19 Dec Bermuda staying at the cusp of innovation
Albert Benchimol, President and CEO, AXIS Capital, suggests that companies should embrace the age of technology with decisiveness and caution
As we start the year, across the world leaders are taking stock of the true impact of COVID-19 and the lockdown to their economic activity. However, recent news about vaccines have given an injection of confidence for 2021. How optimistic are you about the speed of Bermuda’s economic recovery?
I would answer this question in two parts. There is a health and wellness impact as well as an economy and business impact. I have to commend the government’s approach to protect its people in terms of COVID-19. They were very quick to recognize the situation, putting some clear controls and quarantine measures in place. They are now rolling out the vaccination process. Of the various places that I have been to, I certainly feel safest in Bermuda. The population itself is aware and compliant with the safety measures that have been proposed. Bermuda, like any other country, has suffered significantly from an economic perspective with regard to COVID-19. The two areas that have suffered the most are tourism and the typical retail industries. The government has done what it could to shelter the economy from that.
On the other hand, Bermuda has a very healthy insurance and reinsurance industry. One of the great attributes of our business is that we are very well advanced from a technological standpoint. The industry has been able to immediately move to remote work. We did not skip a beat. We have been able to work from home and deal with our customers in 150 countries across the world. We have proven our value, both from the perspective of paying claims that came out through the catastrophes of this year, but also in continuing to provide continuous cover for ongoing risks in the world. The government has been working hand in hand with us to make sure that we have whatever we need. We have invested a lot in the success of Bermuda as well. To date, the Bermuda insurance and reinsurance industry has been more than able to withstand this situation, protect its product and even achieve some growth.
Could you provide an analysis on the dynamism of Bermuda’s insurance market to date?
I would say that for a long time Bermuda has been one of the most dynamic insurance and reinsurance markets worldwide and it continues to be so today. We are quite responsive in terms of the market’s trends and needs, alongside a very responsive regulatory environment. Frankly, industry participants have a very global entrepreneurial mindset to respond to the world. When we talk about the insurance and reinsurance industry in Bermuda, we are not talking only about employees in insurance in Bermuda. The Bermuda insurance industry is truly global and our peers and competitors are all over the globe. Our industry may be headquartered in Bermuda, but it is fundamentally a global industry. We make up approximately 36 percent of the global reinsurance market based on property and casualty net premiums earned. For a very small island in the middle of the ocean, this is a major achievement. We have gotten there, thanks to our responsiveness and ability to be creative and innovative when it comes to raising capital when it is needed, developing new products as well as becoming the center of the world when it comes to matching risk and capital. One of the great things that Bermuda, AXIS and our peers have done is to turn insurance risk into investment risk. We have a very strong ILS (Insurance Linked Security) market, allowing various funds and even individual investors to participate in certain insurance and reinsurance risks, without necessarily buying the securities of insurance companies. All of those innovations have allowed Bermuda to stay at the cusp of innovation in insurance, reinsurance and risk transfer.
What kind of new and innovative products have you got coming to market this year? What is your vision for the company coming into 2021?
I will mention some products that have already been in place but they fall well within this topic. Many years ago we were heavily invested in energy risk, off-shore rigs and pipelines. One of the great attributes of being on an island like Bermuda is that we are very sensitive of the impact of climate change. It was very clear to us that the world needed a shift from fossil fuel to renewable energies. We saw a new industry being born and we decided early on that we wanted to gain access to renewable energy insurance capability. Today, we are one of the largest global insurers of renewable energy risks. We have great expertise on wind and solar farms, batteries and storage. We are able to evolve in order to meet the needs of an everchanging global environment. We have other examples of products that we have developed. Increasingly people are leaving the organizational workforce, working from home. Many are starting home-based businesses. We are introducing a new line called ‘Home-Based Business’ that will provide insurance coverage specifically targeted to U.S. small businesses operating out of people’s homes, whether they conduct operations there or on the go. This product will leverage technology to make sure that we can very efficiently provide low-cost products designed to meet this sector’s unique needs and cover an important insurance gap in a homeowners insurance policy. This product, again, meets the future as it comes to us.
We have seen that insurers and reinsurers are putting up prices across many lines of business. How do you think the pricing outlook is for the industry moving forward, due to the impact of the pandemic on the stability of Bermuda’s insurance industry?
COVID-19 was the pinnacle of a very difficult time over the last 4 to 5 years in the insurance and reinsurance industry. Three of the five worst catastrophe years on record happened in the last 4 years. We had social inflation, in terms of the cost of claims going up, we had COVID-19, we had declining interest rates, which led to less investment income. The insurance industry has had a very difficult time in terms of getting an adequate return. The compound effect of all these negatives, shows that the industry wants to provide its services but for a price that is at least sustainable and adequate. Now, we are seeing a price correction, which needed to happen to maintain a healthy environment, with healthy demand and healthy supply. The supply was not healthy before, as we were not getting adequate pricing. With the pricing correction, we can get back to a healthy market. In 2020, our insurance business averaged increases of nearly 15 percent, which was twice the increase we saw in 2019. Pricing in our reinsurance business, increased about 8 percent in 2020. In any case, those were some appropriate and necessary increases to reflect the frequency and severity of claims. The social value of the insurance industry is to mutualize risk. Everybody puts a little to the pot, so that the few with losses get paid. If there is not enough money put into the pot, the system does not work as well. In other words, our task, as the insurance industry, is to mutualize risk, not subsidize it. Over the last few years, the insurance industry has been subsidizing risk and we have to get away from that. We need to collect adequate premium to pay for those claims as well as invest in technology and training in order to provide better products for our customers.
