Philly I-Day 2016 kicked off with an executive panel discussing a variety of issues facing the insurance industry. The panel was:
- Donald Aspinall – VP Global Risk Management, Comcast NBC/Universal
- Christine LaSala – Chair, Willis Towers Watson
- Chris Maleno – SVP Chubb Group
- Roger Fell – Managing Director, Marsh (moderator)
Question: Our industry is consolidating. What does that mean to all of us?
There is a lot of capital in the insurance marketplace and the economy is growing which leads to more things to “insure”. There has not been many large mass tort claims or natural catastrophes in the last few years, which has led the insurance industry to be profitable which increases investment in the industry.
Organic growth is getting tougher so the best way to grow is through M&A activity. Last year there was a record amount of M&A activity in the insurance industry. What does this mean for the future? That is going to depend on how these large recent acquisitions ultimately work out for the impacted companies.
With the consolidation comes challenges. We must be mindful of the impact this change can have on our employees and our clients.
From a buyers perspective, consolidation reduces choices. There are also positives to consolidation in terms on stronger balance sheets.
Question: Will we continue to see market cycles impacting our industry?
The cost of loss from the carrier side is never truly known for many years. Yet carriers report earnings on an annual basis and have to answer to their policyholders. There will always be pressure on carriers to keep business coming in while at the same time keeping in mind the long term profitability.
Unexpected trends can impact the industry. For example, the number of fatal auto accidents has increased despite vehicles being safer than others. This is due to distracted drivers using cell phones, etc. Unforeseen losses can have a very negative impact on the balance sheet of carriers.
From the employer perspective, you need to be paying attention to the amount of risk you decide to retain. Changing market conditions can impact your decision on whether to retain more or less of the risk yourself. When insurance is cheaper to obtain the tendency is to retain less risk.
Question: How is technology impacting our industry?
As an industry, we are not good at technology and we can be slow to change. We need to improve in this area. We need to be quicker to innovate and adapt to changing technology.
Some of the key principles of insurance is the law of large numbers and a focus on underwriting skills. Today access to data and analytics is changing the role of the underwriter and actuary. We have the ability to analyze a much wider variety of information than ever before.
Better data can help a carrier make better decisions around pricing a risk and allow them to be more competitive when appropriate.
Price is not the only issue that impacts the buying decision. Buyers also need to consider things like depth of coverage and ability to provide service. Relationships are important, but those relationships do not outweigh other issues.
There can be unknown risks associated with new technology. It is a challenge for insurers and brokers to keep up with the insurance demands associated with this new technology. You need to consider the exposures associated with third party vendors you are working with also. Many of the larger historic data breaches happened due to a breach at a third party vendor.
It is very important for everyone to fully understand the nature of the risks in the business. This means getting educated on how new technology is being used, what the potential for problems are, and how those problems can be addressed. Five years ago IT managers felt they had the cyber risk exposure under control and that risk management was not needed. Now there is much collaboration between IT and risk management on these issues.
Question: How can this industry compete and attract the best talent in the future?
A significant percentage of our workforce is going to retire in the next five years. That level of experience and loyalty will be impossible to fully replace. We need to prepare for the evolution of our workforce.
We need to stress how important the insurance industry is to the economy in general. Without insurance our economy would collapse. Showing the importance of our industry will make it more attractive to new employees.
Wall Street and law firms do not have the need for new talent that the insurance industry has. We should be able to tap into individuals interested in careers in the financial services industry and steer them into insurance.
Today there are many more risk management programs available at colleges and universities than there were a few years ago. This should provide us with a workforce that has a foundation in risk management principles. Most of us in the industry today did not have that advantage when we started our careers.
Individuals in our industry need to pass on stories about the insurance industry and why we have enjoyed and benefited from our career choice.
Diversity is important as we move forward. Diversity brings us a range in experiences and viewpoints which are important to consider. As an industry we need to do a better job with a focus on diversity. Talk is not enough.
Question: The commercial insurance industry has always been a broker distributed marketplace. Will this continue?
We are already seeing personal lines become more direct to consumer and focused on technology. They are well ahead of the commercial marketplace in this area.
Brokers need to show their value beyond just placement. They need to focus more on service, consulting, and also having the knowledge needed to ensure their clients interests are protected in the best possible way.
Small commercial lines placement will likely go the way of personal lines and become more of a direct to consumer marketplace with small employers buying coverage online.
Question: How important is contract certainty to the insurance industry?
Risk managers and brokers assume the policy will respond to the loss as expected. The four corners of the insurance policy need to be clear.
Clients and brokers need to limit special requests around the policy language as this creates uncertainty around how the policy will respond.
The experience gap that is coming to our industry will make contract certainty more important than ever.