Looking forward to 2021: Insurance lessons learned this year
Argo's CUO shares how the insurance industry's exemplary teamwork will continue to move the market forward through challenging times.
Insurance is a team sport, and I have no doubt that both on a company and an industry level, it was working as a team that got us through 2020. The COVID-19 pandemic has forced us to focus on being nimble and on finding new ways of collaborating and supporting each other. This is true across the insurance industry, but especially true of any firms going through a turn-around period. Difficult circumstances, like those we experienced in 2020, can muddy the waters, particularly when you’re looking to exit businesses that don’t fit your company’s strategy or grow successful parts of your portfolio.
2020 has seen many of us dealing with the mental health impact of huge change and stress. In my case, with two children homeschooling, two children unexpectedly back from college, and my wife and I working at home, the family was fighting not just for broadband but also somewhere to sit. Hot desking took on a whole new meaning!
Added to the personal stresses, for us in the specialty (re)insurance industry, there have been multiple market pressures. While, so far, the impact of COVID-19 on losses has been relatively contained, we saw one of the worst hurricane seasons on record — the storms just kept coming. We also remain in a low-interest-rate environment, and the industry has finally had to acknowledge that the investment returns are simply not there. Pricing is not where it needs to be if firms are unable to rely on investment income.
Welcoming the new year
As we look forward to 2021 with some hope on the horizon, it is absolutely vital that we ‘go back better.’ We know that the world is not going to be the same, whether that is in our personal lives or the world of work. This is an opportunity to build a better balance, take the lessons we’ve learned and apply them to how we run our business in the future.
As we look around at the U.S. specialty insurance market, we see potential opportunities for insurers, as both brokers and insurers forecast continuing rate firming throughout 2021. Not only that, but the discussion has moved from being simply about rates to taking a closer look at terms and limits. We see that in areas such as management liability and excess, which are finding it harder to complete towers and achieve capacity. This conversation shift is really the game-changer; it is the moment when insurers see their results start to improve. You could say that this is a once in a decade opportunity for insurers.
However, we need to work with our customers and distribution partners to navigate this changing environment. It would be all too easy for underwriters to get excited about the prospect of building exactly the book of business they want, but that is not how insurance works.
This industry thrives on teamwork. We can grow our book profitably, but we also want to — and must — do that in collaboration with our partners. We want to be not only relevant to the markets we serve now but also in the long term.
Macroeconomic circumstances, particularly a continuation of the recession, are a concern for 2021. While many commentators are talking about a roaring ‘20s to come as they look to a post-COVID-19 recovery, other well-known investors are selling their banking stocks. Whose view do you share? With so many variables, it is hard to call. The simple fact is, however, that if you add a recession to a challenging low-interest-rate environment, then the outlook is bad for everyone, including insurers, with claims increasing and premium income dropping.
Personally, I am also concerned about the increasingly evident impact of global warming; given three such substantial hurricane seasons in a row, the (re)insurance industry must review its approach. The unpredictable climate has made pricing property cat policies difficult, and new capital entering the market is set to further cloud the horizon. There are no easy answers, but it is critical that underwriters focus on areas where they understand the risk, can be distinct, and add value.
Data and models can be helpful, but not to the exclusion of the unique knowledge of the underwriter or the broker. I think that sometimes we miss the point about models – and I speak as an actuary by training. Models don’t give you an answer. They give you a clearer idea of the things to worry about.
By way of example, if you run a cyber model across your portfolio of business, it may show that your exposure is huge (and we have recently seen a Google Cloud outage occur in another example of the previously unthinkable happening in 2020). The model will show a massive accumulation and poses the question — what are you going to do about it? It doesn’t give you the answers; you use its findings to improve your underwriting strategy.
The value that underwriters and brokers offer is in knowing which levers to pull. That will be a critical tool in 2021. All insurers are on that journey to use data and technology better to support internal processes, to run the machine better, to price better, just like Argo. It may not sound sexy, but it is important — a huge opportunity that can give you a 20% uplift in productivity if used correctly.
2020 has been difficult, and 2021 will not be a walk in the park. But if we use all the levers at our disposal and pull them together, then — returning to my original point — through teamwork, we can navigate the waters successfully.
Tim Carter is the chief underwriting officer at Argo Group. Carter previously held roles at AIG, including president of portfolio solutions and global chief underwriting officer. He also served as the chief underwriting officer for Zurich Insurance in both North America and Europe. The opinions expressed here are the author’s own.
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