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“This has been a disappointing half for me in many regards, but I do think we’re making progress on our key initiatives and have good momentum in the business.”

Those were the words of Andrew Horton (pictured), group chief executive at QBE Insurance Group, during the company’s earnings call on Thursday prior to which it was announced that the insurer saw a massive lift in its net profit after income tax – from US$48 million in the first half of 2022 to US$400 million this time around.

Trouble in North America

“Underwriting performance was impacted by catastrophe costs, both in the current and prior year, resulting in a combined operating ratio (COR) of 98.8%, or 97.6% excluding the upfront cost of the reserve transaction we announced in February,” the CEO noted during the results webcast.

“Though we’ve been able to better absorb some of the setbacks and still maintain a double-digit return on equity, I’m disappointed with the extent of the catastrophe volatility this half on our result in North America. Improving returns in North America remains our highest priority.”

In terms of underwriting profitability, only North America posted a COR above 100% during the first half. Australia Pacific, barely making it, took a hit from the weather events in New Zealand earlier this year.  

Echoing Horton’s sentiment, QBE group chief financial officer Inder Singh declared: “This has been a very challenging half for underwriting performance. The impact from catastrophes has been too large, and the returns in North America are not acceptable.”

In his one-on-one with Insurance Business following the results webcast, Horton cited the above as among the “elements of disappointment” marring an otherwise outstanding set of financial results.

“We’ve been focussing on North America for a number of years now, and it needs to be a lot better than that,” the CEO said while at the same time highlighting the “many, many positive things” such as the group’s capital strength and stability of management.   

The plan for North America, in terms of core lines, is to have a good balance between crop, specialty, and commercial.

Horton told Insurance Business: “Then how do we ensure they’re all delivering in this low- to mid-90s combined ratio? So, there’s more work to do on the US. But the US – it’s a much more straightforward business than it ever has been. It’s not that many lines of business, so we haven’t got too many areas to focus on to improve it.”

Profit source

During the first half, QBE’s total investment income amounted to US$662 million – a huge jump from last year’s US$20 million loss. This positive result was the main driver behind the insurer’s largely improved net profit after income tax, instead of what QBE earned from underwriting.

As highlighted during the company’s presentation, QBE generated more investment income in the first half than it did over the course of 2022. Horton, however, would like underwriting to contribute more to the bottom line.

“It’s purely driven by our investment income being so much higher, and that’s likely to continue for the rest of the year,” Horton said when he sat down with Insurance Business. “So, we’re probably going to earn a similar number in the second half of the year.

“Overall, profits of the company look good and return on capital looks good. But we are an underwriting company and, therefore, we need to deliver a good underwriting profit.”

With a new group chief underwriting officer slated to take on the post in September, the group CEO is keen to further advance QBE’s portfolio optimisation, which is among the insurer’s strategic priorities.

Referring to Peter Burton, who is moving on from his international markets role, Horton said: “So, let’s look at our underwriting. Are we consistent in what we’re doing? And then second is this aggregation issue – have we got aggregations we haven’t thought of yet? Then he’s also going to be responsible for the reinsurance buy. So, these are all linked things.

“Let’s get our consistency of underwriting and underwriting appetite. Let’s ensure we understand the aggregations. That will link into our reinsurance, and ultimately links into an improved combined ratio. So, these are the conversations Peter and I have had and will continue to have.”

According to Horton, efforts to better manage volatility continue at QBE, with property catastrophe risk remaining a major focus.

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Global insurance group Howden has unveiled its latest blended insurance product that brings together professional indemnity, crime, and cyber liability into one policy and under one limit.

This latest proposition brings potential cost savings and improved efficiencies for financial institutions and was developed with a panel of other specialist insurers, including the Lloyd’s market. It was developed as an answer to the rise of sophisticated cyber claims such as ransomware and phishing.

With this blended offering, claims responsiveness and communications with the insurer are simplified, given that a single cyber event can trigger multiple insurance products including professional indemnity, crime, and cyber liability. Howden Financial Lines FIDO managing director Ed Brennan said that the new proposition should help the insurance group’s clients in addressing complex requirements as cyber events continue to scale.

“This product was developed to provide seamless and efficient solutions to address financial services clients’ increasingly complex cyber requirements in the midst of rising cyber events. This product will help clients navigate this difficult environment, and I look forward to working with them to maximise efficiencies and improve their insurance protection,” Brennan said.

Howden Specialty CEO Sarah Hughes also commented on this new blended product, saying: “The launch of this blended product reflects Howden’s broader strategy to harness its collective specialty expertise across the group for the benefit of clients, developing advanced products that provide joined up protection, ensuring that our solutions remain relevant to clients now and in the future.”

