Industry chiefs weigh up future insurance challenges

The insurance market is changing rapidly. In the past two years, a number of insurer mergers and acquisitions have taken place, with many industry experts predicting further consolidation.

In addition, the soft market is seen as the new normal, while technological advancements are challenging insurers either to change or be changed.

These challenges will form the basis of discussion at this afternoon’s presidential debate. Before the discussion takes place at 4pm, StrategicRISK spoke to some of the panellists about the key trends.

M&As

On insurer M&As, Zurich EMEA chief Fredrik Rosencrantz is in no doubt. Further M&As are firmly on the cards for the future.

“We will see continuing acceleration of activity in the insurance M&A market, building on the experience from 2013 to 2014,” he says. “Among the indicators supporting this development are continued organic growth challenges; historic levels of excess capital; the necessity to drive operational efficiency; and several large 2014-2015 transactions that may stimulate conversations about M&A among company boards and C-suite executives.”

XL Catlin’s Kelly Lyles talks positively about merging with Catlin Group, suggesting that it could lead to greater innovation. XL Group’s $4.28bn acquisition of Catlin Group was completed in May.

“M&A activity in our industry was really led by changes in broker and client behaviours in consolidating the markets they use, as well as the advent of increased regulations and solvency II,” she says.

“The equation here is simple – two heads are better than one – combining the intellectual capacity of two or more companies leads to a stronger and more compelling talent pool – which is absolutely core to the innovation process. And in order to achieve the necessary sharing of ideas and collaboration, insurers are increasingly investing in technology, especially in global systems allowing teams to work together around the world. After all, our clients operate globally and so must we.

“Once we have the best minds and best people working together we must also equip them with the best tools. Investment in analytics is going to increasingly differentiate insurers – the insights Big Data can provide will help us make better and smarter decisions with and for our clients.”

However, AGCS’ Andreas Berger says M&As are not currently being considered by his company, which plans for organic growth.

“Many of our competitors are currently carrying out M&A activities – driving for market position and presence, synergies and economies of scale, better distribution and market access.

“But there are others, such as AGCS, which prefer to focus on organic growth leveraging their existing strong global networks for truly global client solutions and expanding their business in emerging markets. Of course, we would also look at opportunities beyond organic growth, but we would take a measured approach and consider selected team and portfolio acquisitions to strengthen our business – for example, in emerging markets.”

Innovation

Innovation is a big focus for insurance buyers and risk managers, who often bemoan a lack of insurer innovation, particularly in tough areas such as non-insurable intangible risks, cyber and other new technology-related threats.

Some of the panellists insist insurers are working hard to find innovative solutions. Berger says AGCS is moving away from “traditional insurance products”.

“In terms of innovation, we are responding with new products to the changing risk landscape,” he says. “Cyber insurance is a great example. We are expecting strong growth in this segment in Europe.

“Products are important, but we have been moving away from traditional insurance products by responding to what customers actually want and need. While the majority of business will continue to demand property, liability or engineering cover, there are companies, very large ones, that may want more self-insurance and require our operational or administrative support.”

Change or be changed

An imminent challenge is dealing with technological advancements. The advent of smart devices, the internet-of-things and Big Data are placing pressure on insurers – not only to understand the risk and scope out solutions for their clients who are increasingly buying into this market but, crucially, how they as a business could also use new technology to remain relevant and competitive.

The panellists generally agree on one point when it comes to new technologies: change or be changed.

Berger sums up the challenge well. “Increasing digitalisation, automation and the new role of data as the most valuable corporate asset will fundamentally transform the way we and our clients do business in future. We need to understand on an eye-level with our clients how the internet-of-things will change their business model and risk exposure.

“The insurance industry needs to better understand how to use data analytics to create bespoke clients solutions – for supply chain or weather risks or to improve our risk assessment or claims adjustment.

“One of the key challenges will be attracting new talent such as data science experts. There are big challenges, but there is no alternative to embracing innovation – if we don’t do it ourselves, we can be sure some young guys in a garage in the Silicon Valley will do it.”

AXA’s Jürgen Kurth adds: “[The technology] revolution has and will have a stronger and stronger influence on our business. Digitisation, mobility and connectivity are the driving forces behind this massive development, leading to a fundamental change of our risk landscape.”

He says clients of all sizes are demanding cover so they can transfer their potential exposures off their balance sheet to an insurer. Looking at insurance solutions, he says: “Commercial lines insurance is still one of the most important mechanisms to finance new projects, and to provide locally compliant and suitable protection for traditional, as well as newly emerging, risks.

“In this context, the availability of more and global risk data plays an increasingly important role for the insurance industry to better evaluate exposures and provide solutions.

“In the end, this also turns into a benefit for the client, as the data does allow a more precise calculation of insurance premiums, as well as adapted capacities to cover a company’s exposures.”