions that have not gone away.

“The scale of the impact from the coronavirus pandemic has not been fully manifested. It will have a severe impact on social inflation, regulatory changes and the cost of claims.”


In the technology world, he says integration and connectivity will become buzzwords in 2021 as the industry moves towards a more targeted approach to digital transformation.

“We are already seeing customers asking to move over to cloud-based technologies.

“In its Blueprint Two, Lloyd’s of London has truly embraced the themes of data, integration, connectivity and multiple placing platforms. It outlined tactics to build a truly interconnected insurance network, which includes focused efforts to provide a practical path to digital trading.”

Willison says Blueprint Two has recognised the need for modern technology and multiple placing platforms. “Next year, application programming interfaces will get the credit they deserve—they are the building blocks of interconnected ecosystems and at the heart of every digital strategy. They will allow the market to truly embrace future innovation.”

Blueprint Two has addressed the concept of financial certainty, he adds, which provides meaningful opportunities for the market. “In December 2004, the then Financial Services Authority chief executive John Tiner challenged the insurance industry to end the ‘deal now, deal later’ culture in the UK, giving it two years to find an industry solution or face regulatory involvement.

“The industry met that challenge, and now Lloyd’s wants the market to achieve both contract and financial certainty at the point of bind—which means the exact premium and tax breakdowns across all territories will be known upfront.”


Ultimately, Willison says, the key trend in 2021 will be data.

“Those companies that can successfully move from documents to data will be best positioned as the industry continues to shift to a digital mindset—unlocking data assets to deliver innovative new products, as well as understanding intangible risks better, responding quicker and pricing more effectively.

“Importantly for WCL, we have just been acquired by US technology company Zywave, which has a significant stronghold in the US broker market. Our partnership with Zywave has brought in new capabilities that will enhance our offering to the market and embrace the principles of digital modernisation in Blueprint Two,” says Willison.

“Next year, our key focus will be to leverage this exciting new partnership and to build a truly interconnected insurance network in the US, starting with Zywave’s 1,500 US agents. The combination of businesses will boost our capabilities in structured data, which will be transformational for the insurance industry at a time when the market needs it the most.”

Our partnership with Zywave has brought in new capabilities.”

James Willison

Peter Goodman, Aventus

Peter Goodman, chief executive at Aventus, says 2020 was the year that the slow-to-turn supertanker of the re/insurance industry finally embraced digital technology, driven by the catalyst of COVID-19.

He says: “Customers expect insurance to be as flexible and responsive with its service as other industries like retail and banking. Most brokers and MGAs are still taking tentative steps and have barely unleashed the potential, but the ramifications of these changes to the way insurance products are created and distributed, has been progressive and pivotal. There’s no going back.”

As to trends to watch for the next 12 months, Goodman highlights the evolution of insurance ecosystems, which he says, promise to give the industry “new and thrilling opportunities for innovation”.

“Next year will be an exciting time for successful insurtech businesses and the brokers and MGAs they partner with to explore the potential of the ecosystem. Unless you are a behemoth insurer with limitless tech budgets, it’s purely vanity to build and maintain a world class ecosystem without risking building your own legacy piles, again.

“For many insurers, instead of building their own ecosystem they need a core platform with an ecosystem that gives them access to all of that affordably. And this is what Aventus can offer, now with 50 quality API integrations—creating limitless opportunities for MGAs and brokers to be creative with product, marketing and distribution strategies—that puts us way ahead of the pack.”

Goodman says that with face-to-face communication continuing to be a challenge, certainly for the first half of 2021, cross-selling, customer relationship management strategies and the digital platforms that deliver them affordably, will take centre stage for brokers to support new business growth.

“We are finally giving intermediaries the affordable digital capabilities that they need to accelerate growth and profitability.”

Peter Goodman, Aventus

He adds that the hard market will feature heavily, certainly well into the New Year, and this will be a key driver for all insurance businesses. “Access to quality capacity will be king,” he says.

“My dream for Aventus next year would be to see us and our technology widely helping MGAs to impress the industry and to grow in a competitive hard market.

“In just under a year we’ve achieved such a lot—propelled forward to being a top 100 insurtech with one of the best insurance ecosystems available and cornerstone MGA clients now across three continents.”

Digital transformation sounds brutal, and expensive, Goodman admits, saying he prefers to talk about digital enablement. “We are providing a cost-effective solution for MGAs, scheme specialists and brokers. And we are finally giving intermediaries the affordable digital capabilities that they need to accelerate growth and profitability in this time.

“We want to help insurance intermediaries modernise their offer because that really is the key to their long-term survival: building something that adapts quickly, sifts the value from data and helps them to identify the new opportunities out there in 2021—because they are out there.”

Goodman’s New Year resolution is to “keep the momentum”. He says: “The supertanker has turned so for goodness’ sake let’s not stop now. 2021 will be challenging for everyone, but adversity also breeds opportunity. The trick is to see it, grab it with both hands and not waste it.”

Image: Shutterstock / Savvapanf Photo

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