Laurence

The study, which the broking giant claims is the most comprehensive on IFRS 17 to date, polled 312 insurers across 50 global markets. With total costs estimated at US$15 billion to US$20 billion, costs per insurer will vary significantly by company size. For the 24 largest multinational firms, the study estimates costs of US$175 million to US$200 million each. Meanwhile, the remaining 288 insurers will have an average cost of US$20 million.

“For many, significant improvements will also be required in business processes and finance operations to deliver IFRS 17 efficiently and link with other metrics,” said Foroughi. “With smart investment and the right people, an insurer’s IFRS 17 programme has the potential to help deliver long-term annual savings to show against the daunting up-front costs.”

The data showed that over 10,000 full time equivalent employees will be needed to implement IFRS 17. According to WTW, this will present major challenges for insurers’ recruitment and retention strategies.

Furthermore, there are still issues regarding perception and knowledge of the reporting standard. Only 52% of survey respondents said that they expect IFRS 17 earnings/equity to be more helpful than current GAAP earnings/equity. Meanwhile, 54% believe that the need for non-GAAP reporting will either slightly or significantly increase. Understanding of the business implications of IFRS 17 remained low at 6% in 2020 and 17% in 2021.

Large multinational firms are ahead of their smaller counterparts, with an average progress of 3.5 (on a five-point scale) versus 2.6. Progress is highest in the EMEA region, with an average of 2.9, while it is lowest in Asia-Pacific at 2.4.

Many companies, especially from mature markets, believe that IFRS 17’s impact on KPIs may not be commensurate to the costs.

Willis Towers Watson noted an improvement in areas such as data and IT workstreams since its previous edition of the survey in June 2020. However, setting up a robust process designed to comply with tight reporting schedules remains a challenge. There is also little progress in terms of dry runs, disclosures and automation. Amid the lack of qualified resources, Willis Towers Watson predicts that process automation will be crucial in successfully implementing IFRS 17.

“If insurers are to unlock value from IFRS 17 they should be aiming for significant business process improvements including automation, efficiency and auditability ‘out of the box’,” said Foroughi. “This will save time and money, allowing experts to be deployed on higher value tasks and enabling insurers’ reporting functions to do more, faster and with less. Regulation can be a spur to drive performance, if the conditions are right.”

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Read more: Chief executives discuss the future of insurance broking

This recipe for success has worked well for Atlanta, which, even just since the start of 2021 has made a series of high-profile acquisitions, striking deals with the likes of telematics broker Marmalade and Be Wiser. That cultural piece is the key behind each of these purchases, he said, and an essential metric of the due diligence that the group carries out on each potential acquisition. Donaldson stated he has no hesitancy in turning down opportunities if their values don’t align because, while balance sheets and business costs can be transformed, culture is more deep-rooted.

“This goes both ways,” he said, “and I always say to people, due diligence me just like I’m doing with you. When we went to Crispin Moger and his team at Marmalade, I understood what they were about to go through. So, I told them they should due diligence us and speak to Tim [Hutton] from Lloyd Latchford, speak to the people from Carole Nash, the people from Swinton and all of those we’ve worked with for so long, and ask them whether we’ve done what we said we’d do.

“And Crispin came back and said that he’d found out what I’d been saying was true, that Marmalade was really going to be part of the Atlanta family and that we here to help grow your business, grow your aspirations. Because when we bought you, we bought your brand, your telemetry knowledge, your systems… so, you’re going to make us better too. It’s really an aligned approach that’s needed.”

Read more: Atlanta accelerates growth trajectory with acquisition of Be Wiser assets

It was a similar case with Be Wiser, he said, when the opportunity came up to acquire certain assets of the brokerage including customers, staff and the brand. That Be Wiser uses the same system platform as Atlanta was a significant positive, as was the clear expertise of its staff around motor and home, and its work with telemetry. After exploring how the business could be integrated and what it would bring to Atlanta, it made real sense to the group – and brings another great brand under the Atlanta umbrella.

“We’ll build on it and we’ll use it and we’ll grow it just like we have all the brands that we brought in,” he said. “It’s really exciting, and I’ve not been able to go down there yet but I can’t wait. I’ve met with people around the business at a certain level, but I always pride myself in speaking to every member of staff as soon as I possibly can. I was actually on a full call with almost 100 of the Marmalade staff the other day and it was great to see them and have a bit of banter, and let them get to know me as a new CEO.”

