Reinsurers must respond to the challenges of the current pricing environment by innovatively adapting their portfolios and exposures, their use of technology, and their relationships with clients, according to Megan McConnell, Director of Underwriting, London at Hiscox.
McConnell noted that reinsurance rates have not increased to the extent that was anticipated following 2017’s catastrophe events, and said that an over-abundance of capacity in the market has caused competition to remain high and rates to remain low.
However, she also claimed that a lack of market hardening post-HIM does not spell an end to the insurance cycle, arguing that drivers are simply more complex than they have been in the past, with large losses no longer enough to cause a major market turn.
“The trick for Hiscox, and for all firms for that matter, is to find a way to thrive in what is still a challenging market,” said McConnell.
“The answer for this will be different for every business. But for Hiscox it means creating optionality for capital, efficiency through technology and a culture of innovation that will allow us to continue to achieve profitable growth in the short, medium and long-term.”
She proposed that overcoming current market conditions remains the biggest challenge for reinsurers, and said that creative new approaches would be required to offset muted rates in future.
“Finding ways to compress the value chain is an inevitability going forwards,” stated McConnell. “Those that find smarter and more efficient ways to link risk and capital will be on the winning team.”
Part of this strategy will involve better integration of emerging technologies and the promotion of market modernisation initiatives, such as the Lloyd’s Target Operating Model (TOM), which is currently chaired by Hiscox’s Chief Executive Officer (CEO), Bronek Masojada.
McConnell explained that Hiscox is also currently working on a pilot project using robotics to streamline its processes, and is investing in big data capabilities to support its underwriting, product development, and post-loss response.
In addition to promoting efficiency and supporting product development, this kind of innovation can lead to new opportunities and reduced competition.
McConnell continued: “There is less competition where there is more innovation, where people are doing something new and different and outside of the increasingly commoditised catastrophe lines. This means understanding client’s problems and finding new ways to solve them.
“Reinsurers need to find ways to innovate and solve problems in good and bad weather, and that starts with developing close client relationships, truly understanding their business challenges and responding to their needs.”
This strategy is particularly pertinent given the ongoing rate pressure and commoditisation in catastrophe lines, meaning that almost 40% of Hiscox’s business is now outside of catastrophe lines, with risk excess treaty and specialty lines currently of particular interest to the company.
McConnell also suggested that capital markets could also play a role in future innovation, noting that Hiscox now manages significant third party capital in the form of its Lloyd’s Special Purpose Arrangement, quota share reinsurance, and its ILS platform, which currently has $1.5 billion in assets under management.