With pricing and capacity issues making it difficult to get some specialty placements over the line, Gallagher’s John Thompson says the differentiator for brokers is proving you are ‘a true specialist’
Could you give me an idea of what your role entails and what classes of business you cover?
I run the wholesale Alesco business and Gallagher Specialty, working for clients around the world. I am responsible for all aspects of the business including leading our people, creating the strategy and ensuring clients are at the forefront of all we do.
We cover all major classes including: cargo; marine; aviation; media and entertainment; financial services; energy; construction; political risk; crisis management; cyber; directors’ and officers’; fine art, jewellery and specie; medical malpractice; mergers and acquisitions; professional indemnity; and kidnap, ransom and terrorism. We also offer risk consultancy including alternative risk transfer, actuarial support, premium allocation, captives and structured credit.
Prior to taking up this role you were in charge of the construction business. How would you characterise that market currently with respect to pricing, capacity, loss history and opportunities for new business?
Construction fared badly in the 2018 Lloyd’s review with poor performance driven by a long soft market and a large supply of capacity. More recently, the market has had significant losses and premiums levels have been insufficient.
Many syndicates and underwriters ceased trading or reduced their appetite, pushing pricing north. Changes made in London in late 2018 are now finding their way to other global hubs in Dubai, Singapore, Australia and the US.
There remain good opportunities for Gallagher. Clients are looking at alternatives and brokers who are keenly tuned into the marketplace, who understand the movements and how to manage a client’s business, are getting opportunities.
Since you became construction lead, and before you were promoted to your current job, your role expanded to include energy business. How has the energy market changed in the time that you have been working with it?
In 2017 rate reductions continued in all areas. This has changed with modest increases of 2.5 percent in upstream on clean renewals and rises of 25-40 percent in downstream, driven by a succession of large losses and poor underwriting results.
In power, losses have been prevalent and business plans are under scrutiny by Lloyd’s but rate rises are more modest in the range of 7.5 to 15 percent. Fracking is the exception with rises of 200 percent due to significant losses.
What are the key challenges currently in the upstream, midstream and downstream energy segments, in your view?
Pricing is challenging because in onshore oil, gas and petrochemicals, there is a need to amend ratings and terms. This is unappetising to buyers so we need ways to manage price.
This is difficult and compounded by local markets moving at a different pace, particularly on medium to small accounts. However, Gallagher is one of the largest brokers with global economies of scale, strong market relationships and we know how to access the most attractive rates.
On larger accounts, where clients need capacity and larger loss limits, London continues to drive terms with local markets not an issue.
What classes of specialty business are providing the greatest amount of opportunities currently and which classes are proving more challenging?
Aviation is challenging with recent large losses driving rates up but we have a really experienced team and there are plenty of opportunities.
Directors’ and officers’ is another challenge, with decreasing capacity and pressure from local markets, but it’s a great opportunity for a large broker like us with a high level of specialisation.
Construction is another changing market, impacted by capacity on a global level.
In financial lines there is a growing need for different types of cover. Product development is the theme and cyber continues to grow but it remains a very competitive market.
With the increase in underwriting discipline in the Lloyd’s market and among certain global P&C carriers, which areas have proved most challenging in terms of sourcing capacity and getting programmes over the line?
There are capacity issues in a number of business lines, including directors’ and officers’ and construction. This is an opportunity for Gallagher because clients need highly skilled brokers who can identify the challenges and find the right cover. This is particularly true on more complicated risks – when clients value in-depth knowledge and brokers who understand the marketplace.
What are your thoughts about how brokers can continue to differentiate themselves in a rapidly consolidating market?
It’s about being a true specialist and working closely with clients to find the right cover. Brokers who have changed to be driven by process provide a less individual service but we have specialist brokers who offer clients a personal service focused on specific needs.
What initiatives, if any, does Gallagher have with respect to using data from its specialty and wholesale businesses to improve your products and distribution model?
We have many initiatives improving outcomes for clients and we are working on the Lloyd’s Blueprint to drive consistency across the market and with our trading partners.
We are developing a consistent model across the business so we can use data from our core systems, via documentation and from external sources, in a more consistent way.
We also have initiatives to interrogate data on insights for clients about their coverage that enables them to analyse claims and improve their risk profile. This is crucial when supporting clients undergoing significant disruption when their risk profile is changing.