Peter Eastwood, President & CEO, AIG Property Casualty, U.S. and Canada
Certain emerging markets show promise. In Brazil, for example, there is a moderate growth of about 4.5 percent; the country has relatively low penetration rates in insurance and is seeing the emergence of a middle class. The result is more business and more insurance possibilities related to those businesses, with more Commercial Lines and Personal Lines opportunities.
We’re going to see a sustained low-interest-rate environment and continuation of a choppy recovery from an economic standpoint. Further events like Superstorm Sandy can incur rate increases in portions of a company’s portfolio along CAT Liability lines, leading to a bit of a slow and steady march toward rate improvement. We are challenged to get a return on our business equal to or great than the cost of the capital we have. As an industry, we’ve got to figure out a way to get there.
Tim Francis, Cyber Risk Enterprise Cyber Lead, Travelers
Data breaches and other lost data events continue to happen and get a lot of press. A lot of customers and potential insureds are increasingly aware of the rise in cyber activity and also the variety of different insurance options that are available to transfer the risk of Cyber exposure.
There’s a continuing evolution in the world of Cyber Liability: not too long ago it was looked at as on the fringe; just recently, it has moved to a really mainstream coverage for commercial enterprises. Pretty much any industry, any size, is looking to find a solution to detect if these exposures exist, and what they have vulnerability to. In terms of the special challenges presented by Cyber: Technology moves quickly, while the insurance world usually moves slowly—so it’s important that carriers keep up with the trends of their customers.
Morris Tooker, Executive Vice President, General Re (Berkshire Hathaway's direct reinsurer)
Clearly the evolving regulatory landscape will drive changes for all carriers. The specter of inflation, Cyber risk and changing weather patterns are all to be seriously considered as well. The evolution of the role that capital markets/pension funds play in the reinsurance space will also be something to watch in 2013. The big challenge that needs to be on the industry’s radar in 2013 that we fear may not be is TRIA re-authorization. This backstop is critically important to the industry and risks being lost in the current legislative logjam.
Superstorm Sandy highlighted a number of weaknesses in infrastructure, planning and design. It is likely that efforts will be made to strengthen mitigation approaches, and we welcome these efforts. A larger debate that needs to develop from the aftermath of Sandy revolves around the lack of common industry language on policy form and coverage, deductibles and storm definition, particularly for Homeowners’ policies. The insurance industry needs to lead these efforts to minimize confusion and the resultant damage to the industry’s image post-event.
Jack Salzwedel, Chairman and CEO, American Family Insurance
Organic growth will remain difficult in 2013. We’re all hoping the economy picks up to the extent that greater demand for insurance results, but we can’t count on it in our planning. In order to capture a larger piece of the pie, insurers will need to innovate as a means of distinguishing themselves in the marketplace. Mergers and acquisitions are another avenue for growth and may be a popular strategy in 2013.
A significant challenge for the insurance industry in 2013 and beyond will be the competition for top-notch talent. Quality people drive innovation in many key areas such as technology and product design and development. The great companies will be the ones that maintain an edge in identifying, recruiting, developing and retaining talented personnel.
Ben Walter, CEO, Hiscox USA
In specialty lines, the biggest difference this year may be increased pricing uncertainty. We have seen remarkable disparity in various loss profiles. Some have been relatively sanguine. Others, like Workers’ Comp, have been extremely challenging. But regardless of the outcome, many areas are getting harder to model given the pace of economic and technological change. In 2013, the industry will really grapple with how to price against such dramatic uncertainty.
There will be select areas of growth in the Property sector following Sandy, but we see this as largely a regional play with national rates somewhere between flat and up 5 percent. Where we see the biggest opportunity is on the Casualty side in the areas that are flourishing in the new economy: health care, technology and other fast-growing professional services. From a market point of view, these areas are growing well above the economic trend line, and they are much less prone to volatile business cycles.
The lack of investment income continues to be an issue that the industry hasn’t fully addressed. We call it ‘the hidden catastrophe’: equivalent to more than a Katrina-sized hit to profitability every year relative to the long-term baseline.
Brian O’Reilly, Senior Vice President of Marketing, Philadelphia Insurance Cos.
