Insurance Chronicle 2023

A year for the history books.

The purpose of this chronicle is to share some info on Protector and our markets development. It is written for insurance brokers, clients, and investors. Opinions are mine and not necessarily a general view in Protector.

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Disciplined growth – stable profitability and volatile growth.

Disciplined growth means pricing all business with a profitability margin. New sales and renewals. The growth rate will depend a lot on the market behaviour. If competitors price too low, we win little or nothing. If they price rationally, we win a lot. Our UK team has delivered a historically high hit rate in 2023. Several years before hit rates have been relatively low, often below 10%.

UK is likely to be doubling its volume in 2023. It strengthens our motivation for maintaining discipline. In all markets. Had we followed the market before we probably wouldn’t have got the capacity now when we could really benefit from it.

The Nordics is also performing well on growth in 2023. Average around 20%. Helped a lot by inflation. We get some negative feedback on price increases, but it is what is needed for us to deliver profitable growth over time.

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Inflation, indexation, and price increases.

We basically do inflationary adjustments on the whole portfolio. Our inflation has been around 7% the past year. Clients and brokers feel the inflation themselves and the acceptance rate for index has been very high.

Clients that are priced too low due to risk and/or claims experience will get individual adjustments in addition to that. Protector will never stop doing fair individual price increases.

Total price increases in 2023 will exceed inflation. The profitability effect is a few %-points improvement for next year.

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Protectors market shares – 10 % in our segments.

Our Scandinavian business is mature. Brokers are growing and we are growing with them. There are limited opportunities by expanding to new segments in Scandinavia. Global is too complicated, both in terms of risks and need for local policies. Niches are occupied by intermediaries (MGAs) writing for international insurers. We will invest in growth into Corporate / upper Mid-Market supported by our UK Underwriters and Risk Engineers.

In UK it is much easier to increase our market by expanding to new segments. In 2024 we will grow into CAR, Middle market, and Affinity schemes.

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Large loss P&C – hard and signs of softening.

High risks and poor performing clients get price increases and limited cover. It is reinsurance driven and similar across Europe. Waste and Food are examples that are hard everywhere. Waste often gets 10x rate of normal Property risks. Protector has picked up some acceptable risks at excellent rate levels in the past year.

There are signs of softening on coinsurance. Some insurers are looking to increase their shares on good accounts. The norm is still expiring terms and conditions.

Casualty is slightly softening in all our home markets. Both on GL, PL and Financial lines. It is a limited product segment for Protector and a growth opportunity.

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Frequency Motor and EB – up and down.

Frequencies are back to normal or higher than pre-covid levels. For Motor increased utilization is one factor. A hard winter another one.

Most insurers do inflationary increases. The exception is some mutual insurer that thinks it is right to support their clients in challenging times.

Most large accounts and schemes have been out in the market. Protector has renewed almost everything that we wanted. We have had to lower margins on some of the most profitable accounts.

The “Silly season” justifies its name. Some Underwriters are pricing at burncost to reach their volume targets. It goes against disciplined growth. We will not take part.

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Facilities are booming – to the benefit of clients.

The rational is simple. Incumbents have been milking small and medium sized companies for decades. As they do with consumers. Small clients lack knowledge, interest and are too small for brokers to tender them individually.

Brokers have an efficient way to help clients. “Facilities” or whatever you want to call it. Group tenders have been practiced for many years on EB. Especially in Denmark but also in Norway. Now it is growing a lot on Motor and SME P&C.

Basically, the broker tenders a large group of clients. Thousands. The volume potential helps insurers as Protector to squeeze margins, adapt coverages and service.

On Motor it has often been possible to achieve net premium decreases of 15-20%. On small P&C clients even higher. 35% decrease on a huge tender the past year. Great for all except the incumbents who loses their super profit margin. As it should be in a well-functioning market.

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Consumer – big setbacks for Sweden. Progress in Norway.

Brokers are growing on consumer and there is more to’ come. It is hard but the reward is huge. Clients benefit from improved service and lower price. Brokers benefit from growth. So does Protector.

The challenge in consumer insurance is distribution. Both risk selection and pricing. Insurance is a low interest product although it is a sizeable cost for any family with a home, one or two vehicles and even more. Because insurance is of low interest incumbents gradually increase prices and their profit margins. Also, for clients that don’t deserve an increase. Incumbents have learnt that it is possible to new sell at too low price, gradually increase prices and earn good margins on long term.

Protector in Sweden had two rather large setbacks in 2023. Paydrive was lost when mutual insurer Dina bought and delisted them from the stock exchange. Parts of Sensor (consumer broker) was also lost to Dina who is eager to invest in growth. For Protector, the effect on growth is negative and very positive on profitability.

