To hear Tony Kuczinski tell it, achieving true differentiation in the re/insurance business comes down to transforming into a fully customer-centric organisation – a journey that extends far beyond the traditional parameters of client relationships.
“Superficial interest in the customer will not be enough,” says the President/CEO of Munich Re U.S. Holding and Chair of Hartford Steam Boiler Group Inc. and American Modern Insurance Group Inc. “So we ask ourselves: How can we not only be quick and precise, but also how can we ensure regular, meaningful and positive interactions with our customers?
“This differs from the primary role of insurers today – to simply provide an insurance contract,” he continues. “We can’t just highlight possible problems; we’ll need to recognise the needs that concern the customer the most and create comprehensive solutions to help mitigate their worries.
“That’s why we’ll continue to focus on digitalisation to help provide customers with useful and affordable services on an ongoing basis and increase the emotional bond between customer and insurer,” adds Kuczinski.
For example, Hartford Steam Boiler (HSB) continues to develop commercial IoT solutions that leverage proprietary algorithms that enable real-time loss reduction for common property perils; HSB’s IoT programme, he says, enables a closer connection with the policyholder beyond the benefits of the insurance contract. Additionally, HSB’s cyber risk solutions and other specialty insurance products provide coverage and services responding to emerging technology risks. Recognising the role of digital connections within the insurance business model, HSB continues to invest in data and digital platforms that strengthen and streamline the connection with its customers.
Kuczinski says he’s equally excited to see the progress of Cincinnati, Ohio-based specialty insurer American Modern, which he says is entering the home stretch of the Business Transformation programme the carrier first launched in 2016. By the end of 2020, he notes, American Modern will have gone live in all states with redesigned personal lines products on its new policy administration system.
“What makes this transformation especially impressive is that American Modern continues to be responsive to its clients’ needs by redesigning its processes and products via automation and innovation,” he adds. In the spirit of improving the agent and policyholder experience, this year American Modern will extend its launch of a new specialty homeowner’s insurance product and continue to expand its use of technology and data.
This type of transformation, Kuczinski says, is all the more urgent as customers “increasingly expect the standards from us that they see in other industries: fast, simple, and convenient.” Customers buying insurance, he adds, will make comparisons with satisfying experiences elsewhere, such as an online purchase. Recognising the role of digital connections within the insurance business model, HSB continues to invest in data and digital platforms that strengthen and streamline the connection with its customers.
Leveraging specialisation
Speed, however, must serve as a supplement to possessing a deep bench of expertise when it comes to writing commercial specialty risks – a highly specialised sector that continues to prove a perennial success story in the P&C business. Having served as president of Munich Reinsurance America’s Specialty Markets division, Kuczinski knows well the increasing complexity of risk management and the need for carriers and brokers to differentiate themselves via specialised expertise, technology and analytics.
U.S. specialty commercial insurance has increasingly become a strategic priority for Munich Re P&C Companies, says Kuczinski. “We’ve been in this market for a number of years through several business units. But shifting market needs and opportunities, and customers seeking fast and flexible solutions to their complex needs, meant that our approach to this marketplace needed to evolve,” he explains, noting the union of multiple divisions (including its programme, public entity, binding and E&S lines businesses) last year under one operating platform, Munich Re Specialty Insurance. The new platform enables middle-market customers more simplified access to a breadth of solutions and services.
Additionally, last year Munich Re Specialty Insurance introduced casualty excess & surplus offerings and during 2020’s first quarter it expects to add property and professional liability solutions.
By actively investing in state-of-the-art systems as well as data and analytics, Kuczinski says, “one of our goals is to deliver a quick and agile response to our customers and ultimately their clients. Incorporating technology into everything we do is not only the wave of the future, it’s just good business sense for us and our customers.”
Kuczinski adds that there are two priorities Munich Re is focussed on in the U.S.
First, he says, is the exploration and innovation around data and analysis, “particularly for underwriting new and evolving risks, and combining this with the knowledge and insights that Munich Re has built up over the past 140 years.”
Second, “we have targeted developing and enabling our clients with products and digital underwriting capabilities to address the changing risk environment and growing coverage gap,” he adds. “We believe this will help our clients stay relevant and grow in this environment. To meet these priorities, we’ve established innovation and strategic product teams throughout our organisation that are dedicated to this task.”
Pricing perspective
Kuczinski’s role is unique in that his purview includes business both on the specialty primary and reinsurance side. Overall he believes the U.S. primary market is improving, with rates up in market segments that have long needed it such as loss-affected business or lines that have seen extended periods of rate decline. There are some segments that continue to see declining rates, but for the most part he sees upward pricing momentum.
At the same time, he notes, loss costs for U.S. commercial liability business continue to balloon due to social inflation as the legal environment becomes more favourable for plaintiffs – and increasingly unfriendly for insurers. “In my opinion, the rate increases we’re seeing and underwriting structural changes are not yet sufficient to offset the impact of trend from social inflation,” he says.
Kuczinski observes that reinsurers are currently seeing rate increases in most lines of business in the U.S. and have directly benefited from primary rate increases through their participation in quota share treaties in the U.S. They have also seen rate increases in those U.S. market segments that have also experienced a withdrawal of capacity or some other disruption, he adds.
