From hurricanes to AI - the future of the Insurance Industry - James Mungeam

Today, we spoke to James Mungeam, Head of finance business partnering. James' career has taken him across 3 continents - working in China, Europe and North America - along with a career in insurance in the City of London. Here, James shares with us the latest developments in insurance - from hurricane risks to Artificial Intelligence! - along with giving his insights in to the challenges and the opportunities that he has found in his career.

What are the latest developments in the insurance industry?

Where to begin?!

The industry is currently enjoying hard market conditions, with catastrophe risk exposed classes achieving rate (price increases) of 10-40% on average. Capacity in the market has been waining the past 5 years as the industry has had to absorb several multi billion dollar events in quick succession. Hurricanes, typhoons and earthquakes have occurred more frequently than anticipated but are at least modelled risks. The Covid pandemic on the other hand was a huge global event, which took the industry completely by surprise. Business interruption, contingency cover for large events, such as the Olympics, and health insurers were badly hit, with several large legal cases ensuing as insurers attempted to minimise losses they believed they had adequately excluded from coverage.

As a result of these events, investors are reconsidering there strategies, with more traditional forms of investment, such as fixed income, looking a lot more attractive following recent interest rate hikes.

This has ultimately led to a significant reduction in the market’s capacity, which has allowed insurers and reinsurers to increase their prices.

On the tech front, more traditional and established markets have been adapting drone and AI (Artificial Intelligence) technologies, allowing insurers to access often high risk and damaged areas (such as after a hurricane) and quickly determine losses, resulting in significantly reduced recovery times for customers. In active war environments, the technology can be used to extract high-value clients from life threatening situations, working alongside private security companies.

What are the key challenges for the industry?

There are several key challenges for the industry at the moment which are worth discussing.

Economic uncertainty impacts all industries and insurance is no exception. During the last few years we have experienced a challenging investment environment, where even low risk securities such as bonds, have resulted in significant investment losses to companies.  We can see the impact of such losses on a number of US banks, which collapsed in the early part of 2023.  Due to the very nature of insurance, insurance companies must maintain incredibly strong balance sheets with large sums of low risk investments as well as access to highly liquid assets. This allows an insurance company too access large sums of cash at short notice, so that in the event of a large loss or catastrophe, claims can be settled quickly. This inevitably makes an insurance company more vulnerable to large scale macro economic policies, such as interest rates hikes which have continued to increase around the globe in response to high inflation. Fortunately, we are starting to see good progress in curtailing inflation, with the US in the 2-3%, down from double digit inflation at the end of last year. 

Furthermore, inflation itself also disproportionately impacts insurance companies as the cost of claims can increase rapidly. For example, a building that would have cost £1m to replace last year, may now cost closer to £1.4m to replace as the cost of raw materials and labour have increased with inflation. Therefore insurers must ensure adequate inflation provisions are set aside in anticipation of these increased costs, resulting in substantial additional cost in the P&L.

Another key challenge for insurers is climate change. Not only do unusual weather patterns tend to have devastating effects on buildings and infrastructure, creating more volatility, risk and potentially claims to manage. But investors are increasingly more interested in the Green credentials of the companies they are involved with. Consider that a lot of the high value assets that are likely to be insured include large oil rigs, super tankers, continent spanning pipelines and billion dollar rockets, investors may decide these industries do not fit their values and therefore may look to invest elsewhere. As such, insurers are looking at ways to satisfy these new requirements, by allowing investors to participate on some risks, such as Wind farms, solar farms and hydro electric dams, and avoid those industries that mostly trade in fossil fuels.

How was your experience working abroad?

I’ve worked abroad a number of times. I suppose my first experience of working abroad was whilst teaching English to Chinese students in South China. This would prove to be a very different experience to anything else that I would have later in life, but I imagine I would find it very different to my current career even within the UK. This makes it slightly more difficult to judge in terms of cultural differences. So, despite being my longest period of working abroad, I will instead focus on my experiences within my career. For background, my career is in finance as a chartered accountant working for large multinational insurance companies. During my career I have worked in both Asia and North America. What always struck me when working abroad is just how similar people were to me. This probably makes sense as it is unlikely that I would go to another country and work with people from a completely different socio-economic background. So for those of you who are concerned about working or living in another country, I would first point out that you are more likely to have a culture shock working in a totally different industry in your own country, than you are working or studying with your peers abroad.

Having said that, there will of course be cultural norms or customs that may seem a little unusual to you at first.  In the UK for example, it is not unusual for colleagues to socialise after work in a local pub. This does not mean that you must drink alcohol in order to fit in. It is more about the camaraderie and talking more freely in a comfortable, almost neutral environment. Whilst working in Hong Kong and Singapore I found that these more social engagements normally took place during lunchtime over a meal. It was also more obvious to me during these engagements that the hierarchy established within the office was also observed outside the office.

Were there any communication challenges?

I have been incredibly fortunate that the countries I have worked in have all tended to speak English, with the exception of my time as an English teacher in China. That was a real challenge and I had to quickly learn the basics to get by! But English has been very useful!

Any funny stories?!

I was once told by an American that I spoke very good English for someone from the UK. I thanked him and complimented his English as well!