The Global Reinsurance Market Uncovered

There is a scene in the 1973 film “The Sting” where Robert Redford’s character, Johnny Hooker an aspiring con artist keen to ingratiate himself with the seasoned pro, Henry Gondorff (Paul Newman). Redford utters the line “”Luther said I could learn from you. I already know how to drink.” I am not equating today’s reinsurance business directly with the 1930’s underworld but for any current or future participant that is an attribute sure to draw a rueful smile in a hyper-competitive market.

If you believe as I do that the future of re(insurers) and intermediaries is dependent on the wisdom of line managers to consistently apply knowledge and great judgement to organisational issues in alignment with the firm’s strategic vision, you would be wise to think about three critical issues:

1. Profitable growth mindset: this is a philosophical issue, you cannot have profitable growth if your line managers visibly don’t have the right mindset. Ask yourself, does our environment (leaders’ behaviour) actively encourage our line managers and employees to think big (ambition, prudent investment and risk tolerance, innovation, new standards of performance) or minimise risk (fear of failure, conserve cash, problem-solving, deflect responsibility)? On a personal level, are we constantly and consistently investing in their self-worth (acquiring new skills)? In volatile times, the future of businesses is largely determined by the number of managers and employees with high levels of self-esteem, not the deepest pockets. There are plenty of examples over the last three decades of brokers (Pat Ryan, Graham Chilton)  and re/insurers (Brian Duperreault, Bob Clements) who have swept past their competition for these exact same reasons. Why should this decade be any different?

2. Brand Power: Let’s keep it simple, whether you are an underwriter, broker, MGA or any other professional services firm, you are really in the marketing business. Your brand is important to your future because it is a representation of your quality. You can build and nurture it yourself or let the competition or market define it for you by default.  If you want to command a premium for your product or service you cannot be the 1500th person talking about the complexity of cyber risk underwriting or the transformative effect of alternative capital on traditional reinsurance. (Try the simplicity of cyber risk prevention or  the transformative effective of traditional reinsurance on alternative capital). You need to stand out from the crowd (try a contrarian stance).  Ask yourself is our brand(s) sufficiently memorable and powerful to:

  • Attract our ideal prospects over the next two years?
  • Weather the amount of uncertainty (future-proof) and the competitive threats (new business models)  impacting the future of our business?
  • Allow us to command a “premium” price for the value delivered to clients (Hermès, Goldman Sachs, McKinsey) or must we offer a “premium” value (Tesco, Samsung, Delta) to justify the price our customers are willing to pay for your products and services?


What tweaks or dramatic changes must we make?

The current period of M&A may lessen the competitive threat from traditional players but it may be largely irrelevant if the new entrants are gorillas encroaching on the path to your strategic goals.

3. Diversification: a spread of risk is a fundamental insurance concept, yet in many firms the call for greater diversification often feels like a response to the fire alarm going off in the boardroom.  Ask yourself, is your desire to diversify being made from a point of strength or weakness? Is it a response to competitor moves, invalid market assumptions (defensive, protect operating margins) or serendipity and planned growth (offensive, assume a distinct or market-leading position)? Is it a response to the quality of your employees and management or the amount of uncertainty and competitive threat facing your firm’s future? What hard evidence or strong anecdotal information do you possess (or can easily acquire) to demonstrate the positive impact diversification will have on your firm’s short- and long-term profitable growth? Is it in the best interests of some or all of your firm’s key constituents (customers, shareholders, employees, business partners, regulators and so on)?

In tough trading conditions diversification is often the wrong call, businesses are better making their strengths more productive. Yet the demands of assertive investors chip away at what top management “know” to be the right course of action. This gets exacerbated when their key competitors make what appear to be “enlightened” moves to diversify when they have yet to be proven as a “wise” move (the decision stands the test of time).

The future is bright. The future is not in the stars or a glass of whiskey, it is within ourselves.

© James Berkeley 2014. All Rights Reserved.




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