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More than half (51%) of the construction sector’s SMEs are relying on some form of credit to fund their insurance coverage, making the sector the biggest borrower, according to a new study.

The results from Premium Credit’s insurance index found that the average construction firm borrows an average of £1,130 for insurance. That said, around 13% of construction SMEs who use credit for insurance said that they have borrowed over £3,000 to fund their coverage.

In total, construction firms accounted for 12% of all net advances from Premium Credit last year, a figure that remained steady from 2020 and 2021. Close on its heels is the professional and scientific sector, which also accounted for 12% last year, representing a small rise from 10% in 2021 and 9% in 2020. Rounding out the top five were manufacturing, land transport, and wholesale and retail trade.

The report also found that one in four have reduced their level of cover across a range of insurance lines; vehicle, property, and public and product liability are the lines most likely to be hit. Around a third (32%) of SMEs that reduced their cover also cancelled at least one policy. Meanwhile, up to 10% said that they plan to increase their level of cover in the year ahead.

“Insurance is vital for business operations as demonstrated by the near 20% growth in net advances we have seen year on year. It is particularly important in the construction sector which accounts for how much lending we do in the sector,” Premium Credit chief sales officer Owen Thomas said.

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According to the latest Global InsurTech Report from Gallagher Re, new funding for the insurtech sector decreased to US$916.71 million in the second quarter of 2023.

This represents a decline of 34% from the previous quarter’s total of US$1.39 billion. Notably, this is the first time in three years that the quarterly total has fallen below the US$1 billion mark.

Although there was a significant decrease in the overall funding, the average deal size only declined by 16.1% to US$12.39 million in Q2, the report stated. This decrease in average deal size can be attributed to the smaller number of investments, with only 97 reported for the quarter.

Early-stage funding in the sector reached its lowest point since Q3 2017, according to the report. Investments in early-stage life and health insurtech companies only amounted to US$58.34 million, while property and casualty early-stage funding slumped to US$157.71 million. The average deal size for the early-stage sub-category fell to US$5.27 million across 51 investments.

On the other hand, there were 17 “acceleration” category deals that attracted US$134.49 million, accounting for 14.7% of the total insurtech funding for the quarter. This share is lower than what is typically observed, Gallagher Re said. Only one mega-round deal qualified in Q2, which was Baring’s US$150 million Series B investment in Accelerant. This marks the third consecutive quarter with just one mega-round deal.

During Q2, (re)insurers made a total of 43 insurtech investments. Most of these investments were in early-stage deals, with 12 seed investments and 14 Series A investments. Munich Re Ventures led the activity with six investments, followed by MassMutual Ventures with five. Aviva Ventures, MS&AD Ventures, and Nationwide Ventures each made three investments.

“During insurtech’s primary phase, from 2012 to 2021, about US$42 billion was invested,” said Dr. Andrew Johnston, global head of insurtech at Gallagher Re. “The focus was on technology, the ‘how’ rather than the ‘what,’ but up to a third of those insurtechs no longer trade.

“Insurtech is now in a secondary phase focused on beneficial deliverables, rather than digital usurpation and quick cash,” he said. “The whole insurtech phenomenon instilled a new understanding of the importance of technology in our sector. Rapid and accelerating adoption by incumbent insurers has created a huge opportunity for insurtechs to support incumbents through technological innovation. Those presenting clear commercial outcomes for themselves and their clients will benefit from investors’ more realistic sense of what can be achieved.”

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Broadway Insurance Brokers has announced the strengthening of its executive team with the appointment of Gary Ward (pictured left) as its new director of operations, internal audit, risk and compliance.

In a Press release, Broadway noted that Ward comes to the team after four years compliance officer with IC Insurance Brokers in Bolton ad brings four decades of insurance experience to his new role. He is also currently deputy chairman of the Manchester Committee of the British Insurance Brokers’ Association (BIBA).

Commenting on the appointment, CEO Daniel Lloyd-John (pictured right) said that it sends a “strong, clear signal” to clients and industry peers alike about Broadway’s ambitions.

“Gary’s arrival is something of a coup for us, given his vast experience and his standing within the profession,” he said. “The fact that he is already so well known to our existing staff will certainly help with his integration.

“More than that, however, he underlines the emphasis which we established when we launched three years ago not only about providing a different, innovative service to high net worth clients but also adhering to the most rigorous processes in order to do things right on their behalf.”

Lloyd-John added that Ward’s appointment has become “very necessary” due to the speed of growth Broadway has seen as it extends its operations from the North West across the UK and overseas. The firm recently outlined that the value of the assets for which it arranges cover doubled to more than £2 billion in the space of less than 12 months.

Results season continues with the turn of reinsurance giant Swiss Re sharing its earnings report for the first six months of 2023.

