Journalist David Benyon takes a look at developments in the commercial re/insurance market in 2020.
At the dawn of this new decade, the global re/insurance sector finds itself in the throws of unprecedented change. From a more progressive culture, to fast-evolving technology, and pressure at renewal, here are four headline-making trends to watch for 2020:
D&I reality check
The London market’s diversity and inclusion (D&I) efforts had a rocky 2019. Sexual harassment allegations and an investigation to weed out rotten elements within Lloyd’s clashed with progress seemingly being made towards a more inclusive marketplace.
The D&I initiatives brought in during Inga Beale’s tenure as CEO seemed to be making progress, led by the success of ‘Dive In’ events geared towards promoting a healthy D&I culture and a more diverse staff pool. But it’s about identifying bad behaviour as much as encouraging good.
The ban on alcohol in work hours for Corporation of Lloyd’s employees already hinted at the unprofessional behaviour that has been too common in the market. And anybody who’s attended the annual Monte Carlo Rendezvous event - where alcohol flows freely - will likely have their own anecdotal evidence of misbehaviour, particularly towards women.
There seems to be a disconnect between D&I efforts publicised at one end of a company, and the reality within the business teams at the other end of the scale. London market insurance companies should be taking a hard line with staff this year to make examples when abuses emerge and preferably to preempt bad behaviour.
It’s all well and good for the marketing department to sponsor Dive In and for HR to produce a shiny D&I policy document, but companies need to root out bad behaviour by punishing it within their ranks, not just sweep it under the carpet, allowing perpetrators to move on unscathed.
My key prediction? Sadly, expect to see more negative headlines about drinking and sexual harassment in the market this year. The wave has not finished rolling yet.
Insurtech boom
Insurance technology will continue to flourish in 2020. Each quarter brings fresh investment well above $1bn globally. In 2019, insurtech investment surpassed the previous year’s level with a quarter to spare.
What we’re also seeing is a shift away from technology innovation just aimed at personal lines insurance for consumers - the smartphone apps beloved by Silicon Valley’s entrepreneurs.
Instead, the tech world is paying greater attention to the corporate world of commercial lines insurance, where data and models for pricing and risk and distribution channels are old-fashioned in comparison.
The London market is ripe for a number of emerging tech trends already finding take-up, as noted by Duck Creek Europe’s Bart Patrick in this opinion article. The emphasis placed on technology by Lloyd’s in its “Blueprint One” last year bodes well for the continued boom in insurtech.
It was heartening to see the likes of Munich Re throwing its weight behind concepts such as the “Syndicate in a box” idea to reform the world’s oldest insurance market.
Watch out for more headlines about parametric products, blockchain, predictive analytics, digital distribution and cloud technology seeing increased take up in the London market.
Reinsurance at 1/1
The reinsurance market has reached an interesting point in 2020. Collateralised competition has cooled in the past couple of years, despite fears that ILS would continue to flood the market with excess capacity.
Catastrophe losses, trapped capital and lower ILS returns caused a levelling off of that influx, which for several years previously contributed to soft pricing inadequate to the risks run by reinsurers.
But after the heady gains at 2018-2019 renewals, January 1 2020 showed flattened pricing. Risk-adjusted property-catastrophe reinsurance rates-on-line rose by 0.8% on average globally, according to Hyperion-X’s renewals report.
The average increase was 2% in North America, where insured losses fell markedly in 2019. Pricing was flat to marginally down in Europe, Asia and elsewhere.
The market seems to have levelled off, with a couple of exceptions. “The action was really in casualty and then in retrocession,” noted Hyperion-X’s analytics head David Flandro, speaking to journalist Mark Geoghegan in an informative podcast offering oodles of market insight.
Casualty reinsurance, not renowned for leading a hard market, were up about 3%, bigger gains than the peak perils of property cat. Meanwhile in retrocession - the opaque market for reinsurers to buy another level of reinsurance for their own reinsurance risks - prices on average worldwide increased by a whopping 20%.
A key trend to watch - we may see more small and mid-sized reinsurers reliant on buying retro cover finding it hard going in 2020, particularly if hit by above-average catastrophe losses in the coming months.
Florida squeeze
Cheap reinsurance in a soft market has been taken for granted for years. But now there is financial pressure on Florida hurricane insurers, the peak peril and biggest market for reinsurance.
“In 2019, the change in the cost of catastrophe reinsurance was, and likely will be in the future, a financial shock to carriers,” wrote Demotech in a ratings warning this month shining a light on the pressures faced by Florida's carriers.
“The majority of the carriers will likely be affirmed. However, to avoid downgrades, some carriers may abandon the necessary refinements to their business models and sell their entities or be acquired. Others will be downgraded.”
What will the 2020 headlines be?
Watch out for news about disruption in Florida’s market, in terms of downgrades, mergers and acquisitions, and increased demand for reinsurance, which could keep reinsurance prices relatively high at subsequent renewals, such as that renewed around June for the start of the hurricane season.
But then of course there is the infamous black swan event - an unpredictable, rare event with severe consequences that is beyond what is normally expected of a situation. Nobody wants this on any level of course, but if one was to happen in 2020, I suspect it could be as a result of a global cyber attack – but don’t lose sleep over this, the global (re)insurance industry is nothing if resilient.
