Long-term service-based strategy needed as market offers little respite

Allianz Global Corporate & Specialty (AGCS), the commercial and corporate insurance arm of Allianz Group, posted a decent set of first-half figures during the summer. But Chris Fischer Hirs, CEO of AGCS, said the insurer will not become complacent as premiums continue to rise in some market segments and the combined ratio heads in the right direction. The Munich-based global insurance group needs to retain its sharp focus on delivering an ever-better service to customers if it is to maintain momentum in a market that offers few signs of a cyclical upturn. AGCS’s gross premium written rose to €4.37bn in the first half of this year from €3.94bn, an increase of €432m year on year. As in the first quarter of this year, the revenue growth was mainly driven by “seasonality factors” in AGCS’s fronting business, as well as growth in several lines of business, particularly liability and mid-corporate, which is increasingly a popular market space for AGCS and most of its main rivals. Even better news is that the combined ratio for the first half of this year improved by 1.2 percentage points to hit 97.7%, compared with 98.8% for the first six months of 2017. The group said the ratio benefited from a “relatively benign” loss environment in the first half of 2018, but also from lower expenses as result of productivity improvements across the business. Operating profit reached €233m for the first half of this year, compared with €225m for the same period last year. The “moderate” increase of €8m in operating profit year on year was driven by a better underwriting performance that was partly offset by lower investment income, explained AGCS. The opening question for Mr Fischer Hirs was whether AGCS’s future results would be further boosted by a long-overdue general hardening in the commercial and corporate insurance market. Not so, according to the CEO. He agrees with many in the market that the days of rapidly hardening and softening markets are probably a thing of the past and that any insurer in this game for the long term has to focus on service, value creation and careful capital management. “I don’t see a cycle any longer. I would love to see a bigger step up in prices than what we expect to see but I do not think this will happen. We have to focus on the value proposition that we are offering to customers and brokers. The focus needs to be on the value on offer instead of price competition. At the same time, the client has to be at the core of everything we do,” he told Commercial Risk Europe. “We have to make the process as efficient and lean as possible of course, but you also have to differentiate between customers. Some say they do not want all the bells and whistles and just want a standard solution from an insurer with a global reach at a competitive price. Others have an enterprise risk management approach and are very interested in how new technologies, such as data analytics or blockchain, can support their programme and relationship with us and deliver a superior customer experience,” continued Mr Fischer Hirs. Not surprisingly, the AGCS CEO does not expect any big changes during coming renewals. Insurance managers will be pleased to hear that this CEO is not relying on a significant uplift from the market during the next few months. “If I look further into 2018, I don’t see any big changes in the market environment. Some may be hoping for double-digit increases across the board but we never said that we expected that, and you cannot build a business plan on that basis. We are seeing increased rates in some loss-hit accounts or segments but, overall, I would have to say that renewals are flat as abundant capacity continues to be available,” he said. The key for insurers is to really focus on what risk and insurance managers need to offer their c-suite more certainty and less volatility. This means value-added services, particularly in so-called intangible risk areas such as reputation, cyber, supply chain or business interruption, said Mr Fischer Hirs. “The key is to not compete purely on price, but more to respond to customer needs by tackling newer areas such as cyber, crisis management, product recall, reputation, intangible risk overall and, of course, business interruption, be it as a result of physical damage or contingent business interruption. This remains a very important topic if only because it is one area that can hit the insurance manager or more positively enable them to provide certainty to the c-suite,” he explained. But before adding exciting new services that can make the risk manager look good during their meeting with the c-suite, it is important for insurers to get the basics right, said Mr Fischer Hirs. Innovation is a word and topic that will always spark lively debate among risk and insurance managers. The insurance industry does not have a great reputation in this field. While the rise of insurtech may offer some room for optimism, the sector still has some convincing to do. Mr Fischer Hirs quite rightly pointed out that innovation is not always about finding the grandiose ‘silver bullet’ solution, but more often about getting the basics right first. “A lot of insureds say: ‘please ensure you get the basics right first, issue the policy on time and make sure it’s correct’. This is where a lot of frustration comes from in this market. Much of our investment in technology is focused on automation, in robots to reduce the number of mistakes and speed up delivery,” he said. A sharp focus on getting the basics right is a constant requirement and Allianz is doing so, according to Mr Fischer Hirs. But there is also a need to focus on broadening the scope of products and, particularly, services required by risk and insurance managers to ensure their risk requirements are met. Mr Fischer Hirs gave some examples. “Allianz Reputation Protect is a good example of how we are also innovating to help customers rise to the challenges of the modern digital economy, which is not just about protecting physical assets but more intangible risks such as reputation. Allianz Reputation Protect not only covers loss of revenues after a reputational crisis, but also ensures that our clients have rapid access to the resources needed to prepare themselves for a crisis and be able to meet the challenge should it arise. Insureds have 24/7 access to a panel of leading crisis PR practitioners; generous limits of up to €10m per policy period to fund a robust response, including advertising and PR services; a global service network to respond worldwide; professional media analysis from an independent research group, before and after any event; and ongoing monitoring and feedback to assess campaign effectiveness. It is not just about risk transfer, but about delivering a service to defend a company’s most valuable assets when under stress,” explained Mr Fischer Hirs. “Another example is our partnership with WorldAware, the new brand formed by red24 and iJet. The global crisis management assistance company offers crisis support services to AGCS clients to help them manage product recalls or contamination, resolve emergency incidents or conduct evacuations from countries in turmoil. These kinds of services add much more than simple capacity. They offer a broader service that helps deliver more certainty to the c-suite,” he continued. “This is also the case with cyber. Apart from first- and third-party cover and help with forensic investigation and crisis communications during an event, our risk engineers have also devised an in-house methodology for evaluating companies´ IT risk maturity, taking into account all major elements of cybersecurity, resilience and the risk management approach. Assessing the maturity level is a key factor in the underwriting process, which enables AGCS to develop a holistic understanding of the clients’ preparedness and resilience. Combining this with analysis and insight on cyber risks, cyber insurance offers a far higher level of certainty and confidence to the c-suite,” added Mr Fischer Hirs. As AGCS adapts to meet changing customer demand, it also needs to make sure its capacity is allocated to the best-performing classes and territories to maintain underlying momentum and growth. As noted above, Mr Fischer Hirs is not relying on a general market hardening to deliver, as investments in new services and technology lay the foundation for the future. However, like its rivals, the insurer does need to be clever and focus on those markets that offer the best returns and, again, is doing so, according to Mr Fischer Hirs. He sees particularly promising signs in the Asian market, as well as in the SME and mid-corporate segment. Here, AGCS is building on the expertise and track record of the US-based Fireman’s Fund business that was integrated into AGCS in 2015, and other specialty lines of business. “There are growth opportunities from a geographic perspective, particularly in Asia. We are seeing growth in South Korea, Indonesia and China, and are forming a reinsurance branch in India later this year,” said Mr Fisher Hirs. “The integration of the Fireman’s Fund business – mainly SME and mid-corporate – into AGCS is also clearly helping to boost growth, particularly in US liability business. But AGCS can also bring new specialist solutions such as supply chain, cyber and environmental products to the North American market, building on ex-Fireman’s Fund relationships. We are looking to use Fireman’s Fund’s expertise in areas such as professional indemnity of the middle market outside of the US too,” he continued. “There are also very specific lines of business in which we are doing very well and will continue to focus upon, such as the entertainment market in the US where we are clear market leader. We are using this expertise, experience and knowledge to grow this business in the UK, central and eastern Europe, and Asia, developing local books of business on the back of the global book,” the CEO added.

Long-term service-based strategy needed as market offers little respite

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