Insurance market remains healthy with tech revolution on the horizon

Commercial Risk Europe editor Adrian Ladbury interviews José Ramon Morales, country manager Iberia, insurance at XL Catlin, AXA XL, a division of AXA, about the state of the Spanish and wider European insurance market as we head into 2019.

Adrian Ladbury [AL]: Is the commercial and corporate insurance market in a healthy state, or does the death of the cycle mean that the model is really no longer sustainable?

José Ramon Morales [JM]: 2017 was a record year in terms of economic losses from natural catastrophes, which totalled $330bn. Insurance covered $135bn of those losses. It was a challenging year for the planet and for many people in the areas affected.

And yet, 1 January rate increases were typically fairly modest, with the possible exception of loss-exposed property coverages. Even there, however, rate increases were generally in the low double-digits.

Also, except for some activity in a couple of specialty lines markets, we have not seen any significant withdrawals from the primary property and casualty markets or a substantial reduction in capacity.

Finally, note that alternative capital continues to flow into the global reinsurance industry. Aon reports, for instance, that alternative capital reached a new high of $95bn during the first quarter of this year and now contributes 16% of global reinsurance capital.

Considering these and other statistics, the commercial and corporate (re)insurance markets are healthy overall.

We will continue adding value to our clients and brokers if we keep on listening carefully to them and work in close collaboration to fully understand their needs. Looking ahead, we will only be successful if we are able to keep and attract the best talent to the industry. This talent needs to be highly attuned to the broad forces shaping the risk landscape, such as technological, environmental, sociopolitical and economic trends.

[AL]: What does the market need to do to react to the fast-evolving and ever-more challenging needs of multinational customers?

[JM]: Most importantly, we must continue to be proactive. That means paying close attention to what’s happening globally and locally across a range of issues – geopolitical, technological, economic, environmental, and so on. We need to engage in ongoing dialogue with clients to understand their business objectives and challenges, working closely with them to create risk management and mitigation solutions that are relevant, fit for purpose and capable of responding to new threats.

Insurers are there to help companies manage their individual risks and create insurance solutions that are adapted to the countries where they do business. Here, combining a global network with local underwriting, claims, lawyers and risk engineering expertise, and partnering with local experts, is central to serving our clients whenever and wherever they need us.

[AL]: How can the market significantly reduce the cost of the current risk transfer chain to make it more sustainable and efficient?

[JM]: Significant investments have been made across the industry in the past ten years to streamline processes and improve operating efficiencies. Nonetheless, there is still more work to be done. And technological innovation is playing a central part. Interestingly, some of the most significant innovations are taking place in the oldest class of business – marine. There, blockchain is poised to fundamentally change how we underwrite and manage that class of business.

The key question for the market is: how it can more efficiently connect capital to clients’ needs? Data, analytics and technology platforms will play a critical role when it comes to progress in this area. Those market players that are better suited to deliver valuable capabilities such as risk prevention, pricing and risk selection, capital management and superior customer service will be best positioned.

[AL]: How can the power of the digital age be harnessed to deliver solutions for difficult emerging risks, improve the way claims are managed and make the whole process more efficient, especially global programmes?

[JM]: We are working with blockchain technology to that end, actively participating in new industry initiatives such as B3i and the marine insurance blockchain platform Insurwave, driven by EY. Blockchain technology may prove to be a viable tool that could transform the insurance industry through a shared, transparent record of contract-related information along with all supporting risk data. Streamlining communication and transactions would subsequently improve industry processes and provide better insurance services to customers.

[AL]: Does the rise of regional markets such as Madrid mean the end of global centres such as London? Why is this trend occurring?

[JM]: I do not think so. London will continue to be relevant and remain one of the world’s primary (re)insurance markets, underwriting highly specialised coverages for risks in less developed markets.

However, Madrid has emerged in the last decade as an alternative placement hub for Latin American business. Madrid is a competitive market with clear advantages, such as the high capacity available, common language and cultural ties. Spanish companies have had a widespread presence in Latin America for centuries. Spain has been the second-largest investor in Latin America after the US for years. At the same time, it’s important to note that Spain, along with Portugal, attracts significant investment from Latin America and is the leading destination for Latin American companies that want to enter Europe.

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