Brendan Lawlor asks if (re)insurance companies and investment banks realise exactly what ART will force in respect of recruitment needs and change management.
(Re)insurance rates have been so ludicrously low for a long time. Corporate (Fortune 500) clients opted for traditional products because it made commercial sense. Rates in the (re) insurance market are starting to show signs of hardening and the momentum will certainly gather pace as the terrible 1998 and 1999 results are fully appreciated.
ART will definitely take root in the near future as a reverse of the above gradually takes place. The annual cycle of renewals that has occurred in the past few decades will alter. This time around, policies will be issued for five to ten years, not one. This will starve the market that is not geared up for ART of valuable premium income for the foreseeable future.
How do insurance companies and investment banks go about putting in place the various components that will enable them to supply a complete solution to their existing and new client base?
So far, a few AAA and AA insurance companies and investment banks have compiled the various teams with the skill sets that are required to provide complete solutions successfully. This includes accountants, actuaries, risk managers, lawyers, investment bankers (who understand captives) and experienced underwriters who have a complete knowledge of all insurance classes. Insurance companies will have to pay the going rates for these skill sets and so entice them away from their usual home, banks. The movement between both sectors has really just started. The environment is now right and the momentum is increasing. Both insurance companies and banks are ultimately fighting for the same global business. The abolition of the Glass-Steagall Act, enforcing separation between insurance and banking in the United States, will force the pace of mergers between both sectors worldwide in the next few years. ART ultimately will save costs for the insurers and investment banks but, more importantly in a hard market, for the client. The client will pay a one-off consultancy/introductory fee for the broker's services for a five or ten year policy, instead of an annual commission. There will be no need to duplicate middle and back office functions, which have historically been paid for by the client. This will mean redundancies in such areas.
But some of the above companies have missed one important ingredient - a marketing/field underwriter who ostensibly will take the place of the broker. He or she must understand the complete picture and have the ability to translate the above into layman's terms for the next tranche of corporate clients, who have not explored ART and its associated products.
Would you rather pay £1,000,000 annual brokerage to the broker or pay a broker to be the marketing /field underwriter on an annual salary of £75,000 for his contacts and sales experience within the worldwide market? It is pointless paying for the resources to produce various ART products when you have no one to sell them. It is so important to have a sales and marketing arm with the contacts and overall knowledge to be the human face for the product. Selected brokers will be lured over to the underwriting side to take on such a role.
The last, and probably, just as important an area to consider, is that of change management. The market is shrinking and so the redundancies are mounting. People fight the change because of the personal implications. Vertical departments within a company, such as property, marine, aviation, are not prepared to write themselves out of a job for the well-being of the company. If the ART department, lying horizontally across all areas, approaches the company's existing client base to produce an overall solution, then in theory it is reducing premium income for that particular vertical department. Outside advice is essential, because it will not become biased by emotion or politics when approaching such a subject. If internal departments are working against each other then this will become counter-productive, thus allowing the competition to steal existing business.
ART will bring not only new skill sets to the (re)insurance companies, but it will also change the way the existing skill sets look at their business. Investment banks will attack existing (re)insurance business and vice-versa. However, there will be more opportunity for the movement of personnel between both sectors until they start to merge. Make sure you and your company are positioned for the forthcoming whirlwind.
Brendan Lawlor is a director of executive search firm K.P.M. Halcrow.
Tel: + 44 (0)207 614 4900;