In Norway we had some success on Affinity consumer schemes. A segment with great growth opportunities.

Protector is in all the Scandinavian markets. We will be a good alternative whenever an insurer would try to implement their consumer milking strategy in the broker market. The incumbents will make a costly mistake if they think that their direct distribution pricing methodology will work on brokered business.

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Mutual insurers – doing what is best for their management.

The late Charlie Munger said “Show me the incentive and I'll show you the outcome”.

Mutual insurers have high costs because they have no incentive to cut costs. There is no active owner who require cost control. Very few clients even realize what mutuality is. Hence, many managers in mutual companies seem to forget who they are working for.

Mutual insurers often have some sort of growth agenda. Often against existing clients’ interests. It always sounds more rational than it is. Such as, "we need the volume for efficiency". Why not cut costs to privately owned insurers’ cost levels instead? There is a lot of evidence that it is possible.

For Protector, Mutuals is not an issue. They actually play a role for us in the market. Picking up some risks that no rational insurer would want. It helps us manage brokers relations, at least in all the Nordic markets.

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Broker satisfaction – how to capitalize on it?

Cost efficiency is critical to price competitively for profitable growth. Quality leadership is the second part that is needed. Protector’s quality position is very strong.

• Norway won a Grand Slam – the broker association’s quality price, S?derberg & Partners quality price and our own satisfaction survey both on broker and claims service.
• Sweden and Finland are struggling to take the quality leader position. Sweden is #3 and Finland #2.
• Denmark wins the important Willis Quality Index for the first time and outperforms all competitors also on our own broker quality index survey.
• UK delivers quality leadership for the sixth year in a row. Our quality position in the selected segments is exceptionally strong.

A question for all countries is too what extent we benefit from our quality leadership. In terms of tender volume, hit rates, renewal rates or even profitability.

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AI – start investing, preferably with brokers.

One way to increase quality efficiently is AI. We tried to inspire brokers by reflecting together on AI in a broker executive event. Potential is huge in insurance where the second largest cost is personnel (after claims). The future will show where we will reap the benefits. Protector has invested in a team that gets to spend their team on R&D. Focus in 2023 was Property Underwriting in UK. Brokers will benefit from our improved processes. We are eager to find more concrete development opportunities with brokers.

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PE firms overinvesting in insurance?

PE firms have continued to invest in brokers. They pay high multiples to acquire growth. There are only limited signs of increasing interest rates. The brokers seem to stick more to their core business and have cost control and profitability on their agendas. There are still examples of exceptional multiples. One broker is reputed to have been bought at 15-20x revenues. Not profit, revenues.

Acquisition multiples spread into the recruitment market. Acquiring people and teams is costly. Most brokers have considered salaries to be increasing too fast for many years. The past year we hit new highs. There are some chocking examples of salaries and sign on bonuses. Hopefully, the clients will want to pay.

In Protector we hope that brokers will continue to succeed and grow forever. We depend on them. Our paranoia is that there might be setbacks from overinvestments at some point. Clients will have benefited a lot from brokers’ development regardless, I am sure.

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European expansion – vive la France.

Protector has investigated a handful of European markets for future growth opportunities.

• Spain looked very attractive being a strong broker market. Public sector is unfortunately too small at this point and data is rather limited.
• Germany is complicated with Protector’s approach. Brokers’ share of Public sector is limited. Local insurers control the market.
• Netherlands is well managed by their brokers. They have a strong preference for their own MGAs. Also, in Public sector.
• Switzerland may be attractive, but it relatively complicated to establish there. EU has agreed on an efficient and good framework for expansion.
• Italy is described as relationship driven and behind on digitalization. The market may prove to be more attractive after a deeper analysis.
• France stands out. Brokers have a very strong market position. They are exceptionally professional and have an impressive understanding for data.

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Un grand merci à tous les courtiers pour les temps que vous avez passé avec nous en 2023. Nous vous apprécions vraiment beaucoup. Vous savez qui vous êtes.

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Finally, thank you to all Country leaders and all your people for delivering strong results during 2023. Cathrine Wessel Poulsen , Lars Kristiansen , Fredrik Landelius , Anders Blom Monberg and Stuart Winter . You have managed to deliver very good results and employee satisfaction combined. Even after the best growth year by far in the history of Protector I dare to say that the outlook is good for us to continue to deliver.

Thank you also Bjarte Andre Soldal Jensen for showing what is possible in Public sector. Last but not least, thanks Henrik Wold H?ye for your continuous challenges and support. I can’t wait to get back to work :)