Four critical areas to address for growth in 2021 and Beyond
With the 1.1 renewal season behind us, now is the perfect moment to step back and reflect on the events that made 2020 so memorable.
During one of the most chaotic and tumultuous years our world has experienced for quite some time, we reflect on how this has affected the insurance world and, more importantly, what it means as we move forward.
The firming of rates for the 2021 renewals was a hot topic, and although it was great to see a modest increase in rates, I think it’s fair to say that it did not live up to the market’s expectations, much like everything else in 2020. However, the resilience of the Bermudian reinsurance market was a highlight with PwC’s territory and insurance leader Arthur Wightman pointing out that the territory had overseen the deployment of between $12 billion and $15 billion in new capital in recent months.
So, with 1.1 renewals over, where will the market’s focus settle on?
Despite the number of global vaccination programs now in place, many countries remain under lockdown, and the insurance industry continues to work from home. So far, 2021 is looking pretty much like 2020, albeit with a new U.S. president. In our opinion, these are four critical areas that insurers must address if they expect to grow and thrive in 2021 and beyond.
- Billion dollar losses are becoming an unfriendly and unwanted guest: Globally, over 45 disasters in 2020 recorded losses of one billion dollars or more. To add insult to injury, it provided the markets with its eighth year out of ten where secondary perils exceeded primary perils in annual average loss; this is in addition to the pandemic’s lingering effects, which continues to create uncertainty.
- Investment income: The current interest rate environment has created very low returns for insurers to realize, leaving an earnings gap that senior management and investors are looking to fill. Although Fitch Ratings’ sector outlook for global reinsurance in 2021 is stable, it said that:
- Alternative capacity: A concerning trend continues to emerge in the way of alternative capacity from third-party players, ILS, and Insuretech companies looking to break into the industry. This trend places additional pressure on the industry and relationships that have been in place for many years, and which Covid-19 has prohibited from happening.
- Real-time decision making: The industry is facing a revolution when it comes to customer demands and the expectations to review, evaluate, price, and provide profitable decisions within hours, not days. The pressures this has put on Underwriters are immense and the consequences of making a wrong decision could be catastrophic.
Ultimately, this all leads to the subject of profitability and underwriting excellence. Data-driven decisions provide a basis to flex within your corporate risk appetite, delving into new markets, and seeing the early-warning signals to exit others. Attaining sound underwriting performance requires the pre-requisites of insurance value-chain digitization which enable data/information alignment, and therefore insight without latency.
Sustained underwriting profitability from a balanced portfolio is non-negotiable in today’s environment. Achieving this requires the unconstrained use of the best exposure management and underwriting tools that analyze relevant data needed to make the right underwriting decisions.
Delivering market-leading broker and client service also demands unconstrained access and use to technology and the latest data, enabling comprehensive and timely exploration of options and alternatives to develop creative and innovative solutions. However, it seems that many Insurers still lack the right access to the latest tools and data.
An unsettling statistic emerged from a recent survey undertaken with 100 insurers and 100 Reinsurers across the U.S. and Europe. With only 16% of respondents saying that they have access to all of the latest-up-to date data. Worryingly, 81% have had to make pre-bind decisions and 72% have had to make post-bind decisions that are not based on all of the data necessary to be profitable, potentially influencing the bottom line. This means that nearly nine in ten respondents in our survey had concerns that competitors were better at using technology to make more accurate scientific decisions on risk.
These survey responses correlate with stories in the market of exposure management analysis and reporting taking several hours and even days to run, especially when modeling the marginal impact of large multi-country portfolios to considered exposed limit, assumed/inuring treaty structures and outwards reinsurance. This delay hinders the organizational agility to adapt to market conditions, while the operational cost loads the expense ratio.
Under this scenario and constraints, how can any Insurer be expected to respond confidently to catastrophic events, perform profitability and effectively without all the right information at hand?
Becoming a player within today’s insurance markets requires experience, talent, and a foundational focus on your operations. Remaining competitive in the ever-changing dynamics of the industry means you must have a tight grip on your strategy aligned to operations. Providing your Underwriters with the tools that can deliver data-driven insights based upon rules and workflows you already have in place will allow them to make the best business decisions that will propel your organization into this next decade.
Our recommendations are to start with small, value-based, incremental decisions that allow you to shift your software ecosystem with minimal disruption and maximum ROI. It will ensure your staff is not overwhelmed with their current workload and provide them with a successful path in learning new ways of writing business.
The industry has shifted, the world is currently in the midst of a global pandemic, and yet the insurance market is who most people look to for reassurance and guidance as it relates to their daily operations and ensuring they are covered in case of a loss. The stakes have never been higher for our industry to provide the most accurate, insightful, and valuable products to ensure the global economy can emerge from this current crisis on a path of success.