The Age of Relentless Acceleration

Views from the Brokering Landscape

Today we live in an Age of Relentless Acceleration – of interconnectedness, emerging risks, uncertainty and shifting centers of power and influence. It is an age where catalytic events can spread and amplify in exponential fashion.

This is also, famously, the Information Age. Just a decade ago, 30 e-mails in one’s inbox were considered an eye-popper. Today, many experience 200 or more every day. And that’s from just one source. Among the stream of incoming information, one must learn to filter, sort and prioritize – or be buried.

Fragile Decision-Making

It’s difficult to peer into a crystal ball when you’re inside it – so exactly what the track of the Information Age will be is something that will be determined not only by the sources of technology, but also and more importantly by those who elect to receive and act on it.

This has special meaning to the insurance industry today. My view is that decision-making is fragile. A whisper separates a positive outcome from a negative one. It’s less about making the perfect decision and more about having the insight and ability to reduce the number of variables and data points, and – more than anything else – selecting a course of action and executing it well. Of course, this is also the Age of Choices. Thrift or spending. Pass problems to the next generation, or belly up to the bar, do the right thing and deal with the critical issues now. To paraphrase Winston Churchill: Never before in the history of human civilization have so many obligations and debts been passed by one generation to the next and the one thereafter!

For the insurance industry, the choices of what and how much to offer – and to whom – take on special meaning and importance. Insurance is a highly competitive and cyclical business. Cyclical businesses are generally volatile.

In the midst of a soft insurance marketplace, such as the one which we have had for some years now, one might hear a carrier call for industry underwriting discipline. But is that concept even real? Doesn’t it imply a steady state of affairs that the marketplace is typically disciplined, but has fallen off that wagon? Isn’t the reality the exact opposite?

According to the Insurance Information Institute, the U.S. P/C industry recorded a pure underwriting gain only three times in the past 25 years. No underwriter can survive uneconomic behavior over a prolonged period of time. And yet today, we still see examples of counterintuitive behavior in the aggressive pursuit of market share in a declining rate environment. You would expect vigorous competition for new business when exposure levels and rates are rising – but the opposite is often the case.

Some underwriters believe that new analytics and models support the current decisions being made. I hope they’re right – and that down the road they won’t be judged as having been overly optimistic.

On that point, it’s relevant and appropriate to ask: Have individual insurers learned from the worst excesses of previous market cycles? There are some bright spots: experienced management teams and improvements in management of information, tighter governance and regulation, better modeling and analytical capabilities, and improved efficiencies.

But there are worrying signs, too. Among them: the emerging risk category is growing while underwriting talent is spreading ever thinner. Gradual, creeping risks such as climate change, global population growth, and demographic and cultural shifts may not be adequately priced. And there are also increasing risk profiles – with “just in time” industrial efficiency reducing loss mitigation possibilities and with a more aggressive plaintiff bar.

Broader-Based Competition

Against that backdrop, what constitutes true differentiation? What does it take to distinguish oneself from the pack? Some insurers choose to compete primarily by focusing on price, while others focus on the specialties space through differentiated value. Some compete in both.

Fundamentally, I would like to see broader-based competition. So instead of competition based chiefly on price, the industry and our clients would be better off if, in addition to intense price competition, there was also robust competition amongst insurers based upon product innovation, service performance, quality of capital, policy breadth and clarity, and depth and quality of personnel.

It’s not easy to execute, but strategies based upon innovation and high quality service, combined with competitive pricing, offer better value for clients and more value in the long run for the insurance industry as a whole.

Topics Market