The insurance industry is changing and with it the demands placed on reinsurance. Merely providing capacities at competitive prices will no longer off er suff icient potential in the future. What is needed are providers with a thorough knowledge of risk who can off er this know-how to their clients. Board member Torsten Jeworrek explains Munich Re’s strategy in an interview.
The economic situation over the last 12 months has been anything but straightforward. Munich Re has coped well with the difficulties and demonstrated its overall strength. Yet we are currently reassessing the strategic direction of Munich Re’s reinsurance business. Why?
Torsten Jeworrek: Our financial solidity has certainly helped us in the current crisis. However, we are now asking ourselves what services we have to offer our clients to make Munich Re an absolutely unique partner.
What does that mean in practical terms?
We asked ourselves how the demand for reinsurance is likely to develop. For simple risks it is likely to fall, given our cedants’ increasing capital strength and improved modelling techniques. On the other hand, many risks that clients approach us with are becoming increasingly complex due to technological developments and globalisation. Our cedants are increasingly seeking protection where loss potentials are extremely high or are still not fully known, such as natural hazards, complex liability risks, construction projects and the like – or in order to optimise their internal capital- and risk-management systems. You need immense know-how to solve cases like these. Our objective is to support our clients with this expertise so that we can find new and improved solutions for these problems together.
Is it right to say that means Munich Re will not be writing any “standard risks” in the future?
No, certainly not. But the tendency is for simple business to be placed in the market at the lowest margins in the form of standard treaties. With its know-how, Munich Re has a lot more opportunities to develop a larger business base more profitably. It is therefore entirely appropriate that we expand our business model.
So, Munich Re will fulfil a dual role in the coming years as a provider of both capacity and know-how?
We have two objectives that we hope to achieve in the coming years by expanding our business model. Firstly, we want to continue to offer a high level of financial security and reliability. Secondly, we want to support our clients – much more strongly than before – with expertise for their own business. Ultimately, we want to be the first port of call for solving complex issues. My wish is that our clients say: “Ask Munich Re, they are bound to find the right solution.” It is this dual role that sets us apart.
Is everything in place for us to be able to perform this role?
We have a lot of the abilities required simply because we need them to operate our own core business. For example, we know from our own experience how to design high-level risk-management processes or to model and insure difficult risks. Through our new client managers, who will be much closer to the clients, we want to offer clients more than just our basic product of reinsurance. We want to provide consultancy services for their internal processes in balance-sheet management, risk modelling and asset-liability management.
Has the new system of client management already created the structures needed to realise our new strategy?
Absolutely. We are looking to establish a dual specialisation – in client management and in underwriting. Client managers will specialise on their function as client consultants and no longer merely optimise our own business by acquiring treaty shares. In future, they will have a much greater presence and role as a genuine consultant for their cedants. At the same time, however, they will also develop new client groups such as governments, pools, etc. They will need to be close to our clients and have a thorough understanding of their whole value chain in order to draw attention to the competitive situation and any problems regarding accounting, financial strength or ratings. By listening to the clients and understanding their problems, client managers can suggest solutions, which can then be realised with the help of Munich Re and our expertise in underwriting, risk management and technical matters.
So, client management has a much stronger outside focus in order to generate new business?
Yes. We will broaden the Munich Re business model. We won’t just be competing with our traditional rivals for reinsurance business but will anticipate clients’ needs through strong client focus and in so doing develop new business potential. We are convinced that reinsurance should not be sold “off the peg” but should meet our clients’ individual needs.
Will the client manager be alone on the front line?
No, not alone. Our underwriting specialists will also maintain close contact with our clients. This is good for clients as it enables a direct exchange with our specialist underwriters. And it is good for us because we get to know the clients’ portfolios and can then develop the most appropriate conditions for each client individually and not have to work on a broad-brush basis. However, the client managers will assume the coordinating and central steering function. They must know their way around reinsurance but will need a broader degree of knowledge to do the job.
And when implementing solutions they will rely heavily on specialists at our company?
Precisely. Whenever a client has a problem, the client managers’ job is to find the right people needed to solve this problem. They then work together in special ad hoc teams to come up with a suitable solution. Our challenge is to take the broad range of knowledge found in different areas of the reinsurance group worldwide and to pool it for specific cases and make it available to the client. We will need to develop a much more flexible project team mentality, as the know-how cannot possibly work optimally in each individual structure. In other words, the deployment of global and interdisciplinary Group expertise will be a crucial success factor.
With such a broad knowledge profile in the company, the obvious question is: Where does this knowledge come from and how do we ensure it is kept up to date?
The demands placed on our knowledge are indeed extremely high. Ultimately, we have to know our way around risks from all over the world and from a wide variety of different technologies and areas of our society – and these risks are changing more quickly than ever before. In contrast to the situation that existed, say, 20 years ago, the huge range of knowledge required today makes it unfeasible to establish and maintain internal teams of experts who are always up to date on the very latest developments. Now we need more intelligent ways of generating knowledge and of making it available. We therefore asked ourselves: For which risks do we have sufficient internal knowledge and where do we need to seek cooperation with external partners? For us, knowledge is not an end in itself but rather the fundamental pre requisite for developing new products and solutions.
And what was the answer?
Two years ago we agreed upon a differentiated strategy of knowledge generation. This means that we do not always intend to be the one actually generating knowledge in each and every case. We want to act as a sort of organiser of know-how. We seek contact and cooperation wherever suitable and up-to-date external knowledge is available, and then we tap into this knowledge. Where this external knowledge does not exist, it is up to us to develop the know-how ourselves. That is why we maintain partnerships, for example, with the London School of Economics on climate change, with Risk Management Solutions for natural hazard modelling, and with RAND on the subject of class actions in the USA. The advantage of this strategy is that our staff can concentrate fully on turning this knowledge into value-creating solutions.