Xuber Survey Reveals Insurance Executive Attitudes Towards Risk Management and Emerging Risks
Xuber, Xchanging’s insurance software business, has revealed that almost three-quarters (71%) of insurance executives believe a UK exit from the European Union would be bad for business in the London insurance market.
According to the Risk Management Survey 20151 carried out by Xuber, in partnership with The Insurance Insider, insurers fear a so-called ‘Brexit’ could diminish the London insurance market’s position on the global stage.
The London Market is currently the largest global hub for commercial and specialty risk and includes Lloyd’s of London and other wholesale insurance companies. This group posted £60 billion in gross written premiums in 2013, according to London Market Group research.
The estimated GDP contribution of the London Market was put by the London Market Group at £12 billion in 2013, representing 10% of UK financial services, 21% of ‘the City’ and 32% of the overall UK insurance sector contribution.
Justin Davies, Director of OPEN Xposure Business Unit, Xuber said: “The survey results offer fascinating insight into the views held by very senior industry practitioners on a range of issues.
“It is clear from the responses that remaining in Europe is a priority for a majority of insurers, all of whom want in place economic, political and regulatory conditions in which the London market can continue to thrive.
“The results also show how companies recognise the need to embrace new technology and tools in order to remain at the forefront of this highly competitive industry. Importantly, the responses have revealed what our clients and the market in general want from their partners and service providers, and where they perhaps need more support than they are currently receiving.”
One person who took part in the survey said more insurance business would remain within the markets of EU member states rather than finding its way to London if the UK leaves the EU.
Another respondent said exiting the EU would spell “disaster” for the UK adding that “it is extremely naive to think otherwise”.
Conversely, 29% of those surveyed disagreed that an EU exit would necessarily be bad for the London Market, with one person questioning the advantages of being a member of the club: “On the contrary, more economical independence from the EU may be an asset for the UK in our preference of London-based securities”.
The UK government has promised to hold a referendum on EU membership by the end of 2017 although there have been indications that it is more likely to take place next year.
According to the results of the survey, the top three threats to the future of the London insurance market are:
- fear of the business making the wrong decision
- speed of decision-making by the business
However, respondents also saw opportunities ahead, with the greatest potential in:
- new products in new markets
- new or improved technology (analytics, web distribution)
- improved distribution (e.g. links with brokers or coverholders).
In terms of the insurance cycle, two-thirds said they do not believe underwriting cycles have gone forever but, significantly, a quarter (24%) said they believe they have gone for good, 10% were undecided.
Many respondents admitted the insurance sector has not sufficiently adapted to advances in digital technology, with three-quarters of respondents saying the insurance market has been slow to innovate and is playing catch up in the ‘data age’.
One respondent’s view is that the reinsurance sector lags behind peers in the direct insurance market when it comes to innovation, while another said the market is too reactive and “rarely proactive” when it comes to embracing innovation. Another respondent criticised the insurance market’s willingness to underwrite “new and unknown risks”, while others highlighted the need for insurers to wake up to the risk posed by non-traditional insurance players.
According to the survey, 84% said technology has improved the ability to manage exposure to risk, with the three biggest drivers changing approaches to exposure management being technological advances, regulation and reinsurance.
Almost nine in 10 (89%) said they have become more reliant on technology in the past five years with many suggesting it has changed the way their business operates across the board.
47% said they are building – or have plans to build – an enterprise exposure platform or repository, and 53% said they do not. Only 30% said they are comfortable with the idea of storing exposure records in a third-party ‘cloud’.
Underwriting discipline will be driven by the accuracy and speed of access to data according to 82% of respondents, while two-thirds (65%) said they actively consider the implications of developments such as ‘The Internet of Things’.
Furthermore, almost three-quarters (72%) of respondents believed local regulators will make increasingly large demands on firms for enterprise level exposure management, with only 7% disagreeing, and the remaining 21% undecided.
Improving and enriching the quality of underwriting and hazard data, and aggregating exposures across all business lines and geographies, better equips insurers and reinsurers to accurately understand their aggregate exposure to catastrophic losses. Xuber’s OPEN Xposure platform enables insurers and reinsurers to optimise the allocation of their underwriting capital and more accurately determine reserving levels, therefore maximising return on investment whilst minimising spend on reinsurance.
The survey also sought to understand influences on practitioners’ attitudes to risk. More than half (56%) said the World Trade Center attacks of 9/11 was the historical event that had most influenced their attitude towards risk modelling. This was followed by Hurricane Andrew of 1992, which one-third of respondents were most affected by, then the Thai Floods (22%), Hurricane Katrina (15%), the 2004/2005 hurricane season (11%) and cyber exposure (11%).
1. The poll was conducted across four weeks in June and July 2015 among 90 senior London Market professionals, including Chief Operating Officers, Chief Underwriting Officers and Chief Risk Officers based in the UK and Zurich. It also covers a variety of other subjects including attitudes towards future risks and the application of risk management tools.