CHICAGO—Looks can be deceiving, according to Michael Rice, CEO of the US Specialty division for JLT.
Advisen’s first keynote speaker at the inaugural Management Liability Insights Conference in Chicago said a casual poll to gauge the stability of the marketplace would likely be favorable, but that may not be the reality.
Rice followed with a different take. From a list of the top 10 D&O carriers in 1999, just four remain on the same list today. Another four are no longer in business, he said.
“This is an ever-evolving marketplace,” Rice said. Since the late 1990s, the US—and its D&O insurance providers—has endured the tech bubble, Y2K, attacks by the New York attorney general, the great recession, subprime mortgages, industy M&A activity, Dodd-Frank, whistleblower protections and Halliburton, said Rice, naming a few.
“Changes are going to happen,” he told the audience, and it is up to carriers to “convince clients that [insurers] are in it for the long haul.”
And to accomplish this, the marketplace must address and fine-tune its partnerships with clients by instilling trust, working on communication and complementing skills by providing insights to insureds.
Insurers should also develop solutions for emerging risks and coverage gaps created as, for example, the US SEC ramps up investigations of organizations. And as part of this oversight, cyber risk comes into play. The D&O industry “doesn’t have great solutions in cyber yet,” Rice said. He questioned whether new exclusions would surface in D&O products. Currently, most claims are dismissed, “But as the risk grows will your products stand behind [the policyholder]?” he wondered.
The marketplace has also shown a “huge reluctance” to cover shareholder derivative exposures. And will insurers continue to distrust private companies turning public, as the JOBS (Jumpstart Our Business Startups) Act has eased certain securities regulations?
Ominously, Rice hinted at some warning signs regarding the US stock market. He said the NASDAQ broke records set 15 years ago—right before the bubble burst. He said corporate “debt as a percentage of market cap is higher than before the financial crisis.”
***
Rice’s macro view of the current environment includes an evolving US workforce. He said statistics show workers in their 20s change jobs every two years, and at any one time 75 percent of all workers are job hunting.
Moreover, manufacturing is declining on the East Coast and technology is increasing on the West Coast. In fact, many corporations are moving westward. In the last 20 years, Texas has gone from being the home to 15 Fortune 500 companies to currently 50, while New York has lost 50 of such companies. “The next generation is looking West,” Rice said.
***
The next potentially disruptive force is technology and data. The industry as a whole, “has to get more efficient” or it is “going to die,” Rice said.
The rate of the culture’s acceptance of and access to technology and data far exceeds other advancements in history, such as the telephone or radio. Each of these took decades to occupy the everyday lives of a majority of the country. Today, a site like Facebook can accumulate 600 million users in about 5 years.
***
Globalization, urban growth and geopolitical risk is Rice’s final macro observation.
“Emerging markets is a force we all have to reckon with,” he said.
The world’s population is more mobile, with global urban areas growing at a fast rate. If companies do not handle and understand the globalization of corporate America, they will “not survive in insurance.”
Chad Hemenway is Managing Editor of Advisen News. He has more than 15 years of journalist experience at a variety of online, daily, and weekly publications. He has covered P&C insurance news since 2007, and he has experience writing about all P&C lines as well as regulation and litigation. Chad won a Jesse H. Neal Award for Best Single Article in 2014 for his coverage of the insurance implications of traumatic brain injuries and Best News Coverage in 2013 for coverage of Superstorm Sandy. Contact Chad at 212.897.4824 or [email protected].
