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This is a moment of great opportunity for wholesale brokers

See below for Max Carter’s recent interview in Insurance Day

New Dawn Risk, the London market specialty lines broking firm, is more than ready to navigate its way through the challenges, and take advantage of the opportunities thrown up by a global insurance market environment which is being transformed by a combination of Covid-19, the rapid consolidation in the specialty lines broking sector, and a hard market which is becoming more entrenched.

According to Max Carter, the firm’s chief executive, operating in challenging market conditions is very much part of New Dawn Risk’s DNA. Founded by Carter in 2008 to focus on emerging risk areas in the US and on the emerging markets of the Middle East and Asia, the firm successfully traded its way through the global financial crisis, which he admits he did not see coming.

Launching the business, Carter says, was about fulfilling a long-standing ambition of setting up and running his own successful company. But it was a very nerve-wracking time, particularly in the autumn of 2008, when Lehmann Brothers collapsed, and there was a period of great uncertainty. “The crisis created a period of disruption and discontinuity in the global insurance market from 2009 to 2011/12, a time when a lot of business changed hands, rates hardened and capacity became scarcer,” Carter adds.

However, for those specialty lines brokers with a strategy, who were not too caught up by the rising sense of crisis, the dust settled reasonably quickly, he says. Companies still needed to buy insurance. Despite the financial pressures, there had not been mass business failures. “So, the client base was still there. The market hardened, particularly in our space, specialty liability lines, which is still the core business for the firm today. There were great opportunities on the professional indemnity and financial lines side of the business, and the crisis led to a raft of D&O claims. For any broking business looking for opportunities, there were plenty around,” he adds.

For Carter, there are a number of similarities between the market today, and the hard markets of 2002 and 2009. “There are other, important dimensions to this hard market which we did not have back then, but I think similar opportunities will present themselves both for insurers and for brokers like us that focus on specialty liability products – for which there will be a growing demand over the next three to five years.”

One of those dimensions is technology. Carter describes New Dawn Risk as a business that has embraced technology from the day it was founded. This was in a large part due to Carter’s involvement in the London market’s earliest attempts at electronic trading and distribution of specialty lines risks. He founded Iwix.net, a business-to-business insurance exchange targeting the specialty insurance marketplace in the US, in 1999 and later served as commercial director for Lloyds.com, the online trading division set up by Lloyd’s in the early 2000s.

As a result, New Dawn Risk has always been a paperless business, Carter says. “We have never had a filing cabinet in our offices. A few days before lockdown started, we were able, with almost no notice, to move out of our offices into a remote working environment. This was well before Lloyd’s shut down, and well before the government required us to do so. At New Dawn Risk, remote working presented no real change in the way things were getting done.”

He sees a number of challenges ahead for wholesale brokers in the London market, who came under significant pressure in 2019 as a result of the Decile-10 measures imposed on the market by Lloyd’s. It meant that last year was quite challenging for the wholesale broking sector in terms of new business. “We did not see as much new business coming into London as we had seen in previous years because the market hardened in London first, before it did in other global markets in the US, Asia and the Middle East.”

Proactive and innovative

Painful as it was, Carter’s view is that the market needed a nudge in the direction of improved profitability. But now, with the rest of the world having caught up, the situation has changed, he says. “Rates have been going up quite dramatically in the US, particularly in the D&O space.  The volume of demand for capacity is increasing day by day. It is quite extraordinary. So, having had a relatively challenging year for new business last year, we are seeing some great opportunities.”

But to take advantage of many of those opportunities, wholesale brokers, particularly the smaller ones, will need to be a lot more proactive and innovative. Carter believes that London market wholesalers “will have to invest in broadening their knowledge and deepening their expertise in specialist product areas. That is going to be really important for our sector going forward.”

Wholesale brokers will also have to be both bold and nimble, Carter says, if they wish to be at the forefront of innovation in terms of new product development. “In this regard, the opportunities in the pandemic business interruption space will be tremendous. At New Dawn Risk, we are already looking at that as an opportunity.”

But, for the moment, in terms of emerging risks, the firm’s focus is on cyber and cannabis. Carter anticipates a tremendous demand for cyber cover because people will work more remotely than they have done in the past, and will continue to do so over the long term, which will present a host of new challenges to be solved by the insurance market. “And we intend to be ahead of the game in solving those challenges,” he says.

Carter sees the emerging cyber risk market as a great example of the need for innovation on the part of wholesale brokers. His experience with cyber goes back nearly 20 years to the time when he worked as head of business development for specialty lines at Beazley. Carter says when he joined Beazley in 2002, the company had 75 people working for it. “Within five years, it was a business with 800 employees. And that was really off the back of the hard market.” At this time the company was very much leading the market in terms of providing innovative cyber and other emerging risk covers.

Indeed, New Dawn Risk’s focus on cyber has seen it increase its presence in the retail market in the UK. UK business currently accounts for around 5% of New Dawn Risk’s overall brokerage, but the hope is that the firm’s new cyber initiative will help grow the size of that presence.

The demand for cyber cover in the UK is currently low, but Carter is confident that this will change. He describes cyber as possibly the most important cover that any enterprise could buy today, because of the absolute dependence of business on technology. “And it makes absolute sense that the risks associated with those technologies should be mitigated by insurance. We see cyber as a great opportunity. I have no doubt that, as a result of the changes in working practices that we are experiencing now, there will be a growing demand for cyber insurance as we come out of this crisis. Companies are beginning to realise the importance of technology to business continuity.”

