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As the re/insurance industry braces itself for a period of rapid change and diversification, Bermuda:Re+ILS asked a number of senior executives within the industry for their views on how the sector will cope with what is ahead, how it must adapt and the risks of failing to do so. What follows is a snapshot of responses
The re/insurance industry is changing quickly. As new forms of capital have flowed in utilising new forms of risk transfer, some of the industry’s fundamentals have been undermined, overhauled and called into question. Combine that with the influence of technology and digitalisation, and you have an industry in the middle of a period of rapid and disruptive change.
Happily, Bermuda has been a pioneer in many aspects of this change. But while it may have embraced some elements of change and new forms of risk transfer, it is almost impossible to predict what lies around the next corner and how that will change things.
In an attempt to assess how some of the industry’s most senior executives view this challenge, we decided to survey some of Bermuda’s most influential and pioneering chief executives and senior directors to get their views not just of how the industry is changing now but how they believe it might look in the future.
Our Future of Reinsurance Leadership Survey illuminates the interesting and sometimes radical ways the leaders we spoke to view the challenges the industry is facing. One of the most common points raised was that the industry is about to embark on a rapid period of change and that Bermuda has the opportunity to be at the cutting edge of it.
Bradley Kading, executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), says he expects capital levels in the industry to remain healthy and that this can offer Bermuda an opportunity to become an innovator and for the industry to close the protection gap.
“In the next 10 years, the big focus will be on expense reduction and the integration of new technology,” Kading says. “The capital available will remain robust which offers a great opportunity to close the protection gap by putting this capital to work.
“Given the rapid pace of convergence, Bermuda can continue to be a reinsurance incubator. M&A activity will be active tied to cost control needs and gaining scale. But new startups will continue, just like in the past.”
Kathleen Faries, head of Bermuda at Tokio Millennium Re, agrees that such change is inevitable and also that this will benefit the risk transfer community and those it helps cover.
“In a decade, ‘convergence’ as we know it today will be long gone,” Faries says. “Why? Capital naturally follows returns and as investors gain a better understanding of insurable risks this trend will not decrease. On the contrary, it will continue to increase.
“Today, according to rating agencies and brokers, one-fifth of reinsurance capacity is already so-called ‘convergence capital’. Down the road this mix of capital will become the new normal. There will soon be simply ‘pools of capital’ looking for a good match with ‘pools of risk’.
“This is a good trend, as many societies are still underinsured when it comes to traditional and, in particular, emerging risks. Traditional reinsurance capital alone will not able to cover the increasing appetite for risk insurance as economies develop.
“However, the matchmaking between capital and risk needs to become much more efficient. This is where the reinsurance sector can add the most value.
“If we navigate the coming years properly, Bermuda should become a centre of excellence and jurisdiction of choice for the efficient analysis and movement of risk to capital pools. This will be achieved by using the most cutting-edge technology and the most experienced professionals in the industry,” she says.
Other executives identified technology as being the biggest driver of change. Mark Watson, chief executive of Argo Group, says that technology will help allow risk to be transferred differently and more efficiently.
“Reinsurers will be able to take equal advantage of advancing technology, increasing their use of online platforms for distribution of their products—for quoting, placement and monitoring of risk,” he says.
“Technology is itself the convergence of the computing and communications industries, which once stood apart. That technology is now driving convergence among insurance companies and credit institutions, which frankly no longer need to stand apart other than as compelled to by regulators. Innovative disruption of the value chain from policyholder to capital markets will shake everything up, and this convergence will ultimately be to the benefit of the customer.”
Arthur Wightman, PwC Bermuda territory and Insurance leader, says that the industry must accept the great upheaval it is experiencing and embrace change.
“The insurance industry is undergoing more upheaval than any other and it will continue to confront disruptors such as changes in industry regulation, customer behaviour, distribution channels, traditional and new competitors and core technologies of production and service,” Wightman says.
“Insurtech’s use of game-changing technology and data innovation will change the landscape of what needs to be insured, and how risk transfer can be delivered.
“Partnerships with lean and agile insurtech entrants can help insurers improve their processes, strengthen efficiency and reduce costs. They also can help insurers improve their analysis of the huge amounts of data at their disposal, which can lead to better customer understanding, higher win-rates, and more informed underwriting.”
One thing almost all the leaders agreed on was that Bermuda and the industry generally must both adapt or risk losing market share and becoming less relevant to society. As Watson at Argo put it, when asked of the dangers of a lack of innovation and change in the industry, he replied: “Just one word—extinction.”
