Cook disputes idea market is hardening

CONTRARY to what some commentators are saying, the insurance industry is not at the beginning of a hard market, Phil Cook said at the Insurance Institute’s annual trends and predictions held recently in Toronto.

The CEO of Omega Insurance Holdings said that while there are some market indicators that point to the beginning of a hard market, other hard market attributes are missing, such as shortage of capital and consecutive years of negative financial results.

“All hard markets in the past have been categorized by shortage of capital, but there is still a lot of capital and still a lot of capacity,” Mr. Cook said.

“And (hard markets) usually follow two or three years of negative results.

“Even though we’ve had one year out of three that had negative results, it was only negative by a small amount.”

He said another current trend incongruent with the start of a hard market is the number of additions to the
insurance market.

“There are new entrants to the Canadian market and more importantly there is a lot of new capital going into the (insurance-linked securities) market and there is significant opportunity there,” Mr. Cook said.

While there have been isolated premium corrections in some niche markets, such as in aviation, premiums in the regular p&c market have not been affected, he said.

“I would categorize the changes that we are seeing as corrections but ones that do not herald the beginning of a hard market.”

He said one of the top insurance industry trends of 2019 is the opportunity for ventures between insurers and so-called ‘industry disruptors.’ But he said insurers need to keep a close eye on “accidental disruptors” that present a threat to incumbent insurers.

“Last year (the industry) recognized there were significant organizations that were disrupting mainly our distribution networks but also our underwriting,” Mr. Cook said.

“I think it’s important that we think in terms of intentional disruptors versus accidental disruptors.”

He said it’s heartening to see that insurers are looking at ventures with disruptors to improve internal capabilities but insurers need to look beyond what customers want and try to figure out what they need.

“If we look at what product the consumer wants without asking, ‘Why do they want it?’ we are missing the boat,” Mr. Cook said.

“Why do people want our policies? They don’t get up in the morning thinking about (insurance).”

He said the “accidental disruptor” could figure that out before insurers if the industry doesn’t ask the right questions.

“We can all see the real disruptors out there that are finding ways to deliver our product or are underwriting the product directly to the consumer,” Mr. Cook said.

“But we have to look for the accidental disruptors.”

He said it’s helpful to think in terms of why consumers buy homeowner and auto insurance policies.

“They are told to (buy home insurance) by the lending institutions and auto policies are bought because the law requires it.

“Think about the accidental disruption if we go to autonomous cars or if the banks decide to include a value proposition within the mortgage that doesn’t require you to buy home insurance.”

Such trends need to be monitored closely, he said. “We can stop the real disruptors but the accidental ones could change our industry significantly.”

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