It’s an interesting time to enter the UK insurance market, with some insurers reporting poor financial results and complaining about low insurance rates. What prompted the decision?
BHSI launched our commercial insurance business in the US in 2013. Warren Buffett and Ajit Jain, head of Berkshire Hathaway’s (re)insurance division, already led a hugely successful group of insurance and reinsurance operations, but were keen to build a long-term business focusing on property, casualty and specialty insurance and direct relationships with customers. They did that by hiring Peter Eastwood and three other senior executives from AIG to start the business known as BHSI. Four years on, and we’ve hit the $4 billion premium mark, with a diversified book of insurance business and offices around the world.
We’ve taken our time about launching in London, which might seem unusual as London is the centre of the world’s insurance market; but we had to find the right team. This is a broader reflection of our strategic approach. BHSI is a ‘forever’ business. We are all about steady, sustainable growth and we believe that hiring the right teams is fundamental to achieving that. Consequently, we focus on territories where we have the opportunity to hire great teams who share our businesses’ customer-first philosophy and embody the dual requisites of strong capabilities and exemplary character.
What about the challenges posed by an excess of insurance capacity and competitive insurance rates?
Low rates might be great for insureds but they aren’t sustainable for the insurance market, so yes, they need to improve, particularly Professional Indemnity (PI) rates, but this is a long-term play for BHSI. Berkshire Hathaway knows and values the insurance business, and is committed to it. We have a strong balance sheet, which allows us to take our time and be selective about the business we underwrite, rather than just competing on price and being another capacity player.
I don’t expect insureds to move to BHSI for their primary layer of insurance immediately. We know it will take some businesses two or three years to make the switch but in the interim, we want to start establishing relationships through excess placements. This will allow us to understand our insureds and their approach to risk management, and it will enable them to get to know and trust us.
We want our insureds to value the financial strength behind BHSI, the creative solutions we can offer, the breadth of our policy wordings, our claims service excellence and our commitment to the market. Our capacity might cost more but we are focusing on long term, stable relationships rather than being a price player.
What are your predictions for PI rates over the next five years?
We’ve seen insurers come and go over the last year and there’s been a lot of consolidation. I’d expect the continued economic uncertainty to encourage both insurers and insureds to focus on building sustainable books of business and insurance programmes respectively. This should lead to a gradual improvement in rates but, whilst rates are flat, we must focus on managing our costs and ensuring we are taking adequate retentions and the right limits to protect our insureds.
I want insureds to start seeing their insurer as a partner and think about the sustainability of their insurance programmes and the quality of the cover they are purchasing, rather than just focusing on securing the cheapest premium. Everyone is under pressure to reduce cost and improve profitability, which can prevent insureds from appreciating the real value in Professional Indemnity Insurance which is all about how the policy responds to a claim and how it can help a business minimise reputational damage.
Define BHSI’s PI risk appetite
BHSI want to develop a diverse portfolio, so we’re not restricting ourselves to a specific profession but we are focusing, from a PI point of view, on the top 50 businesses in each professional sector.
We are here to pay claims and we are not afraid of firms working in higher risk areas, but we want a business to reassure us that they know how to handle the associated risks and they are doing the best they can to avoid a claim because they have taken the time to care.
It’s about a firm doing the right thing because they want to, not because they have to. On paper, a business can look like they are doing the right stuff, so a meeting with the customer is critical because it allows us to ensure that they are confident in what they are saying, rather than just ticking the right boxes.
You are head of PI and cyber insurance. Very few firms buy stand-alone cyber insurance. Will that change?
Cyber is a tough sell but I think it will change.
In some of the recent high profile cyber events, the insureds have looked to other insurance lines to be their main responder. It will be interesting to see how this develops. In my view, the incident response services and the first party cover the insureds get through a cyber policy are far more beneficial than hoping that an incident will be covered under another policy. And the operative word is ‘hoping’, because we don’t know at this stage how traditional insurance policies will respond to recent cyber losses. As we move forward and regulation changes, having the added protection of a dedicated cyber programme is a far better risk management decision than hoping to rely on another policy.
How did your career in insurance develop?
I graduated shortly after 9/11 with a degree in economics with a concentration in civil engineering. I was hoping to work in the business side of an engineering firm, but the US economy was suffering and it was impossible to get a job.
Fortuitously, my mother sold a house to someone who worked in insurance and she asked him if he could help me find a job. I’ve been in the insurance industry ever since. It’s been a fantastic career and instead of working in an engineering business, I insure them. That’s one of the things I love about the industry - everything you wanted to do is possible if you work in insurance, and you get to meet a lot of really interesting individuals. The diversity is amazing!
The insurance industry has traditionally been viewed as notoriously male. How have you managed that?
I do notice insurance is male dominated and it’s more evident in the London market than in the US, but I’ve never felt impeded by it. I’ve held multiple roles, but I’ve never thought that a man stood a better chance of getting a job than me or that the men around me weren’t accepting of women. Perhaps I’ve just been lucky, or maybe I’ve ignored it to focus on being great at my job.