The traditional insurance industry will have to respond to a number of converging factors in the next 15 years and beyond, including an emerging threat landscape, an influx of new capital, the changing nature of competition, and seismic shifts in the characteristics of the world’s workforce...
The traditional insurance industry will have to respond to a number of converging factors in the next 15 years and beyond, including an emerging threat landscape, an influx of new capital, the changing nature of competition, and seismic shifts in the characteristics of the world’s workforce.
A new set of risks are emerging
Risk is now high on the agenda for every board of directors. Increasingly, they are looking beyond the traditional property and casualty risks to focus more attention on an array of emerging risks, including supply chain uncertainty, cyber security, extreme weather and executive liability issues.
Supply chain disruption is prominent on risk manager’s agenda, driven in part by the global nature of manufacturing and the increasingly complex and interconnected global environment in which we now do business.
Another key risk for firms is cyber security. In a Willis survey of Fortune 500 companies, 46 percent of companies disclosed that their cyber risk was “material”, “significant” or “critical”. The situation now is not ‘if’ a firm will suffer a cyber breach, but ‘when’.
Companies also need to guard against reputation and brand damage to maintain customer loyalty, ensure future profits and protect share prices. Willis research into corporate reputation last year found that the vast majority of large corporations have suffered at least one major reputational crisis in the last 20 years, but of these events, less than 10 percent were insurable.
Emerging risks are more complex and traditional risks are occurring more frequently. Research by Munich Re showed that five of the largest natural catastrophe losses have occurred within the last three years, with more than two events occurring each day. As a result, businesses are turning to risk advisers and brokers to help them build resilience in an increasingly risky world.
The history of new capital
Prior to 1970, most risk transfer solutions were provided by the traditional insurance market. This was followed by the formation of captives to create tax and regulatory efficiency and then came the asbestos claims that almost put Lloyd’s out of business, and the formation of new carrier groups.
The 1990s saw the influx of Bermudian capital, which led to a reduction in the dominance of Lloyd’s in the catastrophe insurance and reinsurance markets. In the late 1990s, the first cat (catastrophe) bond was formed. Further new entrants were attracted by the rise in rates, which preceded the 9/11 terrorist attacks, and the economic downturn, which saw alternative capital searching for better returns.
The period between 2003 and 2013 was defined by 10 very successful underwriting years, the development of models and analytics to more accurately quantify risk exposures, and the expansion of cat solutions to transfer these risks.
Changes in competition
The influx of new capital has altered the state of competition in the market. As traditional underwriters are being threatened by new entrants from non-insurance backgrounds, the traditional players are being forced to adapt to stay relevant.
And as businesses demand more sophisticated risk assessment, a new breed of ‘analytical broker’ will be born, managing both the front-end placement and reinsurance needs with the analytical skills of a consultancy. ‘Old school’ broking houses and carriers that focus solely on the insurance transaction will experience a shift from being market- and product-driven to more client- and industry-focused.
Already, analytics is moving from reinsurance into the direct insurance space, and with it comes the demand for a new set of skills. As the skills and experience required to manage and service the needs of the client change, a ‘war for talent’ will emerge.
Changing nature of the workforce
The insurance industry has traditionally been resourced by the ‘baby boomer’ generation. They are the current leaders of companies: loyal to the organisation, in a love-hate relationship with technology, career-oriented, workaholics, respectful of authority, and documentation heavy.
At the other end of the scale are the future leaders of companies. They are optimists, confident, team-oriented, more accepting of authority, embrace technology, and high achievers. They have embraced new technologies and ways of working, are flexible in regards to mobility, and are developing new skill sets not traditionally seen in the insurance industry.
Organisations must focus on the characteristics and needs of this new generation—call it ‘Generation Y’—if the insurance industry is to attract and retain the talent of the future.
