Stephen Catlin looks for a new job

The insurance veteran, who founded the Catlin Group, suggested that he is looking for a new role at the 2017 MGAA conference in London on July 4.

“I would like to help the market exploit and process the Internet of Things. It is something I would find quite rewarding,” Catlin says.

But Catlin also notes that he will not make up his mind before the end of the year and he is discussing opportunities across the industry.

Catlin, now over 60 years old has around 44 years of experience in the insurance sector. He began his career at BL Evens & Others/Syndicate 264 at Lloyd’s in 1973. He founded Catlin Underwriting Agencies Limited/Catlin Group Limited in 1984 and sold it for $4.3 billion to XL Group in 2015 while becoming executive deputy chairman of XL Group.

Among other roles he performed was vice chairman of the Association of Bermuda Insurers and Reinsurers and member of the Lloyd’s Franchise Board.

Catlin is looking for a new challenge in the insurance sector in what he describes as a difficult time for the industry. Insurance is facing a dramatic change which is set to transform the way the sector operates as well as its products.

InsurTech investments are targeting the personal lines’ insurance value chain in product development, client acquisition, underwriting, and claims management in the insurance value chain.

At the same time, technological innovation is likely to expand the role of insurers to include risk prevention, for example by taking advantage of data available through the Internet of Things (IoT).

Sensors attached to radiators can, for example, inform the insurer when there is a leak and allow the problem to be resolved quickly, potentially avoiding extensive damage and keeping claims at bay. A number of new insurTech companies has been working on the development of new business opportunities.

Traditional insurers are not just watching, but instead getting involved.

Italian insurer Generali, for example, has recently partnered with Nest Labs, a subsidiary of Google parent Alphabet, to offer its clients household insurance with Nest's smart home technology which detects smoke and carbon monoxide, and sends alerts to customers’ phones.

“We are living in a changing world,” Catlin says. “The insurance world we know today is going to be very different, fairly quickly, within five years,” he notes. “If we don’t embrace change, we are going to lose out. All of us.”

In order to prepare for the future, Catlin suggests that underwriters need to better understand Artificial Intelligence (AI) and the ability to capture data in different formats. The other area insurers need to work on is cost, he said. “We all know that costs are far too high for insurance.”

Costs have come into the focus particularly since historically low interest rates have attracted capital looking for returns into the sector, causing a soft market in the non-life sector due to overcapacity. Low rates have impacted profitability, forcing re/insurers to look into their cost structure.

And there may be other challenges ahead. While currently excess capacity is pressuring rates and therefore profitability, higher interest rates may make funding for the industry become scarce and the cost of capital to rise, Catlin suggests.

The risk-free rates are likely to move higher eventually, and when this happens, certain types of investors and certain types of products will move elsewhere in search for higher returns, Catlin says.

“Capital will be available for most insurance entities, providing they are making money,” he notes.

It is unlikely that Catlin’s new role will have anything to do with cyber insurance, despite it being currently deemed one of the few growth areas in the sector. Annual gross written premiums in cyber are set to increase from around $2.5 billion in 2015 to reach $7.5 billion by 2020, according to estimates.

But Catlin is very critical of the growing cyber business.

“Cyber is the biggest systemic risk that the insurance industry has ever faced in my lifetime,” he says.

“I can’t think of any other risk that can affect the entire world in a nanosecond,” Catlin explained. “There will never be enough insurance capital to take that risk,” he continues.

Hackers may be able to 'tip over' the internet in less than three years, according to experts, Catlin notes. If the internet was to tip over for 24 hours this would trigger a global economic crisis, he says. If it extended to a week, that would be a cataclysmic crisis of dimensions we can’t possibly imagine, he adds.

Because of the unforeseeable cost of cyber-attacks, Catlin does not believe in cyber coverage.

He does, however, see growth opportunities for the insurance sector as it aims to close the insurance gap, which will be possible largely through micro insurance, he believes.

But jobs will be lost as the insurance industry adapts to the new world and clients’ needs.

“Jobs are going to be lost where no advice is required,” primarily in personal lines and insurance for small and medium-sized enterprises, Catlin notes.

Analytics, data and process can’t do everything, though. It comes to a point where advice and judgement is required, he says.

For roles, be it in brokerage or underwriting, where human intervention is required to understand a risk and price a risk, those jobs are going to stay forever, he notes.