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Brokers, insurers need to offer relevant insurance to prosper: Panel

Brokers, insurers need to offer relevant insurance to prosper: Panel

COLORADO SPRINGS, Colorado – Insurers and brokers need to offer relevant products to add value for insurance buyers if they are to prosper in an environment where nontraditional capital continues to enter the market, a panel of insurance executives said.

Coverage that addresses currently underinsured or uninsured risks and more efficient placement mechanisms would help the insurance sector prosper despite a generally softening market, they said.

New capital entering the insurance market is not a temporary phenomenon, Lloyd's of London CEO Inga Beale said during a session Monday at the Insurance Leadership Forum in Colorado Springs, Colorado.

The meeting is sponsored by the Council of Insurance Agents and Brokers.

The new capital entering the market – frequently in the form of direct investment in insurance and reinsurance vehicles by pension funds and other investors – often is satisfied with lower returns on investments than currently available in the insurance market, Ms. Beale said.

And the capital is entering a market where the use of models has created a more stable underwriting environment, she said.

Large market swings are not as likely as in past market cycles, agreed Peter Hancock, president and CEO of American International Group Inc. in New York.

“The traditional hard and soft market where all lines are correlated is being replaced by line-by-line cyclicality,” he said.

However, it will take a change in the global economic outlook before the insurance sector in general will see any depletion reduction, of capital targeting the sector as the economy in general is overcapitalized, said David Long, chairman and CEO of Liberty Mutual Holding Co. Inc. in Boston.

“The real issue isn't excess capital in the insurance industry but excess capital” in the economy in general, Mr. Long said.

But the influx of new capital should be used as an opportunity to take on uninsured and underinsured risks, said Ms. Beale.

“There's a lot of underinsurance in the world and we will need this capital,” she said.

Cyber risks worldwide and property risks in developing economies generally are underinsured, said AIG's Mr. Hancock.

While cyber risks require that companies be aware of them before seeking insurance, insurers also need to offer sufficient capacity to cover the risks, he said. For example, while AIG has recently extended the breadth of the cyber cover it offers to include bodily injury and physical damage, the capacity for cyber risk available to high-risk sectors is limited, Mr. Hancock said. Banks, for example, can buy about $400 million in cyber insurance, but their economic exposure might by 10 times that amount, he said.

Education of policyholders remains a big issue on cyber risk, said Liberty Mutual's Mr. Long.

All large companies should assume they have suffered some kind of data breach and it is difficult for them to secure the huge amount of data they hold, he said. “The most important thing is that this risk is ever evolving.”

As risks continue to evolve and increase, insurers and policyholders depend more on brokers and agents as they seek to manage the risks, Mr. Hancock said.

“What we really expect most of all is a distribution partner that understands the needs of the customer and has their trust, because to me this is an industry with a lot of complexity; and if you have to read the fine print on everything, it gets very inefficient,” he said.

As insurers and brokers look to make the insurance placement process more efficient through the use of technology and centralized placements, it is important that brokers and underwriters add value to the placement process, said Lloyd's Ms. Beale.

“It's really important that the intermediary adds value. That's a concern across the whole industry because we need to do what's right for the client; and every step of the way, there needs to be some value added,” she said.

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