Why David Howden fears insurance is "sleepwalking into irrelevance"

The above comment, the broking boss said, was first made by him at a dinner he had attended with 20 insurance CEOs, shortly before he jetted off to risk management conference FERMA.

“I want to stop standing up on stage like this telling people I’m worried about our lack of relevance for clients; I want to be able to sit down with my clients and say: we’ve got solutions to this,” Howden said.

If the industry continues to “internalize” rather than look at how it can take risks off clients’ balance sheets, whether because of capacity or pricing challenges, then it “won’t be relevant in the future”, Howden said.

“I want to close this relevance gap.”

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Thinking back to this year’s September Monte Carlo reinsurance rendezvous, Howden said: “[There was a lot of] internalization, but I’m really not joking, it was quite hard to find the ultimate client [in the conversation].

“Let’s be honest, we’re all in this business because of the clients; without the clients, we have nothing.”

Meanwhile, at risk management conference FERMA, insurance buyers had other worries front of mind.

“This is what they’re thinking about; this is what is actually worrying the clients,” Howden said.

“They’re worrying about the war in Ukraine, they’re worrying about social inflation, they’re worrying about supply chains, balance sheets, etcetera.”

“If you remember, if you’re CEO of a company […], you don’t think in terms of risk of insurance, you think about issues and problems; how do I grow my business? And this is what they’re all wondering about.”

“If you plot that against what we’re offering as an insurance market, it doesn’t always match up very well,” Howden said. “You know, we’re not necessarily there.”

Setting out his argument that insurance as it stands could be heading towards irrelevance, Howden argued that nonlife premium has not “really grown very much faster than inflation”.

He pointed to recent market developments that have seen big business respond to a capacity dearth by striking out alone. In May, Airbus said it would look to set aside €10 billion for reserving purposes, after being stung by COVID losses, the Financial Times reported.

“Where was insurance in that?” Howden quizzed. “Nowhere.”

Airbus is also among seven multinationals, including BASF, Michelin, and Solvay, to have set up cyber mutual MIRIS, incorporated in Belgium and expected to provide up to €25 million in capacity to its members.

Ten million euros is the minimum attachment point for businesses looking to join the mutual.

“It wasn’t just about limits; it was also about: would we [the insurance industry] pay?” Howden said.

“We need to do consultancy, we need to do risk management, but we need to respond as well […] otherwise people go ahead and set up mutuals.”

With brokers representing better returns, “smart capital” is looking towards investing in them.

That money going into brokers rather than balance sheet businesses poses a problem for the insurance industry, according to the broking boss, and could be exacerbating pressure on the capacity side.

“You probably care, because ultimately, you need risk transfer,” Howden said.

As for where the insurance industry’s biggest opportunity to stay relevant could lie, Howden pointed to climate change.

Read more: Howden announces ‘world’s first fully sustainable insurer’

“I’m not going to get into the political debate of what’s driving it, those are the facts – it is happening,” he said.

“The other fact is this is happening in all sorts of different ways that we didn’t see before; that’s why our models are all wrong. The facts are, it’s all sorts of losses that none of us knew about before or didn’t think would be happening here and today.”

$125 trillion of investment is needed towards hitting carbon neutrality targets by 2050, with $32 trillion of this needed in the next decade alone.

“If we as an insurance market are not providing the products that help the biggest movement of capital that you are ever going to see in your life, and we are not supporting this, then shame on us – what a lost opportunity there is for us.”