Mark Berven Talks P/C Resilience

We have just come off the most recent Insurance Leadership Forum in Colorado Springs. What are your takeaways from the meeting and the state of things as you've just come out of this meeting cycle.

It is an interesting time, right? In some ways I call it a fast-moving and cautious environment, all at the same time. It feels like there’s a tremendous amount of momentum and speed and opportunity. And also, depending upon segments of the industry and particular areas of product offerings, there’s a lot of caution.

The conversations are really around the continued pressure in indemnity from inflationary pressures, both from an economic inflation basis as well as from a social inflation impact on some casualty lines. In particular, financial market uncertainty, and in the environment that we’re in right now, with what’s going on with the government, and the impact that has on the financial markets as well. Lots of uncertainty around what the future holds.

I think one of the other things that was definitely pronounced through the conversations last weekend is just the impact of continued pressure from weather. Catastrophe events are all being impacted by increasing exposures across all segments of property. Frequency was picking up this year and was really pronounced in more of the convective storm exposures rather than necessarily—so far, knock on wood—hurricane or wildfires, as those are still very active seasons that could just compound issues. The frequency of the events coming through, with all of those factors considered, continuing to rise and create more pressures.

The theme, though, that we took from all of that was, really in every segment, customer disruption. The reality of things is hitting customers as carriers and distribution are trying to keep pace with the trends and provide the right solutions in markets where there’s maybe some shrinking capacity, geographic concentration being a critical element of that. From a workforce basis, whether you’re at a carrier, whether you’re at a broker, whether you’re in charge of placement for a business that you run, it is a really unique and challenging time navigating everything that’s hitting desks today.

One of the tenors was talk around the casualty market. Talk to us about the trends you're seeing there.

The casualty market is an interesting one today, as you think about the length of time it takes for patterns to really develop. It’s always about trying to get the best idea of what you’re predicting the future to be. With all of the things that we were discussing earlier in the conversation here, there’s a degree of uncertainty that is really pronounced today, as it relates to trying to predict what those future trends are going to look like.

You couple that with the fact that, coming out of the pandemic, looking at some of the trends from a casualty line perspective, you saw premiums across the board maintaining or maybe even, as the market has continued to evolve, seeing some negative premium trends in different lines: commercial D&O, some of the dynamic of what we see in workers compensation.

At the same time that all of that is happening, we’re starting to see some of the underlying leading indicators that would portray more risk in the future. You’ve got this favorable dynamic that had been coming out of the pandemic, and more competition and supply and demand always driving where the marketplace is, but now you look at some of what we’re seeing from social inflation trends and the reality of some of the patterns of coming out of that. Nuclear verdicts are becoming more frequent, the backlog of the court system—and that has opened back up, but because there was a shut down, files are open longer, there’s a longer period of time that litigation is going, so whether it’s cost increases that are coming from legal defense, or it’s the reality that when a case is open longer, there’s more treatment and different dynamics that impact their medical costs.

That cautiously optimistic or optimistically cautious inflation that’s coming through, as we’ve looked at the history of work comp over the most recent years, and what that’s done to premium, while now at the same time starting to see some of those inflationary trends come through. You’ve got that convergence of different patterns that are coming that way. You’ve also got this unique opportunity and challenge as we think about the workforce, and what that means to exposures with low unemployment. But we also see a lot of employees that are new in role, and that creates another concern around experience and understanding operational dynamics that folks face that opens up different exposures. While at the same time we also see an aging workforce in other segments. That creates some other challenges as you think about those dynamics.

So we’ve got all of that hitting, and at the same time we’ve got this rapid advancement of technology. You can’t go anywhere today without there being a conversation about generative AI, and all of the opportunities that that presents to rethink the way that we all conduct our personal lives and run our businesses at the same time. That’s opening up new cyber concerns.

There’s just a lot of considerations in that casualty line. You take all of that and try to predict what the future loss trend is going to be. There’s some challenge in predicting what the future holds.

You also touched on weather earlier. And of course, property has been a conversation at the forefront of things for a while now. We have seen some correction coming from previous years of losses. But the big question overhanging this is whether the industry is putting in place sustainable pricing and coverage that will serve clients over the longer term. What are your thoughts on that?

