Call to insurance industry – close protection gaps or lose relevance

This call from a panel of leading industry voices at the Airmic Conference in Manchester was the culmination of their discussion on what the industry can do to improve efficiency and remain an intrinsic part of the world’s economy.

The insurance industry is finding itself at an inflection point as it faces a continuing cycle of economic uncertainties, including inflation, geopolitical storms, environmental challenges, and capital constraints. This gradual acceleration of macroeconomic trends across multiple events that are pressuring the insurance industry sets it apart from previous shocks.

In the present environment, premium rates in some lines are starting to soften as capacity returns, while hardening continues in other lines – in some cases, further supported by maintaining limits, despite inflation and rising claims inflation is squeezing margins.

Some are expecting meaningful investment returns once again, but the race to decarbonise underwriting portfolios is challenging and calls for new capabilities. Rather than stepping back and reducing exposures, there is a significant opportunity to step forward to address the growing protection gaps.

Key to that is the role of data within insurance, and how it can be fully leveraged to provide value and insights.

Julie Page, CEO of Aon UK, said: “Data has been determining weather events for years. Most of the time, we look backwards, but we now have to look forwards. The data we’re talking about, which supplements all the patterns and trend data that we have, gives us a better idea of what climate change is likely to do around the world – and the risks our clients are facing,” she added.

Peter Blanc, head of M&A at Howden UK & Ireland, underscored the importance of using data for the right purposes. “It’s easy to use data for our own individual company’s benefits,” he said. “If you’re an insurer, the natural reaction is, ‘Well, can I use this to select a segment of risks that I think are going to outperform the market and deliver a better return?’ After that, I don’t need to worry about all risks. But we should be asking data the right questions about how to solve problems.”

The panel also noted it was imperative for the industry to attract the world’s best young talent and drive innovation.

Adam Garrard, head of corporate risk and broking at WTW, said: “The risks facing an airline are completely different to the ones that face a manufacturing company or a financial institution. Most of the industry is set up around practices or communities where people come together. That’s not good enough. The broking and the insurance industry needs to restructure themselves around specific business with P&L roles and dedicated personnel. That’s where the innovation is going to come from.”

He added: “If you want to meet the needs of your clients, you need to understand those needs. And if you’re not structured correctly, you’re going to struggle to understand those needs. Risk is specific to the industry.”

One major issue in the fraught geopolitical environment of today is that of war exclusions related to cyber risks, and their constant evolution, as events since 2022 have demonstrated. Blanc alluded to how there could be twelve different war exclusions in a typical cyber insurance policy today. “How can clients keep abreast of that?” he asked.

The challenges in the industry are also exacerbated by tightening capacity in traditional reinsurance capital and alternative capital markets, and the full extent and duration of the capacity squeeze remain uncertain given the strong hardening observed in the January 2023 renewals, and the return of volatility in the banking world. In this context, the insurance industry has to transform their capabilities and talent as underwriting and claims shift from an art to a science.