Nigel Roberts, Head of Distribution — AEGIS London.
There never seems to be a dull year in the London insurance market and 2018 has been no exception. But what I think has made the year even more fascinating is that we have seen shifts in both broking and underwriting that are going to significantly impact the way we all do business in 2019 – all of which, in my opinion, puts the market in a strong position for the future.
It’s not the destination
A remarkable number of column inches were devoted to the business planning process at Lloyd’s last autumn and the review of the so-called ‘Decile 10’. There is no doubt that the destination of the process was absolutely the right one – making sure that the market is properly structured to serve the needs of our policyholders. It is not sustainable that syndicates are running combined ratios in excess of 100% over a number of years.
But equally there can be little argument that the journey to get there was quite bumpy. Doing anything in the full glare of the public scrutiny – with commentators ranged on every side, is not easy, but the process felt as if it were crammed into too short a period and the Corporation could have done a better job in explaining its objectives. The result is that our competitors in other regions have seized on erroneous headlines and gossip to declare that London is closed for business, when in fact the reality is that it is probably is even better shape than it was before.
While many underwriters went through the process smoothly only those with a strong business case were allowed to grow – AEGIS London was one of these. With OPAL – our award-winning online quote and bind platform – delivering genuinely new business to the market and an overall combined ratio that consistently outperforms the market by around 10 percentage points, Lloyd’s were happy to approve an increase in our capacity by 5% next year, another step in our strategy of disciplined, profitable growth.
Cause and effect
And it appears that the reduction in capacity is positively affecting prices. Rates are rising and, more importantly, sticking. Marine hull, cargo, international E&O are all showing signs of improvement – even on clean business. External factors such as the recent California wildfires and the continuing claims development from 2017’s catastrophes, will keep the pressure on.
And this changing rate environment brings us onto the broking community. Many brokers have not seen market conditions like these for a long time and need to think carefully about how they respond – especially since their own world is shifting on its axis. The recent purchase by Marsh of JLT is one of only several such deals that have taken place in 2018, and the pace of broker consolidation is accelerating. London wholesale brokers are finding it harder to cope with regulation, meet margins and try to plan for a world where acquisition costs are going to come under severe scrutiny. This trend will, in our opinion, mean that that intermediaries face a real challenge as they decide on how they best deliver value going forward.
Buyers of insurance products are increasingly segmented. The large corporate buyers are moving from simple risk transfer to a greater need for risk mitigation and advice. Their more complex risk issues need more sophisticated answers. There is however a growing number of mid-sized and smaller businesses that need help in transferring risk from their balance sheets. But, whatever their needs, all buyers want better value for money through the process.
So, the challenge for the broker is remaining relevant. Broking groups may be merging and getting bigger, but they still need to be able to relate to the smaller customers. They also need to embrace new practices and processes to connect risk and capital. It is one thing to deal with the technical underwriter at the box in Lloyd’s creating bespoke deals for large risks, but increasingly there is a new breed of underwriter focussed more on portfolios and these underwriters can and should be accessed differently.
At AEGIS London, we are tremendous fans of London brokers – and we absolutely want to work with them, but it has to be differently without the expensive, time-consuming activities that add no value. Cost effective distribution helps everyone – not least the client who can see it reflected in reduced pricing. It’s what they see in every other area of commercial life – greater efficiency, more e-trading and lower costs to them. Why should insurance be any different?
The good news is that there are brokers who are taking these challenges very seriously. This, combined with underwriters delivering what policyholders’ need in terms of a consistent performance and a creative product mix, means the London market can hold its head up and look confidently into 2019.
This article was first published by Insurance Day on 7 January 2019.