Looking at what the future holds for Atlanta, Donaldson highlighted that all future growth, whether organic or acquisition-led, across the group, will be underpinned by his personal tagline of being “relentless in the pursuit of excellence.” Looking at where you’re going inevitably means also taking stock of where you’ve been and few brokerages can boast of a trajectory like the one seen by Atlanta, which started as Autonet Insurance in a rented apartment in Newcastle in 1998.

When Donaldson and his then business partner Glyn Keeling first set up the business, he said, no phones were ringing and there were no safe bets to be had but, fast-forward to 2021, and by the end of this year, the group will have achieved over a billion in GWP and will champion the needs of nearly three million customers.

“There are so many opportunities out there at the moment, for different reasons,” he said. “Some [businesses] are struggling a bit after the pandemic and we can come in to help them grow. Other opportunities will allow us to change our footprint a little bit, as with the Marmalade acquisition… We’re probably going to announce at least another acquisition by the end of the year. And of course, The Ardonagh Group as a whole is very acquisitive.

“We’re in conversations with many different businesses and the great thing is that our values and culture and ethos is becoming well known in the marketplace. People who are thinking of selling are thinking of us. And some people who want to grow their business and take it to the next level aren’t just going down the private equity or [lending] route but are actually coming to us and saying, ‘I think I can go faster with someone like you… while still being part of my business.’ So, if we can keep the reputation that we have as an acquirer going, then that should hold us in really good stead.”

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The Mesoamerican Barrier Reef System is listed as critically endangered by the International Union for Conservation of Nature’s Red List of Ecosystems. The reef system is home to 65 species of coral and more than 500 species of fish along with many other protected species. Coastal wetlands, mangrove forests and seagrass beds also protect against storms and coastal erosion.

Thanks to the effects of climate change and other stressors, the risk of hurricane impact leading to irreversible coral degradation and mortality has grown.

“Early action to clean up the reef and jump-start regeneration and recovery is critical to reducing the overall impact of lost ecosystem services – in both social and economic terms,” WTW said. “However, the restoration of natural ecosystems is often not a priority in the aftermath of extreme events, as resources are focused mainly on grey infrastructure and property.”

The new project is being co-funded and implemented by WTW and the Mesoamerican Reef Fund, the regional financing system for large-scale maintenance, conservation and restoration of the reef system. MAR Fund will be the policyholder for the programme.

“In 2018, we launched the Global Ecosystem Resilience Facility at the World Ocean Summit in Cancun,” said John Haley, CEO of Willis Towers Watson. “We are delighted to be back in Central America, partnering with the MAR Fund and supported by the InsuResilience Solutions Fund, to build resilience of the Mesoamerican Reef and its communities.

“Marine ecosystems may be ‘free’ public goods, but their active maintenance is essential in sustaining their health and value. This programme helps us learn how insurance can provide a unique shared governance framework to manage reefs and other valuable natural ecosystems.”

“This collaboration is a great opportunity for the MAR region,” said María José González, executive director of MAR Fund. “We see the insurance model as a risk management tool that will provide immediate funds for reef restoration, thereby contributing to strengthening coastal resilience, and to the recovery of the MAR and the environmental services it provides. MAR Fund will be the policyholder and will manage the payouts. We will work closely with national governments and other partners and stakeholders to build the needed capacities for emergency response and preparedness.”

The InsuResilience Solutions Fund (ISF) has signed the grant funding agreement for the programme.

“This partnership combines the expertise of local partners and the insurance sector, ensuring that products are developed according to the needs of the vulnerable population,” said Annette Detken, director of the ISF. “Our grant will co-fund the development and implementation of this innovative insurance product insuring coastal ecosystems that provide much-needed services for local communities. We believe this insurance solution could serve as a model for other countries seeking to protect important natural resources like coral reefs.”

Payouts under the programme will be triggered by the intensity of a hurricane, converted to an estimate of the extent of damage to the reef. A group policy will cover the pilot reef sites, with a tailored payout structure reflecting the cost of response at each site at different damage levels.

