Andrew Horton has QBE heading in the right direction, but warns the road ahead for insurers could be difficult

By John Deex

When Andrew Horton took up the Sydney-based role of QBE Group Chief Executive in November last year he was fulfilling a long-held ambition. While he has travelled widely, the Cambridge-educated Brit had never previously worked outside his homeland.

Landing in Sydney last year followed a few covid-related complications, but since he started with Australia’s largest international insurer he hasn’t looked back, enjoying the outdoor lifestyle (despite the record rainfall) and watching the QBE-sponsored Sydney Swans AFL team instead of his beloved Manchester City soccer team.

Apart from having a deep understanding of the global industry and its many pressures, the former chief executive of UK-based insurance group Beazley has also brought QBE a clearer culture and identity.

He’s stabilising the US division – too often a drag on the wider group – and has outlined the priorities for QBE’s key Australia and New Zealand business, too.

But while he has focused on the group’s far-flung enterprises and the development and retention of high performers in his workforce, he also maintains a weather eye on a “macro-challenge” that’s bubbling up. It’s all about the capacity, or lack of it, on the underwriting side of the industry.

Meeting Insurance News at the group’s new George Street headquarters in central Sydney, He outlines a developing situation where insurers’ capacity constraints will fall short of the demand for cover.

Underwriters earn less return on capital than brokers, and with natural catastrophes taking place with disturbing regularity the risks are rising – and so are the values of assets requiring cover.

For local clients out of luck with domestic underwriters, seeking capacity overseas only works for so long. And after a spate of devastating bushfires and floods, reinsurers are looking at Australia in a different light.

Demand for cover is going one way, and the appetite to provide capacity is heading in another, Mr Horton says.

“I remember in 2004, it was a year of four hurricanes and everybody worried about it a lot, but not one of them cost more than $5 billion or $6 billion,” Mr Horton tells Insurance News.

“Now a hurricane is $50 billion, or $60 billion. That’s a massive amount, and the insurance industry’s capital has not increased tenfold in that time.

“So the quantum of these losses is so much greater than it was, but is the capital keeping up with that?

“From a reinsurance point of view Australian capacity was highly thought of a few years ago because it was a great diversifier. Now we’ve had a number of years of relatively large losses and people are questioning, ‘is this as good as we originally thought?’

“Reinsurance renewals on January 1 are going to be interesting.”

Mr Horton recently attended a major insurance conference in the US, where the industry is reeling from the impact of Hurricane Ian, the most destructive windstorm to hit Florida since 1935.

“Reinsurers are talking about reducing their capacity for catastrophe business,” he says. “Not cat business there, or there, or there – cat business in total, in 2023.

“And the demand from the clients and brokers is [that] more is needed, because values have gone up and people continue to build. So we have this crunch coming.

“If the reinsurers give insurers less supply, how can we possibly write as much? I’m worried about this.”

Mr Horton is “a great fan of brokers”, but says it’s no good intermediaries complaining about a lack of capacity while insurer returns are so low.

“There is the challenge of whether people will put more capital into the underwriting industry, which generally doesn’t earn as much as the broking industry.

“I think we’ve got to think through that with our broker partners. Are we were going to rebalance returns between brokers and insurers at some point? I don’t know. I think at some point that needs to happen.”

While Mr Horton believes the industry needs to “tempt more capital” into the underwriting side, he says that isn’t going to be easy, or immediate.

“To do that, we need to show that we can deliver a higher return. That’s not going to be this year. That’ll be maybe next year or the year after. But the crunch is coming before that.”

QBE is working hard to deliver a better return for its shareholders, but its options are limited. With rates rising, property cover looks to be an opportunity next year.

But it’s volatile, and while rates are rising, so are claims costs.

“Every time we put the rates up, the claims have actually more than moved up with them,” Mr Horton says.

Claims inflation is adding to the pressure, with supply chain issues and a lack of tradesmen making everything tougher.

“The claims are being settled higher than people originally thought. And that has to be built into the price, which of course then leads to an affordability issue.

“There is a gap coming. There are a number of elements. Is the reinsurance capacity going to be there? My feeling at the moment is [reinsurers] are not going to be growing it.

“If anything, they would like to shrink it. If they shrink it, can the primary insurers hold their position? Or will they have to shrink accordingly?

“Then there’s claims inflation. If claims are settling higher, that has to feed into pricing in some way. Then there’s the affordability issue. Will people retain more because they can’t afford to buy as much coverage as they’d like?

“That’s not a great chain of events that could possibly happen.”

On the QBE front, Mr Horton’s number one target when he joined was to stabilise the team – noting high turnover at senior level, which crucially includes his own role. Long-serving chief executive Frank O’Halloran retired from the job in 2012, but his successor John Neal left in December 2017 and his replacement Pat Regan was gone by September 2020.

