A Q&A with Tim Gardner, CEO of Lockton Re, about market developments and how Lockton Re is building a business that will respond.
Q: You have over 25 years' experience in reinsurance: what is most different about the trading environment today?
Gardner: The industry has changed in many ways. In the early days, reinsurance brokers focused mainly on transaction execution.
Today, the focus is on analytics creating insights and innovative solutions that help companies grow and help manage risk. This has created new opportunities for brokers like Lockton Re (opens a new window) and more options for reinsurance buyers. The best solution for insurers may not be traditional reinsurance, but smart and different management of risk. That might mean retain, package and diversify or cede to less traditional sources. Reinsurance brokers help insurers by evaluating and quantifying risk concentrations and supporting the decisions about identifying the most suitable options. The evaluation and quantification of risk needs to be measured against an insurance company’s financial position, capital adequacy and rating agency ramifications.
Q: Commentators talk about analytics (resources) being a differentiator in reinsurance. How is Lockton Re responding?
Gardner: We are building the Lockton Re business around a value proposition based on differentiated analytics. Innovations with technology can create a much more interactive and flexible client experience for consuming data and analytics. We intend to be nimbler, more user friendly, faster and dynamic. Lockton Re is a new business and not constrained by legacy systems that don’t speak to each other. We are building a modern technology environment with the latest tools available to analyse data from a variety of industry sources and data providers, covering different lines of business and products.
Q: This suggests that technology is having a big impact on the re/insurance market. How would you characterise this?
Gardner: The change is quite dramatic, particularly in the reinsurance space, driven by an acceleration in data analytics through new tools and more precise and smart data models. This trend will have a profound impact on the business due to advancements in predictive analytics which will benefit insurance company clients, improving their understanding of their risk exposure and enhancing the decision-making process for finding the most adequate solutions. But technology is not the only driver of change. There is also a structural shift taking place in the re/insurance sector. In the past, capital was the core value for re/insurers. Big balance sheets used to be a significant competitive advantage as it enabled expansive appetites for risk assumption. More and more, however, capital is becoming less of a differentiator. In fact, very large alternative sources of capital have materialised outside of the re/insurance market that, based on size and return expectations, can assume risk at more cost-effective levels. Re/insurer core values are pivoting from the holder of capital to a risk modeller and risk quantifier that searches out the optimal capital source as the most cost-effective holder of risk. This shift in the value proposition is supported by ever improving risk quantification and risk analytics. Reinsurance is in the middle of this shift and brokers are challenged to offer the most effective option to align the risk to the most adequate capital and offer the best value to clients.
Q: M&A will be a big talking point at industry meetings this year: what’s driving it; is there more to come?
Gardner: We have witnessed a significant amount of merger and acquisition activity in the broker sector, suggesting that some brokers believe that size and scale is the winning formula. This consolidation trend among brokers is creating new opportunities for start-ups and smaller brokers to create different service models for clients, taking advantage of the fact that they can move faster, be more flexible and take better advantage of new technology. Concentration around largest brokers is creating significant growth opportunities for companies like Lockton. In my 25+ years in the business, I have never seen a more active market around broker talent movement. This is as good an environment as there has been to recruit world-class talent. Clients are looking for choice, reinsurers are looking for choice and reinsurance broking talent is actively exploring the new platforms as well.
Q: All of the above suggests a re/insurance market going through big changes. How will Lockton Re differentiate itself in these uncertain times?
Gardner: It is exactly because of these “big changes” that we see the opportunity for Lockton Re to be so substantial. Our value proposition and our differentiation is centred around three key opportunities. The first is our ownership structure. As part of Lockton, we are attached to a private, dynamic and fast-growing insurance brokerage platform. That relationship and independence enables us to support clients in a compelling way with a priority towards growing the business in the right way and at the right pace. We will add talent when we find the right fit and we will invest without concern for public shareholder constraints or expectations. The second opportunity is around analytics. We are building Lockton Re to deliver differentiated analytics. We are building new platforms, free from constraints with an appetite for significant investment, to create a more interactive and flexible client experience for consuming data and analytics. We intend to be nimbler, more user-friendly, faster and dynamic. The final opportunity is around people. The current market disruption has created an incredible opportunity to attract world-class talent. Future colleagues are excited to join an independent company with substantial growth aspirations and investment appetite, free from quarter-to-quarter scrutiny, with an analytics vision that is compelling and differentiated.
Q: How will Lockton Re harness the broker’s existing reinsurance capabilities?
Gardner: Lockton Re will build up on the strength of our existing capabilities. Our expansion plans consist of building out as opposed to rebuilding. We need to close the gaps in our global offering, particularly in the US where we are looking to recruit the best brokers in the market, but we are also building a full suite of analytics capabilities; actuaries, catastrophe modellers, rating agency advisory, etc. We are also building US based claims and accounting expertise. The reinsurance skills, knowledge, capabilities and network we have within Lockton Re, particularly in London, will serve as a great basis to expand globally. We are 100 percent committed to the reinsurance in terms of leadership, recruitment and innovation.