The fallout from broker consolidation was a key theme in today’s discussions at (Re)Connect, as leaders from Lockton Re and McGill and Partners both said that client desire to have more choice would enable their growth.
Both firms are among those seeking to capitalise on the fallout of the Guy Carpenter-JLT Re merger and impending Aon-Willis deal, investing in significant hires to build out their teams.
Consolidation has created a “yearning for choice” among clients, Lockton Re CEO Tim Gardner said.
“It’s a difficult environment for reinsurers if in the future you get 80-90% of their business from two sources. That’s not really a marketplace for them.”
McGill and Partners founder Steve McGill agreed, noting that carriers were concerned about concentration risk. “They have got phenomenal relationships with major high-quality broking firms but they want to see alternatives for distribution,” McGill said.
Technology is often depicted as an obstacle to success at smaller broking firms, but Lockton Re’s Gardner argued that it will in fact be an enabler of challenger broker growth and is a great “leveller” to competition.
“If you’re going to build the reinsurance broker that can compete, analytics and technology has to be at the forefront of your offering,” he said.
But the biggest publicly traded brokers have to spend significant amounts on running legacy technology systems, he added.
“It’s not changing the business, it’s not changing the technology, it’s simply running antiquated legacy systems because they’re expensive to keep up.”
On the tech front, earlier this week delegates heard from Aon Reinsurance Solutions CEO Andy Marcell, who said that brokers had a role to play in helping to cut expense levels within the risk transfer chain. Tech investments could help to cut transaction costs and improve transparency, he said.
TigerRisk CEO Rod Fox agreed that more digital trading was likely in the future.
Like Lockton and McGill and Partners, TigerRisk is also positioning itself for growth following the top-tier broker mergers.
Fox said it was possible that the mammoth brokers might try to grab more power from carriers.
“You can see two strategy rooms with large funnels showing business moving directly from broker to capital – eliminating the underwriting process as we know it,” he suggested.
But capital providers would have to push back against this, he said. “The market has to be careful about the concentration of power.”
Elsewhere on the agenda,Axis Re CEO Steve Arora said reinsurers face a balancing act in approaching 2021 renewals to ensure they do not prioritise seeking scale over profitable growth.
Carriers should not just focus just on rate change, but also on terms and conditions, creating the right structures and correcting any inadequacies in the expected loss calculations, he said.
It is important “to avoid the on-off switch”, he said, explaining that carriers should not be any less client-centric now than in the soft market.
The winners in the present situation would be those who focus on discipline, underwriting selection and really effective portfolio management, the executive continued.
Arora’s point about consistency was raised earlier this week by Willis Re’s James Kent, who said he did not anticipate widespread reinsurance panel turnover in the hardening market.
“Some clients are prepared to burn their panel but I would say, over the last decade, the really big buyers of reinsurance… have established who are their core partners.”