Words from the Wise: Mike McGavick
“Our [AXA XL] deal is part of a larger trend; scale is still winning in the insurance industry,” he began, suggesting the sustained M&A across the industry proves scalability continues to drive the market’s direction.
When speaking on the top areas ripe for innovation across the industry, McGavick raised the issue of trust: “If you can find players who break down distrust in the industry, they will be the biggest winners of all,” as he offered his top three areas ripe for innovation:
- Under-insurance: Under-insurance is a problem everywhere, but it is fundamentally destructive to the poorest and weakest among us. The biggest problem [with under-insurance] is the last-mile problem.
- New types of risk: We need better insight into and understanding of risk to ensure it’s efficiently underwritten and accurately priced.
- Attacking the cost structure: The customer is getting back 60 cents for every $1 of premium paid. Companies are attacking the other 40 cents of cost base built into the system.
On cyber risk, McGavick stated that he believes we will eventually see an aggregate and catastrophic loss from a single cyber event and that we must be better prepared for it. “There is a declining rate of physical risk,” he explained. “But the rate of digital/nonphysical risk is increasing, which is much harder to underwrite.”
McGavick continued, “Existing cyber products are necessary, but they are nowhere near where we need them to be. Going from an analog to a digital world is proving to be very difficult to insure. (Re)Insurers are riding low limits, and the biggest challenge in pricing is understanding how much connected/aggregated risk there is.” In McGavick’s eyes, three things are necessary to have a real cyber market versus a fringe cyber market:
- Established safe zones for data sharing
- New cyber legal structure
- Federal backstop for cyber insurance
As McGavick shared his wisdom and experience to a full room and captivated audience, he did not hold back on offering some constructive criticism for the industry. “The reality is a breakthrough that’s surfaced over the last few years—we are attacking problems that have been around forever,” he said, suggesting that we’re heading in the right direction. “But what our industry is missing is it’s not growing as fast as GDP.”