Charles Cooper, chief executive, reinsurance at XL Catlin, responded in a similar vein. “Simply put, you become irrelevant and the world moves on without you,” he said. “The more you commoditise the reinsurance product, the more you compete solely on price where the lowest cost provider ultimately wins.
“The more you restrict coverage, the more you create gaps for competing solutions to exploit. We must ensure that we are always providing a valuable and comprehensive product to the real risks that are continuing to emerge and evolve.”
Faries agrees: an inefficient sector quickly becomes a target particularly for startups and technology firms.
“This is true also for the re/insurance sector. The more these investors get to know our industry the more vulnerable we become to disruption from the ‘outside’. If re/insurance does not begin to transform from within, we will run the risk of becoming redundant.
“There are ways for us to make the chain stronger, by efficiently organising the risk transfer between policyholder, insurers, reinsurers and even capital markets. But, we have to be willing as an industry to change and innovate, making the hurdles for entry higher to outsiders,” she says.
The other pertinent topic that emerged through the survey was the importance for the industry of embracing and training a new generation of talent. Without this, given the rapid changes ahead, the industry risks falling behind and being unable to keep up with events.
Watson at Argo says that the importance of talent should be held in similar regard to the importance of capital to the industry.
“Reinsurance depends on intellectual capital just as it does on financial capital. Ours is an industry where success is driven by high performers,” he says.
“Bermudian companies will struggle if they fail to acknowledge that great talent must be sought, invited, mentored, challenged and rewarded. Collaboration is key. Talent is a real issue for this industry, but I’m confident that there is wide recognition of this reality in Bermuda.”
Cooper at XL Catlin adds that training will become critical within the industry in the next 10 years.
“We can avoid a talent shortage by continuing to identify and develop high potential Bermudian talent by offering comprehensive training programmes both on and off the Island. The more we can give locals experience in other markets, the better off the reinsurance industry will be,” he says.
“We will never have enough qualified talent in Bermuda to fill every job in the industry and the industry will benefit from the different views, experiences and ideas of international talent. In addition to this, reinsurers in general need to develop a more diversified workforce that is more reflective of the world in which we live.”
Kathleen Reardon, chief executive of Hamilton Re, has a different slant. She argues that the talent among senior executives in the industry is more robust than it has ever been. But she also acknowledges the challenges of ensuring a new generation of talent emerges.
“The Bermuda market is known for the quality of its intellectual capital. Whereas once the market may have attracted those on the ascent or descent of their career, the market now boasts executives at their peak,” Reardon says.
“Employees have access to and interaction with some of the giants of the global reinsurance industry on a regular basis, making a Bermuda reinsurance company a highly desirable place to work. If the opportunity to interact with intellectual capital of this calibre is maintained, it’s not likely that Bermuda will face a talent shortage.
“Having said that, the profile of the industry’s workforce is changing, driven by the need for data scientists and analysts as well as software developers and engineers. Many reinsurers are beginning to resemble technology companies. Recruitment initiatives will need to be redesigned to take this transformation into account along with an awareness campaign to educate students and graduates of the expanded opportunities that a career in reinsurance represents.”
Wightman concludes by stressing that fear of an impending shortage of talent is a recurring theme for the industry, which emerges in many surveys and reports. He says PwC’s own research has shown that 70 percent of global insurance CEOs see limited availability of key skills as a real threat to their growth prospects, and that expanding the pool of people from which insurers can recruit talent by promoting diversity is vital.
“While progress is being made, there’s still a big gulf between management’s intentions and the reality for many people working in insurance,” he says.
He notes that the industry is doing reasonably well in attracting high-quality female talent, despite research indicating that insurance is one of the least popular industries for female Millennials looking for work—13 percent said they wouldn’t work in insurance because of its image.
“The primary challenge appears to be that while many talented women enter the industry, the industry is not compelling them to stay,” Wightman says.
He says the key in today’s highly competitive job market will be for insurance organisations to equip themselves to offer opportunities for career progression, competitive pay, flexible work arrangements and a culture of work/life balance.
“Just talking about diversity as part of an employer brand is no longer enough. When deciding whether to work for an employer, the survey found that more than 50 percent of women candidates are looking to see active diversity progress by the organisation,” he says.
He adds that female and male respondents both ranked opportunities for career progression among the top three employer traits, along with competitive wages and flexible work arrangements.
Survey, Insurance, Reinsurance, Survey