Justin Davies, newly appointed head of the EMEA region, recently shared his thoughts on the realities of a perpetually tough insurance market in an article for Global Re-Insurance.
In the commentary piece, appropriately titled “Softening the Blow,” Davies evaluates the options insurance and reinsurance companies have in the ongoing soft market.
He cites an A.M. Best global reinsurance review which noted: “the market headwinds present significant longer-term challenges that industry players need to work through. The companies that are not proactive will not lead their own destiny.”
Although all insurers claim to be focused on underwriting discipline, Justin notes “the reality is that many companies have been able to compensate for their poor underwriting performance by delivering healthy profits on the investment side. Yet, that cash cow has been drying up for years as historically low interest rates across the globe have made it extremely difficult to make a reasonable return on investments.”
Justin explains that insurers and reinsurers have several options. First, they can write more business which means becoming more focused on managing risk. Second, they can expand their distribution channels and client services, a strategy that is still hampered by legacy technology. Third, they can cut costs and improve efficiencies by refining their existing processes.
He said that one interesting trend is that businesses are looking to outsource some of their non-revenue generating functions to business partners, particularly those with insurance expertise. This trend directly aligns with the goals and mission of Xceedance to add value for insurers.
“The soft market will be with us for the foreseeable future,” he writes. “Some companies will need to innovate and transform like never before, in order to avoid the fate that A.M. Best warned about of being swallowed up by more profitable competitors.”