Here’s how Swiss Re fared in the first half, compared to the same period last year:

“The overall result in the first half of 2023 reflects the good positioning of Swiss Re, as well as the quality of our new business,” group chief executive Christian Mumenthaler said in a release. “The performance of P&C Re and Corporate Solutions contributed to a solid second quarter.”

According to Swiss Re, its profit in the second quarter amounted to US$804 million.

Meanwhile group chief financial officer John Dacey had this to say: “In spite of macro-economic volatility, higher interest rates and steadily increasing recurring income contributed to an improved investment result.

“We have maintained our very strong capital position, which allows us to take advantage of attractive business opportunities.”

Swiss Re’s positive financials in H1 were mainly attributed to contained natural catastrophe losses in the period, L&H Re’s performance returning to pre-pandemic levels, and a strong result for Corporate Solutions.

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The adoption of generative artificial intelligence (AI) like ChatGPT is projected to take off across the insurance landscape, with one expert putting the timeline at 12 to 18 months.

Vikas Bhalla (pictured), executive vice president and head of insurance at data analytics and digital solutions company EXL, said that most insurance companies will be exploring use cases for generative AI and large language models across a range of functions during that period.

But he cautioned that even as traction grows for AI, it’s extremely difficult to predict what its use will look like.

“What you will see over the next 12 to 18 months is a progression, as the technology becomes more recognised and more accepted,” Bhalla said.

“People will learn how to manage the risks associated with it, and insurance organisations will move from employee-facing to rep-facing to customer-facing uses of AI. You’ll see the impact really going up, and that is going to be a big change.”

‘Extremely difficult’ to predict AI development

Chubb CEO Evan Greenberg was the latest to convey a sober stance on the impact of AI on insurance, even as he confirmed Chubb is looking to scale its use of the technology claims over the next two to three years.

In a Q2 2023 earnings call, the CEO told investors that applications of large language models would be iterative, and therefore take more time to produce benefits for insurance companies than “breathless rhetoric” in the industry implies.

Bhalla agreed that it’s too soon to see what form such technologies will take even as observers speak about AI’s increasing ubiquity.

“The form that such technologies will take six months to a year from now will be very different… because the pace at which new disruptive technologies is increasing,” Bhalla told Insurance Business. “It’s extremely difficult for one to predict what a form of that is going to be.”

Despite this, insurance companies are keen to deploy customer-facing AI solutions, according to Bhalla. EXL, which works with large insurers and brokers worldwide, said it has seen a “frenzy” of client interest in ChatGPT over the past few months.

What are the most popular generative AI use cases among insurance companies?

According to EXL, the most popular initial applications for generative AI in financial services, including insurance, include:

• Customer service agent assistance – these include bots that search customer activity, claims and payment and investment histories to furnish live customer service agents with scripts to answer questions more effectively.
• Contract analysis and drafting – AI solutions to scour finance, legal or insurance contracts to extract key information, flag risks, or remediate issues.
• Audit – AI that helps analyse 100% of compliance documents, versus the old-school approach of sample-based compliance.
• Code generation – using generative AI to write code, check for bugs and streamline the product development process.

However, there are hurdles for insurance companies to overcome before any significant generative AI usage takes off, EXL cautioned.

The company tells clients that data governance, data migration, and silo-breakdowns within an organisation are necessary to get a customer-facing project off the ground.

“Will insurers have tried [generative AI] in something [within 12 to 18 months]? I think yes,” Bhalla said.

“Would they have scaled it up significantly? In my view, that’s going to take a bit more time. It will depend a lot on the learnings and constraints that we see. There’s still a lot of regulatory approvals and changes needed before companies can scale up.”

Three recommendations for scaling generative AI

Bhalla shared three recommendations for companies experimenting with generative AI: using closed data sets, keeping a human in the loop, and slowly progressing usage over time to minimise risk.

“When you look at creating of your first few implementations, the AI should be applied only to closed data sets,” he said. “You can take a pre-trained large language model, but you need to train it on your own data limits initially.”

Organisations should avoid combining their internal data with external ones, and refrain from exposing their data to the external, Bhalla advised.

“The second thing we telling clients is to have human in the loop,” the insurance head continued. “You can’t delegate the decision making and running of the operation [to AI], whether it is new business, underwriting, or claims. A human in the loop is important because you need to make sure that there is a checking mechanism.”

Finally, insurance companies can manage their risks by progressing the penetration of disruptive AI technology. Customer-facing AI applications are deemed the highest level of use, and therefore the riskiest.

“We recommend our insurance clients to start with the employee-facing work, then go to representative-facing work, and then proceed with customer-facing work,” said Bhalla.

Is your organisation exploring use cases of generative AI? Tell us about your experience in the comments below.