Q&A: Sanjay Godhwani, Berkshire Hathaway Specialty InsuranceReprints
Sanjay Godhwani is an executive vice president at Berkshire Hathaway Specialty Insurance Co. in Boston, where he heads the insurer’s property insurance operations for the United States and Canada. He recently spoke with Business Insurance Editor Gavin Souter about the effect of last year’s catastrophes on the market. Edited excerpts follow.
Q: What’s the key takeaway from last year’s catastrophes?
A: The key takeaway for the industry is that you can go through protracted benign periods, but that doesn’t mean that when events happen they won’t be quite shocking in nature. The last seven to 10 years — outside of a few events like Superstorm Sandy, for an example — was a very quiet period. To me, that’s the key takeaway from it all: Don’t assume that just because you’ve gone through five or 10 years without a significant event that it won’t show up one day and or that it won’t show up in triplicate, which is what happened.
Q: Any other takeaways?
A: The other one is that not every insurance company was impacted identically by these events. And even though three different places were hit — Texas, Florida and the Caribbean — you could argue, because it was not one single place where you’d expect to see some differentiation by carrier based on their aggregation of risk, that there would not be much differentiation. But absolutely there were carriers that were impacted to a much greater degree than others. What you are seeing in the market is behavior that’s responsive to a carrier’s (profit and loss statement) and maybe not the same broad response by everybody.
Q: How have the catastrophes affected the market so far?
A: There’s a couple of occupancies that are being pushed into one quadrant, which would suggest much larger rate increases, much more tightening of supply and capacity, and those would be multifamily and hotels or lodging. The Caribbean is also being broadly pushed into that quadrant. What’s happening elsewhere is that you are seeing accounts with significant losses being treated in a certain way, and those accounts that didn’t have losses or minor losses being treated a little more lightly. Its loss-based, it’s occupancy-based, and then there’s some regional differentiation specifically around the Caribbean. But it all starts from the market being broadly inadequately priced before the events.
Q: What changes do you see this year and into next year?
A: There’s several factors to consider. In the Caribbean, there’s a delay in knowing the final result. The other thing is that because there were carriers coming into those events making noise but not making money on property, unless they do an absolutely great job in selection and let their exposure decrease, they are not going to be able to correct their book to the degree that they need to. That’s going to protract a rate-positive market, even if it’s not peaking as high as people were predicting.
Q: What innovations are taking place in property insurance?
A: Some customers are saying: “If I’m covering things that are infrequent by nature but are catastrophic when they do occur, should I really put myself in a position where I’m negotiating an annual policy? Should I elongate the term or should I buy a cover that’s more hazard driven than damage driven?” So they might move closer to a parametric-type trigger. The other thing is on the carrier side ... underwriters will want to convince customers they are not going to be treated just like everyone else and they won’t be treated like an average anymore. We will be in a better position as an industry if we truly differentiate between customers based on their risks and hazards.