Several of the world’s most prominent insurance leaders gathered to discuss the industry in Montreal, and their outlook for M&A activity is promising.
“I don’t see any reasons for the trend to stop,” said Tom Bolt, director, performance management, Lloyd’s. “I think there will always be a place for new ideas and new ways to merge while making the capital cycles work.”
The speakers listed several advantages of insurance consolidation, including: scale, better opportunities to serve clients globally, more intelligence to take on risk and the formation of new capital which can enhance offerings in international markets. At the same time, Bolt notes that M&As can also help insurers remain viable.
“Jeff Bezos and same-day delivery had us all worried that we were about to get knocked off the perch,” he said. “But mergers and acquisitions are partly a response to find ways not to be vulnerable to disruptors coming in and eliminating what we all do for a living.”
The leaders did note, however, that weaknesses still prevail.
“One of the problems in the market is we’ve become reasonably soft. We’re doing a great job competing on things we know how to do and are pretty well-shaped,” Bolt said. “A couple of years ago, I told the underwriters at Lloyd’s, ‘You have to quit competing over a bigger slice of the pie, and you need to start making some new pies.’”
XL Catlin’s deputy chairman agreed, claiming, “We can do a better job than we’re doing” in addressing the risks that are most relevant to policyholders. He points to cyber as a particular vulnerability where clients remain woefully exposed.
“I’ve never seen something so potentially enormous,” said Stephen Catlin. “Terrorist attacks, earthquakes, floods, typhoons – those are all finite losses.” A cyberattack, on the other hand, could cause exponentially more damage since “We have all become very, very dependent on a new technology none of us really understand and is changing at a quick pace.”
The leaders proposed solutions, however, and discussed the strategies their organizations have undertaken to battle complacency.
Lloyd’s, for example, has partnered with the chief scientist tasked with combating risks facing the UK government, and uses those discussions to identify the optimal coverages for new exposures.
“We bring this all in and see which is the hottest and where we are going to have the most losses, and then find a way to use insurance as an effective mitigant for that,” Bolt said.
XL Catlin is similarly attempting to be on the frontlines of emerging risks through its venture-funded XL Innovate – an initiative that aims to align technological experts with insurance professionals.
“We fundamentally believe that the best minds who will solve problems like cyber and flood will not work in the insurance industry,” Catlin said. “We created a fund that sets up joint ventures with Silicon Valley and says: ‘let’s blend what you do with our underwriting expertise."