Aon Benfield’s COO Michael Moran shares Chicago roots with Aon and a lot more as he oversees the implementation of the strategy for its $30 billion a year reinsurance division. He discussed just what that entails in an interview at the Reinsurance Rendezvous.
“Part of my job is to make sure our teams clients are connecting with clients, understanding their needs as much as possible,” he said. That requires “searching all forms of capital, to help them meet their needs and to get innovative solutions for them, and to get them the best deals when it comes to reinsurance, whether it’s traditional excess of loss, or a quota share, or even some of the new capital that’s in the market place.”
In order to carry out those tasks, Moran stressed that it’s necessary to make sure “we have the best teams, focused on our clients, doing the best that we can do, joined up across our firm.” Aon’s “talent programs” are key to achieving and maintaining that position. “We have to make sure we “are recruiting, developing and really supporting our people.”
Aon’s size and scope enables it to cover the global markets and to “have practitioners and specialists in almost every market throughout the world.” Being able to work with other divisions within Aon is also an advantage. Moran explained that, while Aon Benfield is the reinsurance specialist, it can also work with Aon Risk Solutions, the group’s retail brokerage division.
“In terms of working with them we will help them understand the tools, the methodologies, the capabilities, the capital solutions available in the reinsurance space, so that they can develop solutions for their retail clients as well,” Moran said. “Usually it involves working with an insurance company as well, but sometimes it’s analytics tools and so forth that we will bring to the retail customer base.”
Moran agreed that the issue of alternative capital in the reinsurance markets, a major topic at last year’s Rendezvous, has retreated somewhat. But the market now has more capital than it has ever had – $570 billion according to Aon Benfield’s aggregate calculations. “Of which about $59 billion or so is what would be called in the past ‘alternative capital.'”
The reason it’s no longer designated as alternative is largely due to the fact that of the 30 companies in the survey, 24 of them “have some form of third party capital supporting them, whether it be a side car or other types of use of that capital,” Moran said. “They’re finding ways to use that capital themselves, to write reinsurance; so it’s sort of found its way into the system in terms of supporting the reinsurers.”
Third party capital plays an additional role. “When it comes to ceded risks, this capital is an alternative to the traditional reinsurance product,” which has “put a lot of pressure on the reinsurance product, particularly for short tail lines and property lines.” The product is designed “a little bit differently,” and is therefore “a competitive threat to a lot of reinsurers’ business.”
As a result reinsurers are examining other options besides property catastrophe coverage, where Moran sees a number of opportunities. “I think there’s any number of ways to deploy it outside of the property cat market, where a lot of it is currently deployed.
“If you look at some of the challenges we’re facing as an industry, I think this is the biggest question there is. How do we take that level of capital and deploy it in new and different ways; whether that is taking products from one geography, and introducing and rolling them out in a different part of the world, or to a different customer segment.”
There are also “huge risks out there that our industry doesn’t currently have a commercial solution for,” Moran said. These include not only new risks, such as cyber coverage, but also one of the oldest – floods – where it’s largely “governments that are holding the risk.”
In the casualty sector there’s also room for more coverage in sectors such as pharma. “There’s a lot of risks that currently exist that are being held by corporates, that are being held by governments; so that I think it’s worthwhile for us to be thinking about innovation and new products to deploy that capital.”
In many parts of the world insurance penetration remains quite low, which, when a disaster does occur, puts the burden on governments. Not only can the re/insurance industry provide coverage in those cases, but it can also provide the expertise, accumulated over many years, to somewhat mitigate the damages. This would, however, require convincing the governments faced with those risks to make changes.
Despite the fact that the re/insurance industry has “performed pretty well” in a number of cases – for example in hurricane coverage and the New Zealand earthquake – Moran said “my suspicion is that it would be pretty tough” to change a governments views on the subject.
In emerging markets Moran said: “We look at what are the macroeconomics, the environment, is it growing? the ages and demographics of the population, how fast is the economy growing? That’s one part of it. The other part is ‘what’s the penetration of the insurance product?’ Is it an environment that’s used to be buying insurance? That trusts the promise to pay, the promise to indemnify? Is there a tradition there?” These are gauges as to whether or not there’s “a market opportunity.”
In addition Moran explained that the “distribution channels are absolutely critical. Can insurance articulate its value proposition? Can it get to the consumers in a way that’s easy, understandable and compelling to them? At the end of the day someone has to have a consumer, or a business, make a business decision to purchase the product, and the product needs to be compelling.”
The role of Aon’s “people on the ground” is to answer those questions and to find out who needs it, and tell them what’s available. Linking Aon Risk Solutions retail expertise with Aon Benfield’s is crucial to achieving that goal.
Moran joined the industry in 1992, and regardless of hard or soft markets, he’s found it “pretty challenging throughout, and as we’ve looked at the last ten years in particular, what we’ve seen is that property casualty insurance globally hasn’t grown as fast as GDP.”
He acknowledged that it has in effect decreased over the last year from around 2 percent to “around 1.9 percent of global GDP, and reinsurance has grown even slower than P&C insurance; there’s a gap there -” between the “growth in GDP and the growth in P&C insurance. What we need to do from an innovation standpoint is figure out how to close that gap. The bigger underlying issue is – are we actually able to keep pace with the growing GDP?”
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