The top opportunity for companies in 2013 is the ability to obtain more rate on their books of business. The Property market in catastrophe zones will continue to push for increases. We have seen some increase in construction, so that dormant market over the last few years may be waking up. We are expanding our E&S division, so we still see growth opportunities in certain underserved markets.
The biggest challenges would be the continued unpredictability of weather patterns, and companies managing their property aggregation. Also, how do companies balance the need to achieve rate on their business, but then compete on new business to grow the top line?
Dennis Kerrigan, Chief Legal Officer, Zurich North America
In terms of regulations at the federal level, [the biggest challenges are] systemic-risk designation and the continued rollout of the Dodd-Frank bill, determining which regulations have yet to be issued and which designations to be made. We do not fully know what mitigation plans, if any, will be required of those that have been designated [as a systemic risk].
At the state level, the challenge is the determination of what type of reforms, if any, will states evaluate following Superstorm Sandy? Will they embrace insurance’s collective storm experience as an opportunity to provide greater certainty around storm deductibles? Will they recognize the need for higher rates in catastrophe-exposed areas?
Will states work with their neighboring regulators to provide better uniformity around the content and timing of data calls so we can focus energies on meeting our customers' needs first and foremost? Likewise, mandating shorter inspection deadlines may force companies to redeploy resources from other impacted areas.
Charles Dangelo, President and CEO, Starr Indemnity & Liability Co.
In 2013 our key opportunities in the U.S. will be adding new products, extending our lines of business and opening new branches. In the coming year we will have added or expanded branches in Miami, Kansas City, Columbus, Ohio and Denver. Despite the slow economic recovery, there are opportunities to expand into Construction and Manufacturing that will pick up next year.
Secondly, we are expanding internationally with a JV agreement in China, licensed branches in Singapore and Japan and shortly Canada. We are close to getting a full license in Brazil, and we have an office in Argentina but not writing direct business there yet. We are focusing southward to Latin America and the Far East for emerging markets where economies are expanding; the population is becoming more affluent, which leads to, for example more automobile drivers.
We will continue to see the usual challenges of finding good talent, building good products and expanding our marketplace. It is also important to exert proper underwriting judgment as we go forward, looking back on 2011 and 2012 as two years with high catastrophic losses. Interest rates are low and will stay low over the next 10 years: The 10-year treasury interest rate is running at or below 1.9 percent and the Fed has indicated they will keep it low until they see robust recovery—so we have to underwrite well to generate acceptable returns.
Dick Lavey, Senior Vice President of Field Operations and Marketing, The Hanover
Specialization will continue to represent great opportunity in 2013 for agents and carriers that are more expert in specific industries, and that combine their expertise to offer comprehensive solutions that create value for their customers.
In fact, agencies that are focused on specialization are growing twice as fast as those that are not. We see the best agents and brokers winning with specialization when they understand the unique risks inherent in a specific industry, align their agencies with strong, experienced specialty carriers, solve customers’ problems and add value through their expertise.
In personal lines, for example, we see agents who have 20-30 percent of their Homeowners as monoline business, and another 20-30 percent as “split accounts,” with each policy with a different carrier. As some carriers re-underwrite and/or re-price their monoline Homeowners, a significant portion of an agent’s customer base can be disrupted, causing operational and financial issues for agents.
Anand Rao, Partner, PricewaterhouseCoopers’ U.S. Insurance Advisory Practice
In the U.S. market the major challenge is the low-interest-rate environment, which in the past two to four years has gone from very anemic to mild. It’s not growing as fast as we want it to or it should be, and that puts a lot of pressure on insurers. They are managing books very tightly on the Commercial side, which puts a lot of pressure on the margins, and retaining customers becomes more important.
The focus on the Personal Lines side is retail: More and more people are shopping for insurance online first. Not everyone who shops online necessarily changes insurers, but they have gotten into the habit of shopping online with much more frequency than before. Insurers are trying to get much more targeted and more understanding of the customer to create new online opportunities, using analytics to retain and attract new customers.
On the Commercial Lines side, cat events like Superstorm Sandy and the amount of damages and supply-chain losses incurred along the Contingent Business Interruption line can create growth opportunities. This area is gaining more prominence; we have seen insurers at least thinking about it, how to remodel such risk.