With capacity plentiful and prices softening, the temptation to chase cheap cover is strong - but former Insurance Council of New Zealand (ICNZ) CEO Tim Grafton warns that credibility, discipline and data-driven strategy will determine who succeeds in today’s market.
The “art of doing well” in different insurance markets depends on recognising the forces that drive change and adapting quickly, said Grafton (pictured). Speaking at the New Zealand Underwriting Agencies Council’s (NZUAC) Auckland Expo, he outlined how underwriters and brokers can respond to a softening environment.
Industry views on the current cycle vary. Depending on the line of business, some see it as soft, others as “variable speed” softening.
“A good number of people say it's impossible to generalise with so much variety in the market,” said Grafton. “And soft markets demand different strategies, and arguably, soft markets ask for a lot more work than hard ones.”
When Grafton asked the audience if they believed the market was soft, most raised their hands – but the lack of consensus also showed that very few expect the conditions to last more than a year or two.
For now, the hallmarks of softness are clear: abundant capacity, lower pricing, and broader coverage. But Grafton warned that “the dark shadow in the background” is cyber.
“Cyber remains high on insurers’ risk radars, largely because of the accumulation risk in a deeply interconnected world that is not well understood,” he said.
Global reinsurers are also recalibrating in the wake of climate-driven losses, some hiking rates by as much as 40%. Locally, New Zealand has faced the Canterbury earthquakes and Cyclone Gabrielle.
“New Zealand is one of the riskiest countries in the world to natural disasters,” said Grafton. “Another major, major natural hazard event with those losses is absolutely inevitable.”
He added that geopolitics and technology will also play a role. “AI is changing everything, and you need to be using it,” he said. “Its capacity to acquire and analyse vast amounts of data in real time to inform underwriting change processing will change the landscape.”
Alongside these shifts, customer pressure is growing.
“They [customers] are getting approaches from your competitors who can offer more capacity and lower prices,” said Grafton. “Now it is much harder work.”
He warned against chasing market share at any cost. “If you are writing for the London market or the local insurer, they trust you to have the local or specialist knowledge to know what you are doing,” he said. “The worst possible outcome for them is to be caught with under-priced risks that turn into hefty claims.”
For agencies and brokers, credibility and specialist knowledge are now paramount.
“Capacity providers and risk carriers are highly reliant on the local and specialty knowledge of underwriting agencies and brokers,” said Grafton. “In return, though, it is your credibility that hangs or falls on the performance of the policies you have secured in a soft market. You cannot lose sight of that in the heat of a competition over price.”
He pointed to three “strategic levers” to navigate the cycle:
“Know your technical price and your walk away price,” said Grafton. “Don't get into a spiral race to the bottom.”