While the impact of alternative capital on pricing continues to be felt despite some exits from the market toward the end of 2019, Kuczinski is confident that it will continue to be the “new normal” for reinsurers.
“We believe that alternative capital is here to stay, and that it’s important for reinsurers to acquire a strong understanding of this market by working closely with ILS players,” he says. He acknowledges that some of that capital withdrew from the U.S. market last year, while some got trapped due to cat events over the past three years.
As a result, he adds, the level of alternative capital declined in the U.S. after growing steadily over the past decade. Since alternative capital accounts for the majority of retrocessional capacity, Kuczinski notes, capacity has been reduced for reinsurers that are more reliant on retro support.
While the Munich Re Group has been active with alternative capital, having established sidecars and sponsored cat bonds, he adds that the group is “much less reliant” on alternative-capital retro than many other reinsurers.
Investing in resilience
Climate change and its effects on weather patterns are very much on the industry’s – and Kuczinski’s – mind of late, and like many who specialise in E&S cover, he cites the necessity to close the protection gap around flood in the U.S.
“The frequency and severity of extreme events has been increasing, and it’s clear that past nat-cat events are likely associated with significantly different climate conditions than those we faced in the past or even in the future,” he says. “Climate change is creating more frequent heavy rain as well as higher temperatures and longer dry spells. Flood and wildfire have become major perils.”
Insurers must respond by re-evaluating their models and their underwriting and pricing approaches, says Kuczinski, as well as their current exposures and how those will be managed going forward.
“For individual properties, risk assessment means knowing the location with more precision and collecting a different set of property characteristics that indicate vulnerability such as the first-floor elevation of a property or the combustibility of the roof covering or wall cladding,” he says. “This data can lead to increased rates, stricter underwriting criteria and reduced exposure through mitigation approaches or non-renewals.”
Hurricanes Harvey and Florence, in particular, have highlighted the protection gap that exists in the U.S. around flood, he adds: “This has a major impact on people and communities. Unfortunately, climate change is going to widen this gap even further if we don’t focus on risk mitigation.”
Kuczinski believes the P&C insurance industry has an opportunity to help fill that gap by developing or modifying products and services designed to help protect communities when they experience events such as floods, earthquakes or wildfires. “We can help communities become more resilient by focussing on increasing the insurance take-up rate and by reducing the risk with the help of Public-Private Partnerships,” Kuczinski says, adding that increasing take-up will help communities bounce back more quickly after a disaster.
Although insurance is a key financial instrument for recovering from an event, he adds, “we also believe that communities, such as counties and states, can also help reduce the risk by focussing on building codes and investing in nature-based risk solutions, such as wetland and mangrove restoration, that are sustainable.”
To that end, Munich Re is working with the U.S. insurance industry through organisations like the Insurance Institute for Business and Home Safety (IBHS) to push for stronger building codes for wind and wildfire and to increase awareness among manufacturers, contractors and homeowners that building with resilience in mind is not just important for human safety – it’s also a green strategy, as it can reduce or eliminate the need to send debris to a landfill or use resources to rebuild. In addition, as Chair of the APCIA, Kuczinski is a key supporter of this leading advocacy organisation driving thought-leadership on resiliency and other key industry topics.
“This is a great industry that does novel work,” he adds. “There is no more exciting time to be playing a leadership role than right now.”
Expanding influence
In December of last year, Munich Re entered into a $500m risk-sharing agreement with Dutch entrepreneurial development bank FMO that supports private-sector growth in developing countries via credit grants in three sectors: agriculture, energy and financial institutions.
The partnership allows FMO to fuel local development by providing more capital to its partners and offers a creative way to draw capacity from private-sector insurance companies toward supporting some of the world’s poorest countries.
Under the agreement, Munich Re can participate in FMO’s credit portfolio in emerging markets via credit insurance in an amount up to $500m for the next three years.
“This milestone agreement fully supports FMO’s mission to scale up private-sector mobilisation and maximise funding toward developing countries in the financial institutions, energy and agribusiness sectors,” says Kuczinski. “From our perspective, Munich Re benefits from FMO’s longstanding experience and extensive expertise in loan origination and credit risk management in emerging markets.”
The agreement also opens up new markets for Munich Re’s business.
Garden State giving
Giving back to local communities is an intrinsic part of the Munich Re culture, says Tony Kuczinski: “In an industry like insurance, we make our living helping others.”
The president/CEO’s personal philanthropic efforts include his involvement with Penn Medicine at Princeton and Eden Autism Services, both in New Jersey.
As a Board member and Chair of the Strategic Planning Committee at Penn Medicine Princeton, he explains, “I help to bring strong business acumen to an industry that is going through significant and rapid change while at the same time I have the benefit of learning more intimately the challenges facing the healthcare industry.”
As former Chair of Eden Autism Services, Kuczinski similarly guided the autism-service provider with business and strategic insights as it provided key educational and basic living support to individuals with autism as well as vital moral and financial support to their families.
“In turn, I learned firsthand the challenges and struggles of these families and the amazing courage and heroism demonstrated every day by the dedicated families and Eden staff,” he adds.
This feature was originally published in Reactions.
