Risk transfer industry must wake up to clients’ needs in post GFC world – Kendrick

The risk transfer industry must accept that the financial landscape has changed irrevocably and redouble efforts to service clients and ensure its business model and value proposition are geared for the new reality, he added at a London broker breakfast speech entitled Managing Uncertainty And Preparing For Growth. Things are looking up economically following the financial crisis that marked the 'most uncertain period' for the global economy, said Mr Kendrick. But the landscape is now 'radically different' and reversion to past patterns of economic growth may at worst never happen and at best be some way off, he added.hide"The old economic textbooks-those that central bankers, governments and CEOs relied on in the past-have been consigned to the dustbin. And at the same time, many of the trends that drive the economics of insurance have seen dramatic change too. Sometimes I look around and wonder if things will ever really be the same again," said ACE's European president. This changed financial landscape presents both significant challenges and opportunities for the both risk managers and their risk transfer partners. As a priority the insurance industry must better focus on the needs of its clients, both in terms of products and service, to prove it can add value in this age of elevated risk management, said Mr Kendrick. "Post-crisis, we would all do well to question ourselves, are we truly a client-centric industry? Frankly, I don't think we are nearly as client-centric as we think we are, or as we need to be," warned the insurer. This presents an opportunity and a wake-up call for insurers and brokers. "Will we pool our skills and expertise, stepping up to the plate to provide the strategic counsel and genuine risk expertise they (clients) need? Or will we be happy to plod along in a lazy trap of simply trying to sell them an insurance policy?" asked Mr Kendrick. At the same time non-traditional risks, from cyber to environmental, are emerging. It is clear that many risk managers believe the insurance market could be doing a better job in servicing such exposures. Mr Kendrick challenged his industry once more: "Are we prepared to work together, share our data and tackle these complex exposures? Or will we sit on the sidelines, procrastinate and slowly become irrelevant?" He noted that refocusing on clients is about proving superior service as well as developing coverages. Putting claims at the heart of the relationship, as well as setting and adhering to clear and agreed service standards is crucial, said the insurer. To deliver on such promises requires a genuine three-way, insurer, broker and client-focused relationship, he added. Mr Kendrick also called on the risk transfer industry to ensure that multinational programmes better serve clients as their companies strive for overseas growth. In particular he said the London market has a real opportunity to use its skills and position as a global insurance hub to meet this demand. Mr Kendrick noted that developing markets have emerged from the global financial crisis as the world's new engines of growth. 2013 will be the first year in modern times in which these markets will collectively be bigger than the world's advanced economies. This year, their economies will grow at an overall rate of 5%-more than four times faster than the developed world as a whole. ACE research has shown strong client desire for improved service on multinational programmes. "Over half of European companies believe doing international business has become more risky over the last five years. Yet despite these concerns, half say their multinational insurance arrangements have significant gaps in terms of coverage. And over 40% believe they have significant gaps in terms of compliance," pointed out Mr Kendrick. As a result of the crisis, globalisation has gathered pace, while the world's regulatory regime has become ever more fragmented, he continued. Despite the fact that the fallout from the financial crisis has hit the whole financial sector, capital is pouring into the reinsurance market and creating exceptionally competitive trading conditions, he noted. Reinsurance capacity is already at record levels, thanks to investors' search for yield and diversification. One leading broker estimates that another $100bn dollars of third-party capital could flow into the market over the next five years. "Whatever way you look at it, increased volatility is about the only certainty we can draw from the uncertain environment," stressed Mr Kendrick. As a result of the new financial landscape it is more imperative than ever that insurers get back to the basics of good underwriting, said ACE's European president. The force of the insurance market cycle appears to be diminishing in a number of lines of business, bringing benefits for buyers but raising issue for insurers, he continued. "The good times ahead may be leaner than they were in the past. Here in Europe, we have seen little of the recent rate rises on the other side of the Atlantic. Competition is fiercer than I can remember for some time. This may be as good as it gets. Underwriters who follow the cycle down this time may have more trouble than usual making up the difference in future," he noted. According to many central bankers interest rates in much of the west look to be stuck at their record lows for some time. The lower investment returns on offer have certainly wounded insurers' returns. "They have also reinforced that underwriting discipline is the only route to sustainable performance in the insurance industry. Of course, 'twas ever thus. But now the truth's been highlighted in technicolour," said Mr Kendrick. Adding that after four years of depressed investment returns, for some insurers it seems that the 'chickens are coming home to roost'. The future of more than one company now hangs in the balance in the US, where reserve weaknesses have led to downgrades in recent months, he said. "I believe that the words of Warren Buffett are more appropriate now than ever. To quote the great man himself: 'the less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs'... We need to go back to the basics of good underwriting, and put the pillars in place for long-term, sustainable relationships that will support our clients during the recovery," he urged.

Risk transfer industry must wake up to clients’ needs in post GFC world – Kendrick

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