Allied World’s Garrison on rates, nat cats and dataFebruary 17 2020 by Yvonne Lau
Singapore-based Michael Garrison has been Allied World’s Asia Pacific president for five years. He oversees around 330 people across offices in Australia, Hong Kong, Malaysia and Singapore and is responsible for the strategic leadership of the Asia Pacific global markets insurance operations.
It has been a demanding but exciting time at the specialty and casualty player. He has overseen the integration of RSA’s Hong Kong and Singapore operations which were acquired in April 2015 for around US$215 million and then helped his firm handle a series of devastating nat cats – including unprecedented typhoon seasons in 2018 and 2019. Given the company’s large number of employees based in the region, the uncertainty created by the Hong Kong protests and now the coronavirus (Covid-19) have been further leadership tests.
Despite the challenges, Garrison is optimistic that the market is now in a better place as data shared between clients, brokers, risk modellers, insurers and reinsurers is creating greater sophistication which can be used for enhanced pricing and better products.
Allied World was bought by Canada’s Fairfax Financial Holdings in 2017 for US$4.9 billion and along with all the insurance subsidiaries within the giant’s huge insurance holdings, is run on a decentralised basis. Fairfax, guided by chairman and chief executive Prem Watsa, announced its 2019 results last week and it was a record year for the group.
InsuranceAsia News (IAN): This summer you’ll have been in Asia five years, how have you seen the market change?
Garrison: We have experienced a positive shift over the last five years. The market has become more sophisticated for buyers, brokers, agents and underwriters across Asia. The region is now seeing greater focus on underwriting profitability, and less emphasis on top-line production for the sake of market share.
For the insurance buyer, we have seen the last five years bring about a flight to quality. Insurance is not necessarily a pure price play any longer with buyers placing greater value on an insurer’s claims handling reputation and risk management capabilities. Clients are also seeing the benefits of a client-broker-insurer tripartite relationship and we’re seeing improvements in the quality of client data, risk management practices and scenario testing that is enabling us to more effectively discuss a placement or renewal.
We have also experienced a significant transformation in terms of human capital across the region and I believe this trend will continue. Asia will be less dependent on overseas expertise, with our local talent now more confident and better equipped to negotiate and manage profitable, long-term businesses. Expertise from Asia is already being exported out to more mature markets, which is really exciting to see.
IAN: How do you see the corporate P&C market in Asia evolving over the next few years?
Garrison: The evolution of the Asian P&C market will continue to become more sophisticated over the next several years. Asian businesses are placing more value on enterprise risk management and are gaining a better understanding of their overall risk, be it financial and/or insurable. Nat cat models are improving across the region, helping buyers, brokers and insurers better evaluate and manage critical exposures. Finally, the Asian insurance market should continue to experience strong growth due to the ongoing demand for new infrastructure and the growing middle-class population.
IAN: What will be the most important issues to adjust to as an insurer?
Garrison: The three key issues the market will need to address over the coming years are nat cats, claims inflation and information technology.
Greater intensity of nat cats
I don’t foresee the frequency of storms and wildfires increasing, but believe we will see the intensity to which they develop gaining in speed and power. Tropical storms are quicker to turn into typhoons, and then on to super typhoons (category 3+ on the Saffir-Simpson Hurricane Wind Scale). Much of the infrastructure across the region was not built to sustain the power of these more intense storms.
Compounding the issue of more powerful storms is that billions of dollars of assets exist along coastlines and in flood zones that didn’t exist ten years ago. The increasing demand for infrastructure due to increasing populations and wealth creation means that the region will continue to see significant growth in areas unprepared for flooding and storm surge.
The cost of claims is increasing. This is not a phenomenon specific to Asia; the term ‘social inflation’ is currently used in places like the US, Canada and Europe to describe increasing payouts for healthcare and liability claims. However, the rising cost per claim in Asia hopefully has a silver lining.
Increasing levels of buyer sophistication and an increasing middle-class population are creating greater demand for healthcare, general liability, worker’s compensation and professional liability products. The challenge for the Asian market in the coming years will be to adequately price for these fast-developing lines. Furthermore, if these opportunities can be managed efficiently with information systems and cost containment, then the benefits to the insurance market will be healthy growth and profitability.
Our industry is sometimes regarded as the laggard amongst financial services. Manual processes, paper usage and double or triple data entry are some of the contributing components to the inflated expense ratios across the Asian market.
The key issue for insurers to address here should be expense management and expense ratios, but for most of us, it won’t happen without improved operational efficiency through greater automation, reducing multiple data entry points of the same data and greater use of electronic delivery to reduce paper usage.
Over the past few years, Allied World Asia Pacific has been addressing all these areas, alongside driving a focus on artificial intelligence and predictive analytics. Most (re)insurers in the region are working on these issues, and collectively as an industry we will be well poised to better handle growth in this dynamic region for years to come.
IAN: How do you see the market responding to the recent bushfire crisis in Australia?
Garrison: While a national tragedy, the Australia bushfires are presently not estimated to be a large commercial insurance loss to the international market, but rather a localised, large consumer loss for Australian domiciled insurers.
Going forward, the Australian bushfire risk will continue to be factored into underwriting decisions when managing exposure and monitoring aggregates.
However, claims teams across Asia Pacific will be busy in Q1 2020 responding to other events, such as losses from the Hong Kong protests, the volcanic eruption in the Philippines, the flood waters in Jakarta, Indonesia, a hail storm in Canberra, Australia and very likely losses from Cyclone Damien in Western Australia.
And if those events are not enough to have insurance execs on the edge of their seats to begin the New Year, the novel coronavirus (Covid-19) will likely be testing the contingent business plans of most (re)insurers in Asia. Claims teams may be handling cat losses and evaluating the potential impact from coronavirus claims from the comfort of their homes as many operations have mandated alternate workday or work from home policies to avoid a wide-scale impact to employees.
One thing can be relatively certain about how the insurance industry will respond to these mounting claims; and that will be with continued firming of the regional insurance market.
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