Risk and Relevance
The fundamental purpose of our industry is to unleash our clients’ potential by adroitly managing their risks. And as we focus sharply on new markets and new risks, we become more vital to their progress than ever before.
Yet there is a troubling trend in the global property and casualty insurance and reinsurance industry—our declining relevance in the global economy. We are in decline despite the ever-increasing scale and complexity of risk. Many numbers prove the trend. From 2002 to 2011, aggregate global p-c insurance premiums as a share of GDP declined from 3.4% of the global economy in 2002 to 2.8% in 2011. The reasons behind this decline are debatable, but the opportunities to reverse this trend—which was created by disruptions such as the acceleration in technology and data—are significant and numerous.
As global growth patterns shift, companies in mature regions, such as the United States and Europe, will continue to diversify overseas to gain efficiencies and access to growing markets. These clients need partners positioned to protect their assets against political and legal risk, loss of goods and parts, supply-chain risk and natural disasters. We need to ensure that our industry has the scale, expertise and innovative products in markets such as Brazil, India, China, Russia and elsewhere to be automatic and indispensable partners.
Game-changing technologies are creating new industries and companies daily, it seems. But how well does the p-c industry understand these new sectors and technologies? How well do we understand their impact on adjacent industries? As the most valued products increasingly transition from physical atoms to cyber bytes, the implications for what and how we underwrite risk are enormous.
We have taken the first steps here in terms of products such as cyber-liability covers. But the gap between the demand for this coverage and the estimated need is enormous—and, of course, in this delta we find the most opportunity. If the world around us is changing, we cannot expect to maintain our status as our clients’ trusted partners if we are not keeping apace or ahead of their change.
Speed is essential to our relevance. With whole markets and new risks emerging all the time, we no longer have the luxury to analyze long-period data sets before launching new products or making underwriting decisions. Technology has given us access to more data than ever. The question is how to use it. It’s a question we focus on every day at XL. We are creating new tools for mining mountains of data to develop more relevant insurance solutions, including using new data points in predictive modeling that allow us to make better and quicker underwriting decisions.
The refining of existing data through these models has great implications. But the real power comes from incorporating entire sets of data that have never been part of the underwriting process. This is truly transformative. And it is cultural as well as functional. It requires both the systems to harness data and a mindset that is open to questioning the way it has been done.
The need to better mine real-time data is not being driven only by new technology markets and risks. The way we look at some traditional p-c risks may also be changing
From time to time, events occur that, because of their magnitude or frequency, change the way we consider risk. An event like 9/11 even changes the way we imagine risk. In the case of Hurricane Sandy, the damage amount and the area affected by such a powerful storm force us to reconsider risk. As an industry, we work to prepare for such events and to ensure that pricing adequately reflects reality. We reserve against our expectations, and we take our fundamental role in recovery. We must also work with each other and with our clients to evaluate our shared perception of these risks.
It’s essential that the p-c industry retain, develop and attract the best minds available, because it will take talent for the industry to regain its rightful position in the global economy. Compensation is important, of course, but the right culture—one that gives freedom, rewards the entrepreneurial spirit and provides opportunities for growth—is critical. Smart, talented professionals want growth opportunities, empowerment and to be part of a strong, successful organization. We as managers need to understand this and develop our organizations appropriately. We need the proper mix of entrepreneurial spirit and the talent to identify growth opportunities, understand customer needs and risks, and successfully launch products. We also need to measure results so we can repeat our successes or rapidly adjust our approach. Success also takes strict adherence to a philosophy and a process to ensure that extraordinary results can be repeated.
The opportunities are before us, and if we are ready to accept the challenge, the global p-c industry can reclaim its position in the economy—not only for the benefit of our companies but for the businesses we serve and economies that need us to thrive.