For Mr Horton, the initial challenge at QBE was coming up with a new purpose and vision, with priorities that “make sense to everybody”.

He says consistency around the company’s mission, and how people can contribute, is reaping rewards already.

“Ideally, clients, investors, brokers want to see the same people year in, year out. If people do leave, we need to ensure we have more internal succession.

I’d like people to progress through the company.”

His second major focus was the US business.

QBE’s US presence grew rapidly through acquisitions – more than 80 of them – but after the financial crisis it became too complex and unpredictable.

Many businesses have been “culled”, and QBE’s US workforce has shrunk from 10,000 to about 2500.

“[US Chief Executive] Todd Jones has done a great job,” Mr Horton says. “He’s shrunk it down to something which is much simpler, and I think now it is in a great place to grow profitably from this point in time.

“We have a limited number of products, good leadership in those, and a more attractive platform for other people who want to join.

“Now we can tell brokers that we are going to be more consistent, because the broker community has seen a pretty inconsistent QBE over the past 10 years in the US.

“It’s a massive market, and no one dominates it, so it’s a great opportunity for growth. But you need to be very stable and consistent in the US market.”

Growth in the much smaller Australia and New Zealand markets may be harder to come by, but Mr Horton is confident that QBE’s history and reputation stand it in good stead.

It holds 13% of the personal lines market but is much stronger in commercial. Technology will be key as the insurer launches a renewed push to grow its SME business through improved tech for brokers, and offering platforms complementary to existing broker channels.

“That’s our heartland, so that’s what we’re focusing on investment in. How we can use technology to access the smaller side of SME, which I think is a good area to play because that’s more closely aligned with what we do, rather than the large corporate.

“It could be a platform play – setting up a platform where smaller companies would buy their insurance along with other things, which I quite like the concept of. We need to find partners to do that.”

Across the business, claims performance remains vital, and Mr Horton believes the Australia team has responded admirably to the recent floods.

He says it’s impossible to resource for peak claims, so QBE reallocates staff within the company and then brings in temporary workers.

“This is the most important thing for the insurance industry,” he says. “Clients are going to stay with you forever if you treat them really well on the claims.

We’re not selling insurance policies, we’re selling claims, that’s what everybody is buying. And genuinely, the feedback is good.”

That doesn’t mean the feedback when it comes to mainstream media coverage of claims is as positive. Mr Horton believes the industry is treated unfairly.

“The problem, which I think is unfair, is the industry gets flagged when a handful of claims don’t work.

“The broader media flags every claim that goes wrong, and it doesn’t talk about the zillion claims that went well.

“We are trying to make sure every claim works well. But it’s hard to do that when you’ve got a catastrophe and there are so many of them in one go.

“It’s always a pretty sad event for me, for all of us working in the industry, when we are working our socks off getting around as many claims as possible; and anything that goes wrong, gets high profile. So, we are held to a very, very high bar.”

Mr Horton believes insurance can be a positive force, and he’s working hard to make sure that QBE fulfills this potential, and remains relevant.

But at the same time he’s not afraid to push for the returns that are required, to encourage capacity into the industry and enable insurers like QBE to provide the cover that is very much needed all around the world.

People-focused: Mr Horton has targeted retaining key staff

‘I chose insurance’

Andrew Horton hates the over-used industry cliché that people “fall into insurance”, because he thinks it devalues a remarkable industry that is such a force for good.

Like so many others he didn’t initially aim for a career in insurance, but when the chance arose he snapped it up, and believes it’s “one of the best things” he ever did.

His degree from Cambridge University was in chemistry, but after unsuccessful efforts to join the chemical industry he trained as an accountant.

The experience gave him great insight into a range of industries, and opened up a move into banking. Three banks later, in 2003, he was given the opportunity to enter insurance as Beazley chief financial officer.

“Andrew Beazley, who set up the company in 1986, was a very charismatic individual, and willing to take a risk on someone with no insurance experience,” he tells Insurance News. “The only insurance experience I had was buying my own policies.

“He was just fascinated in bringing in people from outside the industry.”

Mr Horton took over as chief executive in 2008 when Mr Beazley stepped down after announcing a battle with cancer, which would claim his life two years later.

After “12 great years”, he secured the move to QBE and relocated to Australia.

“I was attracted to the role because of the wide footprint of products and global geography, where I could work outside the UK,” he says.

“I was equally impressed with the people I met during the interview process, which made the decision to join easy.”

Mr Horton says he enjoys building relationships, even with competitors, and believes insurance is a “force for good”.

“Everybody needs it. It’s difficult to operate any business as an individual without buying some form of insurance.

“So I’ve really enjoyed that force for good, the relationship aspect of it, and trying to promote it as something people should want to be part of.”