It’s an interesting question as you think about the long-term impact of what we’re seeing from a weather basis. And I do think that the market that we’re in right now, and what we’re actually seeing with climate change and weather patterns, is providing an opportunity for the market to reset. As we think about pricing for the coverages provided, maybe having a more stringent look at settlement provisions from a claim basis, policy terms and limits that are provided, I do see a dynamic that the market is responding. We’ll be changing some of those basics of how we approach the property market.

Resiliency, going into how carriers are thinking about what the weather trends will be. Predictions about the future, maturity of models that give not just concentration and capital risk, but also a better understanding of underwriting volatility by geography and by peril. There is a lot of focus on maturing capabilities to truly understand new risk. That is what is driving the market activity. Pricing is strengthening and is going to continue to strengthen based upon our understanding of risk today.

From a sustainability basis, I think it’s much more around how we continue, as an industry, to shift from a repair and replace mode to a predict, prevent, and build resiliency mode. It can’t just be the historical, “I’ve got a roof that’s now 20 years old and am going to wait for the windstorm or the hailstorm to come through as a consumer in order to take care of that.” Insurance moving away from that warranty policy approach to more of how do we strengthen and harden properties? How do we price real risk and exposure based upon the maturity of our understanding of risk? That’s all creating a reset for what property looks like moving forward.

And you have some ideas on how communities can build more resiliency specifically.

I had the opportunity to engage in a conversation recently with the CEO of the Insurance Institute for Business & Home Safety (IBHS), Roy Wright. And going through that, as we talk about some of the research that’s being done at IBHS of truly understanding property standards. What are some of the building standards that provide more resiliency based upon the different exposures and geographic issues that we may face across the country?

I was surprised to learn in speaking with Roy that only about 35% of communities across the country have building codes. The opportunity to think about the long term, as we talked about sustainability for the property marketplace, and how to continue to advance the importance of that.

We all see the news stories after a particular event that comes through a community, and you see those few properties that are left still undamaged, or nearly undamaged, after a very significant event. And as you peel back the insights on that, typically it comes back to particular building codes and preventative approaches that that property owner took that created the more favorable outcome. That’s got to be a really important part of the long-term solution.

One of the challenges is to get people thinking beyond “what am I going to get back immediately on my return?” But for every $1 of investment spent in strengthening property with appropriate fortified building standards, there’s an $11 return on that. Being able to go out with that information and try to spread that is going to be critical for the property marketplace moving forward.

You just spent time with distribution partners out in Colorado Springs. Talk to me about how brokers can approach this with clients. How can brokers work together with carrier partners to really push these resilience strategies forward?

The carrier and distribution partner relationship collectively play a really important part in this.

From a carrier perspective, our job is to increase the transparency around this information, put in the hands of brokers where they can go to get the insights, but also to feed those sorts of insights to distribution professionals so that they can carry the message forward to the clients that they work with. Unfortunately—or fortunately—sometimes the reality is we all look at the cost of stronger building codes, or the measures that we take to prevent a loss. And everybody thinks about the here-and-now cost of that.

But again, trying to present more transparency in how an insurance carrier thinks about managing risk, what that means as far as the cost that the consumer ends up bearing, and how a little bit of investment can go a long way in saving over the long term. Trying to get out in front of distribution with more of that knowledge, because what distribution is great at is actually engaging the client in understanding their risks and understanding what they can do to help manage their insurance solution with a focus on cost.

That partnership being enhanced to be more transparent, provide more information about this and talk about the long-term return on a small investment relatively to what you get back, will all be critical parts of how distribution continues to serve their clients, which is what they’ve always done best and will continue to do.

Any other takeaways?

I’ve always had an appreciation for what distribution professionals do with their clients. But I walked away from the conversations last week, and from our daily interactions with our distribution partners at Nationwide, with really an appreciation for the dynamic that is going on in their office today.

With all that we’ve talked about: some of the challenges of the current marketplace, the stress that the workforce is under inside agencies and brokers today, workloads, the communication and outreach that’s needing to happen with clients to help them understand this dynamic market that we’re in, I really walked away with an even more pronounced appreciation for what distribution is navigating through in this environment. It’s times like this where the value that they bring to the client relationship is more important than ever.

And I know we walked away, at Nationwide, as a carrier, with greater appreciation and a renewed focus on how we can better work together with distribution to address some of those issues that they’re faced with today, to put them in the best position to be successful business owners, but also to make sure that they can give the right experience for their clients. That’s what I wanted to probably share more than anything else is the most impactful theme that we’ve taken away from some of the recent market activity and feedback.