Alex & Al - Coast to Coast: Alex & Al Welcomes Michael Chang, Sompo International Global Risk Solutions
By Alliant Specialty
Alex Littlejohn and Al Tobin speak with Michael Chang, Chief Executive Officer, Sompo International Global Risk Solutions, on differentiators in the market, trends for hedging risks, lead umbrella programs, and the need for industry-wide changes.
This is Alex and Al: Coast to Coast, a show dedicated to exploring insurance news topics and trends shaping the market today. Here are your hosts, Alex Littlejohn and Al Tobin.
Alex Littlejohn (00:15):
Welcome to the Alex & Al podcast: Coast to Coast. We are reading today some really incredible insight into the industry and a very special guest Michael Chang from Sompo. Before we introduce Michael and get onto the meat of our podcast, Al what's happening in the market?
Al Tobin (00:31):
Yeah. Hey Alex, great to be here, and welcome to all our customers, colleagues, and industry peers. The interesting thing in the past 60 days or so we've had the hurricane season start. Not been so quiet, but I think different than other years where we're looking west now toward some of the cyclones, I know a few folks that have invested in real estate in Hawaii. I would be a little concerned right now hopefully they don't see any activity there. Keep an eye on that. As always we're keeping close eyes on the Atlantic Basin and then the activity on the east coast of the USA. Some numbers came out the other day, which I found intriguing. Surplus line carriers have reported a significant uptick in premium, year over year, better than a 20% increase, which is quite significant in that it talks to the market in a lot of ways.
And I'm talking to a lot of different products outside of normal property and casualty. So, I expect that you'll see some activity this week in the brokerage world where you might see some, wholesale brokers try and monetize that activity and the great results that they've had due to it. We’re going to keep our eye on that for the balance of the week and the balance of the month. And you know, I'd be remiss if I didn't once again, talk about the folks in, down in Miami, the loss of life and the concerns that have shocked America, and they will definitely have some repercussions to the insurance industry. And we might touch upon that with Mr. Chang.
Alex Littlejohn (02:00):
I totally agree with you and thoughts out to everybody in the Miami area. It was an unbelievable sight to see and an unbelievable aftermath in the marketplace. So, absolutely spot on. I do want to introduce Michael. In most circles, doesn't need a big introduction because most people know him. He's the chief executive officer of Sompo Global Risk Solutions. He assumed that role back in 2016. And they've just got an incredible story. Want to hear more about what a phenomenal record you've achieved, Michael, and, you know, we work with you every single day and thankful to do that. A lot of fun, a lot of laughs and a lot of tough negotiations are always to be had. Again, thanks for being with us, Mike.
Michael Chang (02:43):
I appreciate your inviting me to speak and I'm looking forward to this dialogue.
Al Tobin (02:47):
Super. So, let's just get right into it. Michael, your operation has been very successful. You've had some significant growth and clearly, we've been in a little bit of a changing marketplace for real estate for the past couple of years, especially if you narrow into some of the tougher, tougher-class areas there. How would you say, you know, what's been a big differentiator for Sompo in the market that we're currently in and for the past couple of years? And you know, of course, everybody's going to want to know eventually, Michael, where you see things going.
Michael Chang (03:30):
Yeah, thanks, Al. I mean, look, we were coming into this marketplace trading just in a very different way. We have an integrated industry, vertical model, which is different. It's unique. It's not like our competitors.
When you look at underwriting claims, risk control, actuary, product development, and all the pieces that you would think in that. And then the normal insurance company, typically they're siloed and not brought under one leadership. We've brought it under one leadership. So, when we make a promise to our client, we can deliver on it across all of our functional areas and underwriting areas. And then we've been able to execute on the talent, right? Everything we've been able to do in a pretty short period of time is all because of the people we've brought on board. It's a diverse group of people that really understand this business inside and out. We have the specialist's model. We're not generalists. And at the end of the day, we really come back to how do we position ourselves with those products and services. And we have a white glove service model to be able to win.
