Top executives see opportunity for risk managers to raise their game

From left to right – Jonathan Dimbleby (chair), Richard Pryce (QBE), Tracey Skinner (BT), Mark Drummond-Brady (JLT), Paul Jardine (XL Catlin), Andrew Tunnicliffe (Aon) 

The market is still not ready for the Insurance Act, according to the senior panellists who took part in the leadership panel at the annual conference. Airmic Board member Tracey Skinner told the well-attended session, chaired by veteran broadcaster Jonathan Dimbleby, that insurers needed to do more to engage with buyers.

Other points to merge from the forum included:

• Airmic members have an unprecedented opportunity to wield influence at board level because of the heightened interest in risk;
• Buyers and risk carriers alike should do more to encourage the development of innovative and relevant insurance products;
• More needs to be done by all parties to improve claims payment, and there is a reluctance by some buyers to engage in pre-inception scenario analysis;
• Insurers are struggling to “survive and thrive” in the current soft market, which could make more consolidation inevitable;
• Broker conflicts are a continuing cause for concern.

On the panel were Chief Executive Officer of QBE's European operation Richard Pryce, JLT group deputy CEO Mark Drummond-Brady, XL Catlin chief experience officer Paul Jardine, Aon Risk Solutions UK CEO Andrew Tunnicliffe and Tracy Skinner, director of group insurance and risk financing at BT Group.

The Insurance Act

There was agreement among the panellists that the Insurance Act would be good for the customer – but that the industry is not yet completely ready for it. Jardine said this was partly because the high regulatory burden on companies caused by the FCA and Solvency Two had distracted them.  “The key issue is still what constitutes a reasonable search,” said Tunnicliffe. “We need to move very quickly to establish market practice,” according to Drummond-Brady. “We need to move a little faster. I sense there will be a bit of a muddle,” said Skinner.

From the chair, Dimbleby invited the audience on a show of hands to express their readiness for the Act, and got a very mixed response. The overriding conclusion: a sense that the new regime, while undoubtedly a big step in the right direction, is to some extent a step into the unknown. However, companies with professional insurance managers are better placed to face up to the inevitable challenges.  

The role of the risk manager

The panel noted that risk had a higher profile at board level, representing a great opportunity for risk managers. It was vital that they “put themselves at the centre of conversation”, said Jardine. Pryce agreed, pointing out that this would require a wide skill set. Risk is changing quickly, he said.

Skinner saw two contradictory trends. Softer prices had reduced insurance budgets and therefore the interest of boards in the subject.  Nonetheless, she urged the audience to take a positive view of the situation and to engage boards in wider discussion about risk.   “Rather than shy away from change, we should see it as something positive,” she said.      

Insurance innovation and relevance

Inevitably given the priority given to it by buyers, cyber-insurance (or the lack of it) took up a large proportion of the discussion about innovation. Skinner felt that the US market had been quicker to respond than in the UK. Drummond-Brady said it was a difficult area for the industry because of shortage of data and experience. There was a need for buyers and the industry to engage, and that innovation would be an “iterative process that involves all interested parties... born out of the whole community”. The mindset of the ultimate buyers such as CEOs and CFOs was part of the problem, said Tunnicliffe.

For innovation to succeed, said Skinner, the underwriter needed to really understand the business. The main challenge for the buyer, though, was to engage the board without over-raising expectations of what insurance products might deliver, and so risk reputational damage internally.   She acknowledged that insurers became frustrated when they spent a great deal time developing new products that were then not taken up. The panel then discussed the feasibility of insurers charging for this time so that the effort was not wasted. 

Claims payment

There has been too much of a focus in the market on claims leakage and not claims service, said Jardine. Proper claims planning was important, said Tunnicliffe, and this meant scenario analysis. Pryce agreed: “everyone should be doing it”. He also urged buyers to avoid over-complicated programme structures as these were more likely to fail. Drummond-Brady said his firm offered scenario analysis at no extra charge, and was surprised by the very low take-up of this service by risk managers.     

Market rates and consolidation

Insurers that manage to deliver any sort of return in current market conditions are "defying gravity", said Pryce. Admitting that there could be more consolidation as a result, he warned that investors were not happy. Cutting operating costs was one option for insurers, he said. The structure and models of companies would need to become more fit for purpose if they were to survive and thrive in such conditions. Both he and Jardine acknowledged that insurers needed to do more to deliver their products more efficiently.

Broker conflicts

The panel briefly discussed broker conflict of interests, with Skinner expressing the view that buyers would prefer brokers to get their remuneration from just one source. The view was expressed that governance and segregation of activities within broker firms was essential, and that this had to be carefully managed.