Turmoil Breeds Opportunity

In a time of financial turmoil, we in the insurance industry have an unprecedented opportunity. As capital providers and risk advisers in a time of scarce capital and huge risk, we should seize this moment to begin selling on value and not on price.

First, we must make the world understand and appreciate what we do. Insurance is the DNA of the modern world. Without us, buildings don’t get built or rebuilt, victims don’t get compensated, loved ones are not provided for, planes don’t fly, ships don’t sail, goods don’t trade, careers aren’t saved, global economic life is finished and millions of people remain in poverty.

In a time of fear, we offer security. In a time of scarce credit, we provide capital. In a time of newfound risk awareness, we are the risk professionals. All of this puts us in an exceptional position to lead.

We have learned our share of lessons over the years, and we’ve let adversity do what adversity should always do: Make us better. In 1984, the casualty market collapsed, and Ace and XL formed in Bermuda to help fill the void. The asbestos claims of the 1990s offered lessons on the bad bank concept through Equitas. Hurricane Andrew shocked us into getting our act together in terms of exposure management, which led to the birth of modeling. In 2004, Spitzer ushered in the age of transparency. In 2005, Katrina taught us we could not rely exclusively on models.

If there’s an overall lesson, it’s that turmoil in the long run is in many ways better than the status quo, because turmoil breeds opportunity.

The world sees now what we’ve known for years: There is a need for greater transparency in business transactions. This is the perfect opportunity for us to showcase all we do and the value we provide, because we will need to explain why we charge what we charge, and what clients get for their money. We are not just buying policies at the best price — we offer analysis and fight for the best possible terms.

We should take this opportunity to eliminate contingents once and for all. Contingents represent manufactured revenue, and not added value. In the age of transparency, clients will buy on value because they will see and understand the value we deliver.

The present turmoil also gives us a chance to lend our voices to the debate over how our industry will be regulated. The principles- versus rules-based debate must intensify. I, for one, will be on the side of principles-based regulation.

The current recession also will make organizations rethink the way they operate. As new business models emerge, new risk assessments will be needed. The insurance industry’s expertise can provide true enterprise risk management, which clients will increasingly demand. We will need to apply the analytic and modeling sophistication we’ve developed in the reinsurance sector to the retail side.

We need to stick to our knitting — investing conservatively and delivering the full range of risk management — but do more colorful knitting. We must be more creative, to produce new products for new risks that could include pandemics, cyber risks, global warming, and credit and political risks.

More will be demanded of us as an industry and as individuals. As much talent as we have, we need more. We need underwriting expertise in new regions and in all lines of business. Only then can we deliver the service clients need in a global economy, where the risks are global but the realities are also local. We have an incredible opportunity to recruit new talent. There are no more investment banks; insurance is more attractive than it’s ever been.

As brokers, we want to be more in the business of giving advice, moving our focus beyond insurance transactions. We are selling an experience, not a commodity. Insurance is more than a retail transaction, it’s a partnership.

Always necessary, insurance becomes even more important during times of economic duress because companies need to aggressively manage risk. Insurance will be one of the essential building blocks of recovery. We are ready for this role.

If we take this opportunity, if we push ourselves to do better, to grow, to rise to the moment, we will not only have success, but sustainable success. Instead of the adversarial model of client versus market, and market versus broker, we can move toward a culture of partnership where everyone wins. We can enjoy more sustainable pricing, and avoid the troughs and spikes of the hard market/soft market cycle that has such a grip on our industry. We need to continue our market reforms, promoting new technologies and processes.

Insurance has never been more important. Be proud to work in the industry. It’s cool. It works. Let us build on that legacy.