And that customer experience, no matter where you go across the globe, whether it's our operations in the U S and Mexico, in Europe, in Africa, or in now the Asia Pacific, the feel is the same. And that customer experience is the same. The model we brought is pretty simple. We're not trying to be a traditional insurance carrier. Actually, if you want a traditional insurance carrier, we're not your market. If you want creative approaches like structured deals and integrated deals, and really a company that listens to your concerns as a client or as an agent and a broker, and then can partner with you to craft specified solutions, account by account, because every account has its own unique characteristics and it's different. It isn’t ‘all real estate accounts are the same’ or ‘all hospitality accounts are the same.’ Then you should be coming to Sompo Global Risk Solutions because that's what we do. Individual account underwriting and crafting of designs that fit that specific customer.
Alex Littlejohn (05:23):
You mentioned the unique differentiators, and with the significant change in the market today, I mean, what clients have been facing really with the volatility in the market? I think you tell a different story. You've got some unique differentiators and you mentioned them a little bit, the structured programs, and integrated programs. So, what could our listeners learn about the benefits of these programs? What brought you to build them and why they are good for clients?
Michael Chang (05:48):
When we look at traditional real estate accounts and hotel accounts, let's focus there for a second. They've always said for long covenant radiance or tenant requirement reasons, they've had to have first-dollar policies. So, what we had to do was create a unique way to give them first dollar equivalents but using alternative risk transfer mechanisms to be able to provide that. So therefore from an allocation standpoint, there's no challenges compared to a first dollar program, but at the same token or same point in time, it allows that client to be able to, based on their strong risk management controls and based on premiums to where they've gotten, to be able to get some money back traditionally in our marketplace, you've only been able to get that in sort of worker's comp programs, but in this case, we've been able to do it across multiple lines of business, where if the client really is driving great loss mitigation techniques across the portfolio of properties, they can share in some of that potential profit that we would get, because they would get some of that back to the mechanisms that we've set up.
And I think that's really given us a strategic edge and advantage because clients are paying a lot more money and they want, they want to make sure that if everything is operating a lot better than what our targets are, there is an opportunity for them to get some of that back and apply it to future years or apply it to getting, or getting that money back holistically right there at that point in time. And I think that's a huge differentiator we've been able to sell, and we've done a tremendous amount of these programs.
Al Tobin (07:31):
So Michael with that said, based on that, historically clients wanting to buy first dollar coverage, when I can say that 15, 20 years ago, when we started bringing some of the property clients on the real estate side, into just general aggregate deductibles, they really weren't very comfortable going from their 10,000, 25,000 to 100 thousand and an aggregate where it just made a lot of sense from an arithmetic or an actuarial perspective.
Can you explain why you guys are just incredibly successful versus the competition and these alternative deals? I mean, there is an education process you have to go through. And how do you guys differentiate yourselves in that regard on the education of customers to buy these, just to -let's say property and casualty integrated deals?
Michael Chang (08:18):
Yeah, because we know the space, right? We're dealing against a lot of generalist insurance companies that really aren't technical experts in real estate, right? It's really understanding the difference between REITs and funds and private real estate and understanding then, how do you craft a solution that is palatable for each and every one of those types of different constructs? So, when we've done it, right, it's a funded mechanism, no different than a guaranteed cost, right? If it's equivalent and sort of price to a guaranteed cost program, but you're paying some of that and a depleting cash account which is a funded program, which you could call an aggregate program, and a portion of that in premium.
And it adjusts very similar to a first dollar program X or the 10,000 X, what $25,000 AOP deductible. It works the same way. So technically there's not much difference. It's just being able to explain it to a client, so they understand it. And they're like, oh, aha, that does work for us. It works the same exact way. And I think a lot of people just don't understand the space enough, to be honest with you, to be able to explain it to a very sophisticated buyer and client that really needs it to be explained not only to their CEO and CFO, but to the general counsel that really at the end of the day needs to be able to explain it to the lenders that provide a loan covenant to them or the tenants. And I think if you're able to explain it in an intelligent manner and you're able to do it compliantly on the insurance side and compliantly for them to meet their obligations with their covenants, then that's why we've been successful. So, it's really understanding, and that's why we're a specialist underwriter in the six verticals that we do. But in this case, we're talking about, really, two. If you're really able to understand the business, then you can really explain what it is you're trying to push forward and why it makes sense for them. And it still fits their needs.