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Remember the Central Bank of Ireland’s probe into two former directors of under-administration Quinn Insurance Limited (QIL)? It’s now been revealed just how much was spent on the investigation, which spanned half a decade.

According to the regulator’s 231-page annual report and annual performance statement, the probe – which was commenced in 2015 and concluded last year – involved total costs amounting to €1,896,303. Of the sum, €954,562 was incurred for document management and stenography services; €725,539 for legal professional fees; and €216,202 for fees and expenses of inquiry members.

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AXIS Insurance, the specialty insurance business segment of AXIS Capital Holdings, has announced the promotion of Keith Trivitt to head of commercial and strategic partnerships in its international division.

In the newly created role, Trivitt will be responsible for maximising commercial initiatives and developing profitable opportunities for strategic growth. He will be based in London and will report to Edward Ashby, global head of distribution for AXIS Insurance, and Mark Gregory, CEO of AXIS Insurance’s international division.

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It has been three months since Amersham-based Luker Rowe was snapped up by Clear Group, a move that came about after Luker approached Clear’s Howard Lickens – encouraged by their long-standing working relationship and the shared values at the heart of both businesses. They both joined Brokerbility at around the same time, he said, and through working together had generated mutual trust and respect.

“I had spoken to other people, and been approached more times than I care to remember over the years,” he said. “I’ve had conversations with some of those people, just to get an understanding of them so, when it came down to it, this was quite an easy decision for me really. It was about Howard and the people that he has surrounding him. We’ve been working with them more and more, and with their PI London placement team, and every time we had reason to do business with them, it was a positive experience for me and the whole of my team. And that probably says a lot.”

The success of an acquisition hinges on having the right cultural fit, Luker said, something he has seen from the deals he has managed in the past. Like so many, his foray into insurance was somewhat accidental and he first joined the business founded by his father and his father’s broking partner Simon Rowe four years after it was founded in 1989. Tragically, Simon Rowe died in 1996 and Luker remained with the business, which made its first acquisition in 1999, followed by subsequent deals in 2006, 2016 and 2019.

“For us, we always looked at businesses that we could buy and then merge into our business as I had limited appetite to run multiple offices,” he said. “And there were the cost advantages that go with being in one premise, but it was also about the ability to then integrate that both operationally and culturally, and that’s what makes culture so essential. And that’s why I went with Howard really. Because what was important to me was how my staff would react to this, and clearly, culturally, Clear is exactly the right fit for us, in the same way that some of the other consolidator models were absolutely not the right fit for us.”

Read more: Chief executive details how recent dual deal underlines group’s acquisition strategy

Settling in has been a positive experience, Luker said, though it has taken the team some getting used to reporting upwards after so long without the need for such a process. From his own experience and the feedback from his team, all interactions with Clear have been great and overall, he noted, not much has really changed for the staff except that now they have access to certain things that they simply didn’t have before.

Luker highlighted that it has always been part of his long-term plan to introduce some new product lines into the business, in areas such as employee benefits or trade credit, and that the deal has opened those doors to the business. Looking to the future, he said, his number one goal is to continue to grow. Operating as an outpost of Clear, where the group previously didn’t have a physical representation and with a team of 40 staff at the ready, Luker Rowe is poised to accommodate any acquisitions in its local vicinity.

“That was a big part of our plan before I decided to sell and that continues to be the plan,” he said. “We’re about organic growth and retention, but if we can plug some acquisitions in there then great, and I think that’s part of the Clear plan too. [Howard’s] business isn’t about cost-cutting, it’s about driving growth. And, of course, you have to watch costs along the way but they’re in growth mode and we’ve always been in growth mode, and we continue to be in growth mode. So, that, I think, works out well for all of us.”

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What’s the driving force behind that growth? The hard insurance market.

“In a challenging market, the capacity is not there, insurance premiums are going up, and there’s pressure from your stakeholders (maybe your treasurer, your CFO, your CEO) looking at all lines of coverage, trying to drive out costs in every single way they can, and looking under every single rock for savings,” said Michael Serricchio, Americas sales and advisory leader, Marsh Captive Solutions.

Captives are a natural solution to many of the challenges caused by a hard insurance market. They enable organisations to control their costs and improve their margins by increasing their risk retention and taking greater control of their insurance programs. These days, captive owners also have access to cutting edge software solutions and financial models to help them run their captives effectively.

