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‘Price adequacy victory’ yet to be achieved: QBE International’s Harris

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Now is not the time to “celebrate a price adequacy victory” and a dramatic slowdown in rating momentum is unlikely amid ongoing economic uncertainty, according to QBE International CEO Jason Harris.

The executive, who joined QBE in October last year from Axa XL, said that the market had to be “very careful” about how it approached rating adequacy, noting that both loss experience and underlying uncertainty suggested that pricing still needed to be fundamentally recalibrated.

In a wide-ranging interview with Insurance Insider, Harris also asserted that the structure of the subscription market was stifling innovation, and laid out QBE International’s revamped strategy, which includes a significant expansion in Continental Europe for the $6bn-premium unit.

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In addition, he stressed the need for the industry to improve its reputation following the “regrettable” Financial Conduct Authority test case over BI cover, and urged Lloyd’s to hasten its innovation drive.

Harris’s comments on pricing come as the market witnesses a slowdown in rating momentum across a swathe of business segments, after several years of accelerating increases.

He stressed that QBE was still seeing rate increases across its portfolio, and that those increases were coming off the back of a “more adequate base”, but highlighted ongoing issues which threatened profitability running from the economic outlook and interest rates to inflation and social justice.

“I am not sure that we can celebrate a price adequacy victory,” Harris said.

He argued that conditions could not be described as a hard market, and that whilst sectors such as financial lines had registered very significant increases, the change was required in order to address mounting losses.

It is a reality that companies have benefited from really quite attractive insurance pricing for a very long time

The CEO acknowledged that new capacity would exert a downwards pressure in certain lines, with competition clearly picking up, but said that the market could not afford a dramatic drop-off in rates.

“In the same way as we have seen different portfolios experience different rates of hardening there is no doubt that we will see some opportunistic competition come in in certain areas and we will see some more pressure on price in areas that we believe are going to be more benign going forward,” Harris said.

He added: “I think the way in which capital is managed, the oversight of it and the pricing capabilities of the marketplace, I think should ensure that we have an orderly market shift, nothing dramatic.”

Despite the unusual circumstances of material pricing change in a recessionary environment, Harris said that the industry was “not doing anything inappropriate”.

“It is a reality that companies have benefited from really quite attractive insurance pricing for a very long time and the law of supply and demand results in the changes that we have seen,” he said.

Harris is not alone in voicing a warning over changing pricing dynamics, with Fidelis CEO Richard Brindle recently telling this publication that the industry was in the grip of a “false sense of security” and underwriters needed to maintain their resolve.

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Innovation in a subscription market

One of QBE’s key targets is an ambitious modernisation agenda, and Harris explained that the structure of a subscription market made innovation more challenging.

“I think we tend to compete with each other more than we do collaborate with each other,” the CEO said, stressing that it was often easier to drive innovation in niche industry segments.

“When one tries to address some of the large requirements and some of the large buyers in a syndicated world we get ourselves caught up in competition, we get ourselves caught up in ownership, and we get ourselves caught up in proprietary information,” Harris said.

“I am not sure that customers get the right outcome.”

I think we tend to compete with each other more than we do collaborate with each other

He voiced his support for Lloyd’s efforts to drive market modernisation, but said that the Corporation needed to move faster.

“Blueprint two I think has the right intent,” the CEO said. “We are fully supportive of that and getting Lloyd’s to move faster. We do need to get to the point of real, tangible progress rather than intent.”

Achieving innovation at QBE has been made more challenging by the remote working brought about by the pandemic, and Harris said that he was focussed on using “more carrot than stick” to lure staff back to a physical workplace.

“I think we have been highly, highly effective in terms of getting through work but we need to get back into that talent development, innovation, [and] creative culture - which in part is best delivered face to face around a table,” he said.

QBE is consulting with employees about the future world of work, and Harris said that management was focussed on making the office a place that staff wanted to attend.

“If people come to the office and all they do is sit on a Teams or a Zoom meeting as they would have done at home then I haven’t really got a very compelling proposition,” Harris observed.

European expansion

Harris said that a lot of management change had taken place since he assumed the leadership position at QBE last year, with long-serving CUO Colin O’Farrell retiring after 34 years, and Syndicate 386 active underwriter David Harries retiring at the beginning of the year, before re-emerging at Berkshire Hathaway Specialty Insurance. QBE Re chief Jonathan Parry is also retiring from the firm.

But he said he was building from the basis of a “very strong franchise” built under predecessor Richard Pryce, who is currently interim group CEO.

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Key to the development targets of the company is an expansion in Continental Europe, as the carrier looks to “cast its product nets more widely”.

“I do think that some of the well-recognised deep expertise we have in the London market could be leveraged more broadly across for example our European network,” he said, citing the planned launch of a renewable energy hub in Madrid.

Despite the expansion into European markets, Harris said that QBE was still committed to the Lloyd’s market, and still wrote around half its European business on Lloyd’s paper, with no notable change in weighting in the last few years.

We don’t have a Lloyd’s strategy and a company strategy, we have a strategy

He said that the carrier was “agnostic” about the platform it used, provided it produced the best results for clients.

“We don’t have a Lloyd’s strategy and a company strategy, we have a strategy,” he said. “It is a business strategy not an entity strategy or a platform strategy.”

Alongside expanding geographically, Harris explained that QBE was focussed on creating value for clients beyond the process of risk transfer.

“That might be securitisation, it might be risk management, it might be working with third parties to deliver a different propositions to a sector,” he said.

The CEO used the example of the cyber market as an area where risk management and loss prevention were playing an increasing role in how insurers interacted with clients, and that such an approach “sits hand in hand” with risk transfer.

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