Technology, analytics and different capital structures are among the top drivers for innovation within the re/insurance industry. Joe Tocco, chief executive, Americas, XL Catlin, talks to Bermuda:Re+ILS about the company’s plans to innovate and lead the industry through stormy times.
In an increasingly challenging environment, innovation, diversification and leadership are playing a pivotal role in shaping the modern re/insurance industry.
With merger and acquisition (M&A) activity set to continue and diversification into new lines a key growth strategy for many players, leading the charge has never been more important, as Joe Tocco, chief executive, Americas, XL Catlin, explains.
“Innovation has been at the top of the list for most companies for some time now as the industry tries to bring more relevance to customers and insurers, and XL Group CEO Mike McGavick has been an outspoken proponent of the industry’s need to boost its relevance,” he says.
Tocco explains that in order to innovate, the industry must take a long hard look at its insureds’ risks that seem to be uninsurable or not addressed through an appropriate insurance product.
He adds that the key components driving innovation are technology, analytics and different capital arrangements.
“Technology is at the forefront of this innovation, and we’re continuing to invest in new technologies or new ways to use technology to streamline processes and operate more efficiently,” he says.
“For example with our risk engineering group, we’ve developed a field engineering iPad app that has been used widely and brings huge value to our insurers, but also to our engineers and underwriters. It’s a much more efficient way for our risk engineers in the field to perform risk analysis of the properties that we insure.
“They capture the information in this new platform and are able to quickly transfer and share data with our property underwriters to evaluate the risk. It also gives us more capabilities to share this data with our clients, along with other loss prevention insight to help them strengthen their risk management strategies.”
Tocco says that analytics is another key area of focus, and one that XL Catlin continues to develop.
“We firmly believe that those who invest wisely and creatively, using the abundance of data that’s available, will find new opportunities to seize,” he says.
“We also continue to see trends with insurance-linked securities (ILS) and different capital arrangements that will really shake the industry for years to come. We’ve seen big changes in the reinsurance sector and we’ll start to see this materialise much more in the insurance segment as we go forward. We’re already putting plans in place to position XL Catlin for this.”
Formed to solve a particular crisis in the liability space in the 1980s, XL Catlin—just XL back then—has innovation at its core and, according to Tocco, “in its DNA”.
It is this foundation that has led the company to retain its leading status over the years, continuing to be seen as a key innovator both internally and externally.
“Recently, the entire company took a day out of its schedule to focus on innovation. On this day, every employee committed to thinking about innovation and the company’s progress in finding innovative solutions,” he explains.
“We firmly believe that those who invest wisely and creatively, using the abundance of data that’s available, will find new opportunities to seize."
“We never know where the next big idea is coming from and we want every colleague to realise that it could be from them. Whether that’s someone in the mail room or someone straight out of school, it allows people with different roles to bring their ideas to the table.”
Tocco says that in order to qualify as innovative, the result must add value.
“If there’s no value being added, then it’s just a good idea, but not quite the innovation we are seeking. We’re looking for innovations that add value to our clients, our own operations and how we do business,” he says.
“We’re extremely fortunate to have a very strong leader in Mike McGavick but it has to be about more than just Mike. It is about leadership from top to bottom, having the vision and being willing to take the risks necessary, but in a smart way.”
Tocco says that re/insurers must be willing to move the industry in a new direction, and adds that strong leadership will shape the future.
“We’re well poised to take that leadership position,” he says. “If you think about the combined talent from XL and Catlin, we are steeped in underwriting talent. Bringing the two companies together and having different visions and ideas—and there are a lot of new ideas and capabilities—is incredible.
“We now need to think about how we use this combined talent to help influence and innovate. The challenge is not only solving the traditional problems of today, but also the problems that we’ll see in the future.”
Foreseeing the future
There’s no doubt that the future landscape will appear different from the present one, and for XL Catlin, this will include an increased focus on new capital and how it can better be utilised.
“We think about this a lot, and we want to use our intellectual capital to come up with new ideas, but not always have to put our own balance sheet at risk too,” Tocco explains.
“We can be a conduit for our insurers or reinsurers for some of the alterative capital that’s available, while thinking about how we utilise the capital to create new and interesting solutions for things that aren’t traditionally insurable today.”
An example of this is XL Innovate—a venture capital initiative which allows access to additional capital outside of the industry.
The fund will take equity positions in companies that provide new market opportunities for XL throughout the world. Most recently, XL Innovate acquired the remaining shares of New Energy Risk.
“With New Energy Risk, XL helped develop and deliver unique performance warranty products which enable clean technology companies to obtain the project financing they needed to grow. It’s going to be interesting to see what other innovative products emerge out of this venture,” says Tocco.
Looking at the US P&C landscape over the next five years, Tocco says the outlook is stormy.
“We will continue to see M&A and some of the weaker competitors will be weeded out. It’s not all about size and scale, but the scale does matter,” he says. “It allows a company to take more risk, which inevitably allows more innovation as a larger balance sheet can handle it—so I think it is necessary in the short to mid-term.”
He adds that while there will always be niche players in the market, the way they operate and act might change.
“It would be naïve for people to think that things aren’t going to change. The industry will change drastically over the next five years and we’re in for some choppy years,” he says.
“There are so many intermediaries that are all taking a piece of the process, but if we don’t figure out a way to make the whole process smoother, someone else will.”
Joe Tocco is chief executive, Americas at XL Catlin. He can be contacted at: firstname.lastname@example.org
Joe Tocco, XL Catlin, Mergers & Acquisitions, Bermuda, Europe