Read next: Captives: A broker’s friend, not foe

“The challenging market is really driving clients of all sizes, of all industries, in all regions, to think more about their property program, their excess liability program, their D&O, product liability, product recall – these are all lines of coverage that are giving a lot of pain points to clients, and there’s no doubt in my mind that is why we saw this historic number of captive formations last year,” Serricchio said. 

Marsh Captive Solutions manages over 1,500 captive insurers globally. In the hardening market for commercial lines, many of Marsh’s existing captive clients have expanded the lines of coverage they’re insuring via their captive programs. 

“Even our largest captives […] that write more than $20 million in premium (which is a pretty large captive) grew by about 5% in 2020, showing that they’re constantly working with their brokers, looking at how they can leverage their captives, and how they can perhaps take premium out of the market and raise retentions,” Serricchio commented. “They’re being forced to do certain things, and the captive is the perfect vehicle to bridge that gap. And it’s just a testament, I think, to this industry and to what we’re doing here, that captives are really thriving like this.”

Read more: A “captive”ating opportunity

The most common type of captive is a single-parent or wholly-owned insurance company captive, but in recent years, there’s been a surge of interest in rent-a-cell captives (also known as protected cell captives), through which organisations get the benefits of a captive insurance company, without the upfront costs, capital investment, or significant maintenance costs associated with forming and managing a wholly-owned captive.

“Cell captive facilities are so efficient,” said Serricchio. “They’re relatively easy to set up and manage, they’re a little bit less expensive to run, they’re able to plug and play quickly at a renewal, and that’s why the cell captives have really increased over the last year, and I think we’ll find that this phenomenon will continue. Everybody wants efficiency. You want to be able to start up a captive in as quickly as a few days in some domiciles, and in a few weeks in others. The Americas, especially Washington DC and Bermuda, were cell captive utilisation domiciles that grew the most, but internationally, we saw a lot of growth as well.”

The benefits of cell captive facilities revolve around “optionality and flexibility,” according to Serricchio. He added: “The different cell [facilities] that we offer around the globe are able to plug and play for excess liability, they’re able to fund for D&O, they’re able to be a pass through for property insurance, and clients are able to take the large retention quickly. Parametric insurance for wind and earthquake are things that we’re talking about every single day, and rent-a-cell captives – cell facilities that we have vast experience in – are really allowing and promoting clients do this quickly.”

With over 50 years of captive experience, Marsh Captive Solutions has a large amount of data and analytics, risk financing work, and risk bearing capacity analysis that enables clients to make educated decisions on how to react to the hardening market. Global leader Charnley pointed out: “We now manage more than 1,500 captives around the world. And what that means for [our] clients is that it essentially creates more data, more experience, more staff, more resources, and more technology – so we’re very proud of that, and we’re certainly seeing that growth continue into 2021.”  

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Read more: How will increased consumer vulnerability impact insurance behaviours?

Dominguez, who joined Quadient in 2018, noted that her role within the software services firm enables her to be on the front line of assessing the root of the communications issues faced by insurance companies and how these challenges can be overcome. It was positive to see the downward trajectory among these nuisance communications, she said, and she hopes businesses will take the actions required to see this trajectory continue.

“It might be a bit of a pipe dream to wish that nuisance calls will be completely consigned to history but, in the meantime, it would be great to see these levels stay steady or continue to decrease. That would be wonderful to see, especially for the insurance industry,” she said. “[…] Because there’s so much value in what these businesses provide and frankly these scammers and spammers just get in the way and cause a lot of noise, distracting from a lot of the good work that insurers and banks are trying to do to serve their customers better.”

The challenge facing insurance companies, she noted, is that despite exponential technological advancements and changed consumer behaviour patterns, it has become very difficult for businesses to keep up this pace of innovation or even just with changing customer expectations. Insurance businesses are having to continually evaluate the balance of communications required for customer satisfaction, whether that’s regarding the channels they prefer or the devices that they’re using.

“It’s a fascinating space to be in,” she said, “because it’s really just as much an art as it is a science. Good science is the data piece of understanding those customer behaviours, of understanding what it is that they’re telling companies in terms of their channel, or communication preferences. But this is also about understanding behaviours, so there’s an aspect of behavioural economics here too.”

