‘The party is over in Europe’: tough conversations in an age of Zoom

It might not be a renewals season like no other, but it is one with few precedents. Once again, the Monte Carlo Rendez-Vous that usually kicks it off has been cancelled, replaced by virtual sessions. Amid surging cases of the delta variant of SARS-CoV-2 in many countries (not least in France) during March 2021, the risk industry decided that it should not go ahead. It is only the second year since the event was founded in 1957 that it hasn’t taken place.

To discuss what might be different in 2021, and what the lack of face-to-face meetings will mean, Intelligent Insurer gathered a special panel in the Re/insurance Lounge, its online platform for debate and discussion.

In attendance were Etienne Champion, chief underwriting officer for APAC and Europe, AXA XL; Julien Mollinier, head of EMEA and LATAM, Aspen Re; Jon Sullivan, group deputy CEO, Brit Insurance; and Mike Van Slooten, head of business intelligence, Aon Reinsurance Solutions.

Virtual to stay

There will be more meetings and conferences than in 2020 but much—if not most—of the discussion around renewals looks as though it will be online.

“As far as we’re concerned, we’re still planning to go to Baden-Baden, but I’m increasingly pessimistic,” said Mollinier. “If you look at the trains in Germany, they have some very stringent rules, so we’ll see how it goes.”

On one hand, the industry has shown that it can manage remotely. As Van Slooten said: “We’ve proved we can do business this way, and if the relationships are established, and things are going well, then there’s no reason why that can’t continue.”

Even when COVID-19 ceases to be a live concern, remote working is likely to remain an established part of the business. Champion pointed out that AXA XL was in the process of implementing hybrid working in its Irish office, and will do so elsewhere, with the week split between the office and home.

“That’s going to stay, and will be a very deep and lasting change due to the pandemic,” he said.

Mollinier agreed: “Those calls by Zoom, Webex or Microsoft Teams will stay. That’s something that we take away from this. They are helpful.”

But although the industry can continue to operate remotely, it really doesn’t want to. “Almost everybody would like to be able to do face-to-face meetings,” said Van Slooten. And that’s particularly clear during a week when the industry would usually be meeting in Monte Carlo.

“A lot of the enjoyment is gone. Travelling and face-to-face contact bring something to the job that is different. Something’s been lost on that front, and we’re quite keen to see some of it come back,” he added.

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Hard talk

The need for face-to-face meetings isn’t just a question of pleasure; it’s also a matter of business. In an industry where relationships are vital, purely virtual communications make it difficult to form bonds within and outside organisations.

“There has been a lot of people movement in the underwriting and broking business over the last 18 months. You may have a corporate relationship going into the renewal, but when you have three new faces around the table (client, buyer and broker), doing business on screen is less satisfying than meeting and maintaining the relationship,” said Sullivan.

Champion agreed, saying: “You have different relationships with new people over the video compared to those you have in real life. In terms of team building, driving initiatives and strategies, congratulating and onboarding people, face-to-face is key.”

It’s also important in another scenario, said Mollinier. “When you want to have a difficult conversation with a client about, for example, COVID-19 losses, it makes a big difference if you are face to face, sitting around a table with your client and having a frank conversation,” he explained.

Sullivan agreed: “If you have to have a difficult discussion, it’s the only way.” And there’s unlikely to be a shortage of difficult discussions in the coming weeks.

“We look forward to some more reasonable conversations with our clients.” Julien Mollinier, Aspen Re

Grasping the nettle

Generally, reinsurers enter renewals discussions in good shape. Van Slooten said: “In the first half of 2021, the industry performed pretty well. Q2 was very strong; Q1 was impacted by the winter storms in Texas but, overall, it was pretty good. As for earnings, our combined ratio will come in at about 94 percent and return on equity at about 13 percent.”

Added to that, the rate increases already introduced over the last few years are finally being seen. “It was hidden by COVID-19 in 2020, but you can now see the underlying improvement,” he added.

However, there are short and longer-term reasons to expect renewals to create increased pressure on rates. The first is recent losses: Hurricane Ida in the US, but also the European floods, which have brought substantial losses.

“Taking into consideration all countries, we are probably close to €10 billion, which would be Europe’s largest loss on record,” remarked Mollinier. Much will depend on the rest of the hurricane season and European windstorms.

There’s also a longer-term perspective. While 2021 has (so far) been relatively benign for the industry, it follows four years in which peak and (notably) secondary perils hit the sector hard. The combined ratio for insurers in 2017 to 2020 averaged 102 percent, said Van Slooten. Return on equity was less than 5 percent. “That is putting pressure on the underwriting side,” he added.

So far, European insureds have largely avoided the consequences of that. Most of the improvements seen to date have been from repricing outside Europe, said Mollinier. That can’t last forever.

“Europe has been an exception to the rule so far. We’ve seen massive decreases in prices over the last 10 years in Europe, but I think that the party is over. We need to move to a better risk-reward balance.

“After the German floods, which was a major event, we look forward to some more reasonable conversations with our clients,” Mollinier concluded.

To view the full Re/insurance Lounge session click here