Alex Littlejohn (10:13):
In a volatile market that we've been in over the last couple of years. Certainly, this is a way to bring stability because you have more control. And it would seem that instead of riding the price ride up and down with the risk assumption and the ability to participate in a program like this, you'd gain some stability over on the onset. And over time, I, I, I would think, which is a great selling point to clients that have been on that rollercoaster over the last several years.
Michael Chang (10:39):
Look, Alex, we're in the capital lending business, right? Each and every day we extend a little and we intend to make a return on it. That's what we do as insurance. It really is a financial mechanism that we put out there and we intend to make a certain return. Clients will feel that if they have alternatives and there's different ways, they would rather bet on themselves. They believe in their risk management controls. They believe in their contractual controls. They believe that their properties are top-notch, depending on what type of real estate it is. A core fund is going to bet a lot, probably more on themselves than an opportunistic fund. But at the end of the day, if you feel comfortable with your controls and your management team, your asset management team, you're going to take bets. And you're going to say, you know what, I can hedge some of that risk. And by the way, now I have a carrot at the end if I do this right. I get some of my money back and it's not putting me in a negative position versus a straight traditional program, $10,000 deductible, $25,000 deductible. If we're just talking about aggregate funding programs. So why wouldn't you hedge that bet? There's no downside.
Alex Littlejohn (11:44):
Absolutely. Are you looking at, I know, I think I read it and correct me if I'm wrong, that, you know, you will write over your own in the, in lead umbrella positions. And tell us a little bit about limits and, and where you're willing to go when assuming writing over your own programs, but is that changed? Are you, the outlook on that market has been, is still poor. It's been poor. And so how are you viewing that market as it relates to writing over your own? You've got a lot of competence in the programs that you've put out, and obviously, you have a lot of confidence in the clients that you're offering the capacity to. So how does that translate into the umbrella market and specifically over your own programs?
Michael Chang (12:23):
Yeah. Look, we've taken a big step forward, very interested in writing lead umbrellas over where we write the GL and the auto we're comfortable with our claims handling procedures. We're comfortable with the underlying underwriting that we've done on those risks. And because of that, we have no problem extending our umbrella capacity. We will depend on limit size, really it’s driven by the occupancy types there we do on the primary IGL and on the auto. So, limits really depend. We can do five, we'd do 10, we'd do the 15. It just depends on the individual deal and what we're looking at. But we do offer umbrellas only over our supporting business with ensemble global risk solutions. That's important to know, but we are doing that in a big way today.
Alex Littlejohn (13:10):
And you would go up to 15, but no more than 15.
Michael Chang (13:14):
Yeah, I would say, for the most part, that is our rule of thumb in terms of what we're looking at.
Al Tobin (13:18):
Michael, from a COVID perspective, the past year and a half, it's been very challenging for us all. So, what I'm looking for here is us being in New York guys, right? We're Alex and Al coast to coast. You know, we're very used to sitting down, you know, with the customer, dry-erase board in hand, sometimes a PowerPoint presentation. How do you grade the communication in these COVID times, with customers? And especially you, because you're, you're seeing a whole lot of new business. How's, how's that working for Sompo, right now?
Michael Chang (13:50):
Look, I think the industry has done a really good job transitioning into whatever vehicle you have, WebEx, Zoom, whatever your vehicle is, or medium, for doing that. So, I think that that piece has been connected.
You're still getting the information, you're able to have a conversation. I think what is missing is the shaking of hands, breaking bread, and really getting to know the person on the other end, right? We not only underwrite the account, but we also underwrite the people at the firm, and I would hope that our clients have underwritten us, right. And, and what our knowledge is, what our results are. And then also can sit across and judge us, is that somebody I want to trade with, right? We trade not just on the account. We trade with people that we trust and we believe are of the utmost integrity. And sometimes you can't get that from a zoom call or a conference call. That requires an in-person meeting. That being said, I do believe there's brokers and agents that we've had long-standing relationships with or consultant firms that we've had long-standing relationships with, that reach out to us.