Read more: Quadient on creating long-term customer relationships

The impact that COVID-19 has had on consumer behaviour and expectations over the last year or so is significant, Dominguez said, and she highlighted that when people are in a happy or stable equilibrium, their provider interactions are significantly different to when they are under stress. When consumers have a claim or need an emergency loan or have a medical concern, the high levels of stress change their interactions and with the additional stressor of COVID on top of this, it has been made increasingly hard for insurers to understand what channels they need to make available.

Insurers have needed to explore the best ways to communicate, balancing availability with not being seen as intrusive or as a nuisance. It was interesting to read the findings of the ICO report, she said, and to see that the number of nuisance calls dropped last year while the number of nuisance texts increased. For Dominguez, this indicated that organisations are getting pretty savvy about using other channels but the bad news is that insurance companies still have to be smarter about that.

Read more: Claims management firm slapped with fine – warning for insurance industry

Insurance companies, therefore, need to find the right balance between calls, which are a much more personal touch; texts, which can be timely, but could also be a nuisance; and emails or mobile push notifications or making information easily available or searchable on a customer portal.

“So, it’s good that those numbers have come down. Even though they’re still very high and there’s some work to be done, it’s a good indication that businesses are starting to understand the need to go digital. And that increase in SMS complaints is probably indicative of that,” she said. “But businesses are still trying to find that balance – to find how to create a one-on-one feeling for each individual customer.

“And that’s hard, particularly for a larger insurer, for example, to service their potentially millions of customers in a way that feels one-to-one, when really what they’ve done has just been really smart about how they set up their processes and their communication so that it just feels that way. So, it’s really about replicating that experience in a scalable way so that it feels much more personal.”

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“To put this into perspective, GMIs reported a much larger overall decline of nearly US$20 billion in net income,” the report said. “In addition, this does not include all of the financial consequences of the pandemic, which would include unrealised capital gains, reserve adequacy, and new business volume and value. A number of players, notably in the life business, did not single out the pandemic in their financial reporting as a key driver.”

However, no insurer among those rated in the report fell into a position where its capital position was insufficient to meet regulators’ expectations.

“Beyond 2020, we believe additional COVID-19-related losses could be manageable, given that GMIs reported a large share of incurred but not reported losses in 2020 earnings, and also due to the exclusion of pandemic claims that insurers have added to the terms and conditions of policies reviewed in 2021,” the report said.

Non-life takes the biggest hit

Overall, the pandemic hit non-life activities the hardest, according to the report.

“That’s because there is a large negative correlation between people insured against death and the segments of the population who have died from COVID-19 or other conditions that led to excess mortality,” the report said. “These groups notably include old people, who are less likely to have term life insurance, and lower-income people, who are typically less likely to be partly or fully insured.”

In contrast, non-life commercial lines were barely hit, according to the report. The pandemic’s negative effects on underwriting were mostly concentrated on a few products: business interruption, event cancellation, and – to a lesser extent – credit insurance.

“On the other hand, underwriting results increased for some non-life personal lines as the frequency of incidents, notably in motor insurance, dropped as lockdowns took large numbers of cars off the streets,” the report said.

Big losses for reinsurers

“The profitability of large reinsurers slid even more, on average, than for the GMIs,” the report said. “This is because reinsurance policies, especially in commercial lines, covered a large share of primary insurers’ exposure.”

For the top 20 insurers S&P rates across the world, the company estimated COVID-19-related losses at about US$20 billion – which corresponds to nearly four times their year-end 2020 aggregate net profit.

European GMIs face steeper losses

European GMIs were harder hit than those domiciled in other regions, although a large part of their losses came from non-European markets. The higher losses for several European players, including AXA, Allianz and Zurich, came primarily from their large commercial property-casualty lines.

“Overall, aggregate losses posted by the three most exposed players (AXA, Allianz, and Chubb) accounted for more than half of the US$8 billion loss for the 16 GMIs,” the report said.

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The European Insurance and Occupational Pensions Authority (EIOPA) will be chaired by Petra Hielkema come September.

In a release, the Council of the European Union stated: “In agreement with EIOPA and her current employer, De Nederlandsche Bank (the Dutch national central bank), Ms Hielkema will take over this role from September 01, 2021 for a period of five years. This term may be extended once.”

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