There is, however, a great deal of work that still needs to be done by the insurance market in terms of raising awareness. The reality, according to Carter, is that so few businesses today buy cyber insurance in the UK, that the biggest challenge for brokers is persuading clients to buy the cover in the first place rather than competing with other brokers for business. Recruiting the right talent is now an absolute priority for both carriers and brokers, he says. “Who we hire will be critical for the development of the cyber insurance market over the coming years,” he adds.

The other interesting area for Carter is the risks associated with the production and use of cannabis. Indeed, New Dawn Risk has invested time over the last three or four years trying to understand the challenges and the opportunities. Unlike cyber, there is a great demand for insurance cover in the cannabis sector, but that demand is not being met, for all sorts of reasons.

This includes the fact that the US federal government still considers cannabis an illegal substance. “And yet, in 30 states, it is considered to be legal for medicinal purposes. And, in 12 states, it is considered to be legal for recreational purposes. If we, as an industry, can find ways to provide effective forms of cover that work within the constraints that currently exist and that addresses the concerns of companies who are operating in a space which is deemed illegal by the federal government, that will really be of real benefit. The cannabis sector is booming and could be worth $40bn in five years’ time. But it is also sector in which the companies operating in it are desperate for insurance cover, which they can’t get,” Carter says.

New Dawn Risk are currently working with a number of insurers to come up with a solution. “I am not saying we have got all the answers at this point. There is a lot of work that still needs to be done. But we are making progress.”

When Carter moved from US, where he was involved in setting up Beazley US, back to the UK in 2007, his remit was to develop Beazley’s international business, including in the emerging markets of the Middle East and Asia. “I felt very strongly that there was a tremendous opportunity. Things were happening in some of the Middle Eastern markets that really favoured a business like ours that was focused on specialty liability risks. The demand for D&O and professional liability was really growing. Prior to that, liability had not been an issue in the region. Businesses did not sue each other. But that was beginning to change. And liability cover was becoming an important part of insurance buying in the region. It was a very fertile time and we did a lot of business in the Middle East, particularly in the early days of New Dawn Risk.”

London opportunities

But it would have been foolish to ignore the opportunities that were in the US, particularly as it recovered the global financial crisis, Carter says. “We set up the business with a focus  on emerging market opportunities, but we also included the new risks that were emerging in the US and being placed into London. “

Indeed, today, New Dawn Risk’s business very much reflects the decisions that were taken back then. “About half of our business comes from the US. The other half is international business, predominantly Middle Eastern and Asian reinsurance business. So, what we did in the early days is still very much in our blood today.”

Going forward, Carter is looking at new opportunities in the agricultural sector on the treaty reinsurance side in India, where New Dawn Risk is already well known. Latin America, where the firm has clients in Mexico, Columbia and Argentina, is another part of the world where Carter sees opportunities to expand. “But the reality is we have to operate within the constraints of our size. It is important that we don’t stretch ourselves too thin. By doing that, there is a risk that you can fail to provide the high level of service essential in our business.”

While the firm’s international business is very much focused on treaty than on facultative reinsurance business, more facultative opportunities are emerging as the market hardens and as the level of local capacity reduces. “In the short term, I am sure, we will see a growth in facultative business coming into London from international emerging markets. But our long-term strategy in the international reinsurance space is to focus on treaty business. We are seeing a number of new opportunities, particularly in Asia, and we are talking to insurance companies in places such as the Philippines, Thailand and Vietnam. Again, it is about making sure we are not stretched too thin on the ground.”

Carter’s vision for New Dawn Risk is to maintain its focus on professional indemnity, financial and specialty liability lines, both on the direct and on the reinsurance sides. “The plan is both to grow our international footprint over the coming few years, but at the same time to deepen our expertise and our capability to provide that high level of service that we believe is essential to success.”

He has no doubt that the way in which business is done in the market will change over the next few years as a result of Covid-19. “But, from my point of view, I think the most important thing that we must hold onto in London is that personal touch, the ability to maintain those personal relationships that allow us to get deals done and make business happen, even as we move into a much more virtual world of business. We have maintained the face-to-face model in the UK very successfully when most of the rest of the world has transitioned to something else. And that brings tremendous value which the market must not underestimate.”

Brokers and underwriters in the London market recognise the value that face-to-face model brings in terms of solving complex and challenging risk issues. “And, frankly, there is no better way of solving those issues than sitting down around a table or at a box in Lloyd’s and working through them. I just don’t think that the face-to-face element is going to go away.”

New Dawn Risk will be firmly rooted in the London market in the coming years, both physically and strategically, according to Carter. “I believe that the London market will continue to be the most important specialist re/insurance market in the world. I think that high volume, purely transactional business will become even less of a feature than it is now in the London market. Complex transactions that require deep expertise will continue to be done in London. To be clear, it won’t be the same market as it is today, but we want to be at the heart of this new London market. And that, as I have said before, will require us to focus on deepening our expertise in our chosen risk areas, have a better product knowledge and a better knowledge of our clients than our competitors.”

The transactional side of the new London market will be much more automated, according to Carter. “It already is. But for a wholesale and reinsurance brokers such as New Dawn Risk, it will come down to our expertise, our personal relationships with clients and our ability to be able to get deals done. Those factors will be central to our success in the next five years or so.”

Ends–

We would like to thank Insurance Day for giving us permission to produce the above article.