There is a lot of talk around the new insurance marketplace platform, the Digital Asset Business Act and using blockchain as a catalyst for new approached in insurance. What is your insight on these developing regulatory innovations in the Bermuda and global market?
We are very excited about the new capabilities that are offered by insurance technology. We have teams, just like many other companies, looking for ways to move towards that direction. We have performed any number of proof-of-concept studies on technology innovations. Sometimes technology is ready and can be used today, sometimes it is not quite ready and needs further development. These proof-of-concept studies are very helpful, indicating how we can reach a great product. It is very exciting to be able to use technology around data and analytics, so that you get to better underwriting decisions faster. From satellite imagery to get views on fields to drones reaching difficult properties, technology can offer us great advantages. We are eager to tap into this potential of improving the quality of our service, our underwriting and the responsiveness to our customers. However, it is fundamental not to get overtaken by the hype. We have to make sensible decisions.
As CEO, what are your main priorities for AXIS Capital in 2021?
Our top priority for 2021 is to grow our business profitably. Over the last years we have been focused on repositioning our business. I feel very proud that we have invested in our business, getting out of some lines that we felt were limited, investing in other lines where we had competitive advantages. Today, we are leaders or highly relevant players in our core markets. Many of those are markets that suffered over the last four years, so we are also seeing the benefit of price increases. Right now is the time to make the most out of what we have invested in over the last four years and grow our business in this pricing environment. One of the things that I am very proud about at AXIS, is our corporate citizenship. This is a part of our DNA and culture. For background, there are four pillars in our corporate citizenship program. One is the environment. Second is advocacy in terms of taking a stand on critical issues including making insurance accessible to more people. The third is philanthropy. We have supported our personnel, their families and our communities in particular with regard to the pandemic, where we allocated more than US 1 million for COVID-19 relief and support. The fourth is D&I, Diversity and Inclusion, where we have been working hard internally to grow and strengthen our practices and externally to advocate for positive change. We are very proud that we have received external recognition for our work and achievements on all four of those pillars. We will continue to invest in ESG in 2021. In particular in terms of the environment, we have been funding many research projects around climate change and its impact. We are continuing to modify our underwriting guidelines to support sustainability, and this includes the adoption of a thermal coal and oil sands policy, and we are now extending this to Arctic drilling. We are continuing to support our communities. All of our efforts are global, including Bermuda. Our approach is to have our head office manage half of our philanthropy budget, while the rest is allocated to our various offices and allow to vote on which of their local community initiatives are the most pressing to support. It is important for our employees to see themselves; their communities and their values reflected in what the company does. One of the attributes of the insurance industry is helping people when they are down. That part of our DNA is active, whether or not people pay us an insurance premium. With regard to Bermuda, we are very active in supporting the local community. A big area of focus is supporting the education of the Bermuda workforce. We want to make sure that we help the country develop a skilled workforce that will contribute to the success of insurance and reinsurance globally. We have just launched a program between the insurance industry in Bermuda, Bermuda College and the St. John’s University School of Risk Management, where Bermuda students can take the first two years of their four-year programme on locally in Bermuda. We are making it easier for students to undertake their education in risk management and insurance, without necessarily having to take up all the added costs of moving to the US, certainly in the times of COVID-19. We have also internship programs for young students. We believe that the future is the youth and the future lies in education. We are working really hard with the government to provide educational opportunities to the youth of Bermuda, that will eventually form the industry leaders of the future.
What do you envision will be the implications for the economy and to the insurance industry of the Work from Bermuda Residential Certificate Programme?
I find this to be a great idea. Now that you can work from anywhere in the world, why would you not work from paradise? The program that we have here creates local demand. More importantly, I know that these people will become ambassadors of Bermuda and one day, when tourism comes back, they will tell their friends about the great time they had in Bermuda. People who live here love to talk about how great their experiences have been. This way people can live in a country that has all the benefits of a modern economy. It is an incredibly peaceful, beautiful and clean place. You can get anything you need here. I am confident that anyone that chooses Bermuda through that program, will eventually become a life-long ambassador for the country.
What would be your final message for our readers of Newsweek?
Bermuda offers the best of both worlds, providing a paradise to live in and the global center of insurance and reinsurance to work in. It is a uniquely cosmopolitan place, incredibly modern with outstanding people all round. We have a very successful collaboration between the government, the regulator and the industry, because the know that our success is intertwined.