And if they reach out to us and they have a customer and they know us and we know them and we've already underwritten them. Then I'm comfortable with that. We believe that that relationship transcends into the customer themselves. Now, we're still going to meet with them on a video call. And then at some point, now, we're actually getting out and actually physically meeting with our customers again in a big way. And our new customers. So, I think we haven't really lost a ton of steps. We're growing significantly, but we're growing with the customers and the brokers, and the agents that we have familiarity with. And that's the key. Could we be doing more if we were out there and visiting other people we may have taken a step back and said no to? Maybe, but I think the ones that we've written and we've grown with and the customers that we retain, which is our most important, is our customers we're currently on, they're always going to be our most important. We feel very good about our retention. Rates are very high, in the high nineties. And, you know, I think we look at our business too holistically. 86% of our customers we do more than one line of business for. And I think that's our differentiating point, but we also have claims. We also have risk control. We have numerous touch points, we have with our clients, which really make us the market of choice. When you think about the industry verticals, we said.
Alex Littlejohn (16:18):
Michael, we appreciate your insight and obviously your time. And so, we want you to be able to also comment on anything that you see happening or that we should be aware of, or buyer beware out there. We try to be as transparent as we can. So, before we close off, I will just leave it to you for anything else you'd like to add.
Michael Chang (16:35):
Yeah. Just one thing I could say, look, this industry is ripe for change. There have been so many things historically done a certain way, some good, some not good. And I think it's incumbent on us to lead as Sompo Global Risk Solutions, to do things differently from a risk control standpoint, to do things differently from a diversity and inclusion standpoint, to do things differently from an underwriting structure standpoint. And if we're going to be that market that can be unique and be different and come at it at a different way to increase the customer experience. That's what Sompo Global Risk Solutions is all about. That's why we were started. That was the sort of hallmark on how we came together. It's just a different approach to doing this business. And I think that will resonate for us for a very long period of time. And we're never going to rest on our laurels and become a status quo market. We're going to continue to evolve and change our model where it makes sense based on the feedback we get directly from our customers, that's who we are. And that's what we'll continue to be. And we're the market of the future.
Alex Littlejohn (17:36):
Listen, I couldn't agree with you more on so many of those points. And one, in particular, is obviously the change needed in this market from a diversity inclusion perspective. I've said it many times, that this industry is a pathetic view of how it could be. And I think that we could spend so much more of our time doing all the right things to grow in the diversity space. So, thank you, for being a leader in that. Cause I know how actively involved you are, and it takes time and it takes effort and desire. It's a great thing that we all should take more time to do. So, appreciate that. And Al we are working on our next guest, which will be a surprise. We'll have a great lineup for you guys. And again, Michael, want to thank you for the time. It was terrific to hear your insight.
Alliant note and disclaimer: This document is designed to provide general information and guidance. Please note that prior to implementation your legal counsel should review all details or policy information. Alliant Insurance Services does not provide legal advice or legal opinions. If a legal opinion is needed, please seek the services of your own legal advisor or ask Alliant Insurance Services for a referral. This document is provided on an “as is” basis without any warranty of any kind. Alliant Insurance Services disclaims any liability for any loss or damage from reliance on this document.
Thanks for your message.
We’ll be in touch shortly.
News & Resources
Alex & Al - Coast to Coast: Alex and Al Welcome Duncan Ellis, Head of Retail Property, AIG, North America General Insurance
Alex Littlejohn and Al Tobin, Alliant welcome Duncan Ellis, Head of Retail Property, AIG, North America General Insurance, to discuss trends for 2022 and how 2021 will shape up for retail and wholesale property.
Alex & Al - Coast to Coast: Alliant Welcomes Alex Littlejohn
Al Tobin welcomes Alex Littlejohn to Alliant on the debut episode of Alex & Al Coast to Coast podcast series.
Alex & Al - Coast to Coast: Alex & Al Welcomes Lyndsey Christofer, Chubb
Alex Littlejohn and Al Tobin sit down with Lyndsey Christofer, Executive Vice President, Chubb Construction Major Accounts, to discuss current trends in the construction industry and the top three areas we should prepare our clients/prospects to look out for when it comes to pricing, coverage and exposures.