Insurers that resist change will be consigned to past as industry
Powered by: PCI TSundOay OctoDber 15A, 2017Y
Insurers that resist change
will be consigned to past
as industry reinvents itself
The insurance industry is going through
an unparalleled period of change at
an unprecedented pace and chief executives
unwilling or unable to embrace this rapid
development in their markets may not find
themselves in their role for long. They must
embrace change or get left behind.
That is the view of David Sampson, president
and chief executive of the Property Casualty
Insurers Association of America (PCI), speaking
ahead of the trade body’s annual event to being
held this year in Chicago.
He said the conference’s title, ‘The Future of
Insurance’, and entire event programme has been
developed to reflect this challenge the industry is
facing. He stressed that it is an exciting time for
insurers but they must be willing to keep pace
“The pace of change is unprecedented.
There has always been change but it used to take
decades for new technology or social changes to
“Everything is now accelerated leading to
disruption that is cross-cutting many segments
of society and on a global basis,” Sampson said.
(Continued on page 2)
Lack of new equity cash
and trapped capital could
mean bigger rate rises
Rates in property-catastrophe reinsurance are
likely to increase more than many believe in
the aftermath of big hurricane losses because of
the low level of equity raising and the emergence
of trapped capital as a major issue.
That is the view of Michael Millette, managing
partner of HSCM Bermuda (Hudson Structured
Capital Management), the ILS, reinsurance and
transportation finance investment manager set up by
the former structured finance head of Goldman Sachs.
Millette told PCI Today that the money entering
the industry has been low in comparison to previous
big losses. In the aftermath of Hurricane Katrina in
2005, which caused $82 billion in insured losses, for
example, some $30 billion of new money entered
the industry through a mixture of new companies
and existing entities. In the aftermath of 9/11 in
2001, a similar amount entered.
While new money is entering the industry
through funds, sidecars and other forms of
risk transfer vehicles, Millette stressed that it is
nowhere near the amount needed to dampen
price hikes on certain lines of business hit by big
losses. (Continued on page 4)
Fight for rate hikes or ‘get out of reinsurance’
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(Continued from top of page 1) “All this is having
an impact on insurers’ businesses, the risks in the
economy and the way consumers think about
insurance. We have designed this programme to
help members explore the opportunities we see
around us and on the horizon. We will examine
what we can be doing to innovate and what
insurance is going to look like over the next decade.”
He explained that PCI works directly with a
panel of chief executives to set the topics and
select the speakers at the event. They made the
decision to try to reflect some of the dislocation
in the industry at the moment and the wider
uncertainties in the world, whether this is the UK
leaving the EU, Catalonia potentially breaking
away from Spain or the tensions between the US
and North Korea.
“In the next decade we anticipate pretty
dramatic changes in the industry and the global
economy and our members will need to adapt
what they look like as companies and what they
sell. That is a fact of life,” Sampson said.
“CEOs unwilling to embrace this future and
take advantage of the opportunities it brings will
not be in the chief executive’s chair for very long.
“We have an optimistic view of the many
innovations taking place and the possibilities they
hold for the industry. As new risks emerge, we
find new ways to interact with customers and we
are able to price risks more accurately.”
He also stressed the very real risks that face
companies and the industry as a whole if change
is ignored. “History has proved in often dramatic
fashion that industries that try to resist market
forces and technology forces do not fare very well
in the mid to long term. They have certainly not
fared well compared with industries that have
embraced opportunities and reinvented their
companies to take advantage.”
Sampson added that opportunities will arise
for the industry as new risks emerge and new
products are designed to cover them. The sharing
economy is a new concept that did not exist a few
years ago but this is presenting opportunities to
insurers, he said.
He also noted that there was still a big job to
do in making businesses and consumers more
aware of the risks they face and what they can
do to protect themselves. He said the scale of
the protection gap—the difference between
economic and insured losses—apparent in some
areas in the aftermath of the recent hurricanes,
highlights this challenge.
“In some areas hit by Hurricane Harvey it
emerged that something like one in six homes
had flood insurance. That is a big opportunity
for the private sector to do a better job in looking
at how flood is covered and perhaps working with
the government in penetrating that market more
2 | PCI TODAY | DAY 1: Sunday October 15 2017
(Continued from bottom of page 1) “Buyers usually
have fixed budgets to spend on reinsurance but what
they do with that money is a different question. If
the relative price goes up, so might the retentions.
Equally, they could spend money on a different type
of coverage, with different attachment points. It is
rarely as simple as rates increasing—there will be a
negotiation of the entire structure.”
Clinton has seen no sign of investors leaving
the sector because of the recent losses. “Before
these events, capital was pouring in and we
expect our investors to stay in the space; no-one
will fall away. But I want to get the rate I need. I
will be seeking rate increases,” he said.
He also stressed the importance of the broker
in such negotiations—something, he said, some
carriers seem to have forgotten. “Your broker is
your marketing arm—you live and die by how
they represent you,” he said.
“You need to treat your brokers well and help
them to do their jobs with timely service and
honest feedback on their proposals. You cannot
write business you aren’t shown.
“They are a reinsurer’s lifeline in this market,
but vastly underappreciated by many. They do
so much more for their brokerage than many
people realise,” he concluded. n
Fight for rate hikes or ‘get
out of reinsurance’
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Retrocessional rates must increase in the
on increases, now is the time to get out of the
of the reinsurance market in the aftermath of a
John aftermath Walsh of big losses from the recent
business. We are the backstop and after five
big loss and will accept rate increases.
hurricanes and underwriters lacking PUBLISHER
the will to
straight years of rate decreases, a year like this
“They will understand the importance of their
fight for hikes should get out of the business.
should clearly show why cedants need to pay
backstop,” he said. “They need us as we need
Telephone:That is what Glenn Clinton, managing +44 director,
more,” Clinton said.
them—it is a symbiotic relationship. In terms of
ILS Capital Management, told PCI Today. He
7803 “I know 047 most of the 986
underwriters in the
that relationship, it is my turn now and if someone
believes that seasoned underwriters in reinsurers,
established reinsurers well and I know they are
cannot understand that I need more rate, and a
Email:who have witnessed john.big losses and the market cycle
optimistic—under pressure even—of achieving
tightening of some of the terms and conditions in
before, will be willing to hold firm walsh@and push for rate
newtonmedia.better rates now. Some of the people co.in the uk
the contract, then we will not be doing business.
increases. Newcomers to the market, perhaps less
space, in contrast, I have never met before. I am
“If I am not that important to them they can
experienced in the aftermath of big catastrophes,
less optimistic they will understand the importance
work with someone else.”
might be less confident in their offering and so less
of driving rate increases, but I hope I am wrong.”
He added that it is not simply a case
likely to hold the line.
Clinton said he believes that more
of rates increasing on the same structure
“If you don’t have the will to stand firm
sophisticated buyers will understand the dynamic
as before, however. (Continued on page 2)
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DAY 1: Sunday October 15 2017 | PCI TODAY | 1
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