Setting the scene for where the insurance market stands in the early days of 2023, Alexander Lay (pictured), CEO of Munich Re Specialty Insurance UK noted that the level of uncertainty facing the market is not just unprecedented but unparalleled by anything he’s seen over the last 20 years.
“Contextually, in 2023, we’re still looking at a very challenging market environment,” he said. “That’s very much driven by the macroeconomic dynamics that we’re all experiencing, whether that’s inflation, rising interest rates, or the cost-of-living in general – as well as the political uncertainties that accompany that.
“In terms of what that means for us as an insurance industry… we have to strike a very careful balance now in terms of how we price and how we maintain adequacy of commercial terms for insurance and reinsurance. But we also have to keep in mind that products need to remain relevant, and certainly affordable for our customer base. Putting all those factors together, you can certainly appreciate that this is going to be a key challenge for the industry as a whole in 2023.”
Lay highlighted that, linked to the dilemma presented by this challenge is the drive for greater efficiency across the market. Whatever costs can’t be passed on to a market have to come out of a company’s own operations, he said, which has led to demand for greater cost efficiencies in distribution and operationally. This, in turn, is creating further demand for product innovation as insurers need to be able to personalise coverages more in order to eradicate unnecessary costs.
From the perspective of Lay’s team, which operates a very property-heavy book that is highly responsive to the inflationary challenges that remain a theme in 2023, underinsurance presents a pressing concern. There is the risk that coverages either are inadequate or are becoming inadequate over time if the underlying insured values are not adjusted correctly, he said - and this is a risk for the consumer as well as the insurer.
“On my point around affordability, I think in an environment of prolonged inflation, and [elevated] costs of settlements, the affordability of insurance becomes a challenge. And our response to that as a distribution company is our emphasis on more efficient distribution avenues, but also on creating bespoke products that are really more relevant for the customer, and therefore allow us to price more competitively for the cover provided.”
Looking back to the launch of GrovesJohnWestrup Private Clients (GJW PC) – a Munich Re company serving the high-net-worth insurance space – Lay noted that some of the key market themes at play then are continuing now. We are still operating in a heavily intermediated market, he said, and in this market, it is still a challenge to drive true digital innovation in digital businesses.
“But I think we have been pretty good at demonstrating that even in a very complex product space, like high-net-worth, that it is possible,” he said. “And we will certainly continue our digital innovation in other intermediated segments, whether it’s SME or regional P&C business.”
That digital innovation has had numerous benefits, he said, from data-driven decision-making that cuts down manual handling to the use of data in driving dynamic propositions. These innovations and this evolving technical capability are the right response to the commercial challenges that are currently facing the market – particularly given that the volatility and unpredictable nature of this environment looks set to remain in place.
The advanced agility and data capabilities of his team have been integral to its development, he said, providing the capacity to respond to the challenges of the market in a commercially savvy way, while also leveraging the new opportunities presented by present market conditions. Validating this is how the hybrid working environment installed after the lockdowns has pinpointed the immediate benefit of the business’s digital placement capabilities in the way that it is now interacting with brokers.
“You are now a lot more dependent on digital means to trade. And I think having established that in the context of COVID and then having seen it [evolve] in 2022 has been a very strong validation of our proposition,” he said. “We are now seeing around 40% of all quotes directly on the platform. And we’ve got some brokers that are doing over 80% of their placements with us directly through the platform.
“These are very early indicators that even a very large and complex proposition like high-net-worth can be transacted in such a way. Especially if you always combine it with a human touch. Because we’re not taking the underwriter out of the equation, it’s quite the opposite…. It’s just the simplicity of doing business, the agility and the ability to offer bespoke coverage which is taking away some of those pressures.”
It’s rewarding to see how the market is responding to the business’s offering, Lay said, because as a distribution company for Munich Re, it’s built into his team’s DNA to create a proposition that works. And, so, the development of its digital capabilities is a proposition that the business is going to leverage further and across other lines of business in the future.
Lay and his team have several core areas of focus for the year ahead under the newly established board division, which brings together various primary insurance businesses of the group under one coherent specialty business unit. In addition, the group welcomed a dedicated board member responsible for all specialty primary business across the Munich Re group - and Lay’s business unit in the UK is one of the integral parts of that.
“That new setup gives us scope and it gives us relevance to drive specialty primary initiatives further,” he said. “I think our business model in the UK is really interesting in that we’ve created a business blueprint that is quite transferable in the way that we’ve worked with Munich Re entities together to create one coherent business model.
“That is a blueprint that I would like to take now into other territories outside the UK. In terms of lines of business, it is specialty, which means it’s largely a commercial lines offering with certain complexity criteria that you could attach to it. And we will expand that specialty P&C proposition further outside the UK space. So, that is something that is certainly on the agenda for the next year.”
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