Global insurer Berkley leaves it to the locals by being ‘a collection of 60 different businesses’ with their own cultures and methods

By Terry McMullan

Nine years after W Robert (Rob) Berkley Jr took up the reins of the company his father William (Bill) Berkley founded in 1967, the specialist insurer continues to expand its footprint around the world.

As President and Chief Executive of WR Berkley Corporation, Rob Berkley oversees what he refers to as “a collection of 60 businesses”. During a visit to Berkley Insurance Australia in early February, he discussed how the group’s unusual management philosophy is proving a good fit for a different world.

While the company is performing well despite the pressures the industry faced in 2023, Mr Berkley says he takes most satisfaction for the reasons why.

Berkley empowers its people in their local markets to make decisions on the spot. Performing well in a fast-moving and complex world makes specialisation more of a competitive advantage, and that’s where his company’s decentralised structure focused on expertise – a rarity in the world of insurance – really shines.

“Most of our peers operate very much in a ‘centralised command and control’ model, where the decisions are made at the centre. Then those decisions are shared, and direction is provided to their organisation outside of the core.

“Our model is designed to attract great talent and then empower the local teams. Being positioned close to the marketplace that they’re serving has proven to be a great competitive advantage for our organisation. It has allowed us to be more nimble and more responsive than many of our peers.”

He sees the insurance business as two fundamental things. “Yes, we have systems and myriad other tools. But fundamentally, it’s a pile of financial capital, which is ever more a commodity. And it’s people with intellectual capital and expertise that are really the differentiator.

“That applies to the industry across the board, but it particularly applies in the specialty lines. In this industry, you can be a commodity player or a specialty player.

“If you’re a commodity player, it’s really about who has the cheapest cost of capital, and who has the most efficient factory floor. If you’re a specialty player, your intellectual capital and your expertise are the differentiators. And it is those assets that you’re really building a value proposition on.”

He describes the Australian insurance market as exciting and dynamic. “We have been very fortunate in this market to be able to attract people who are exceptionally skilled. They have done an outstanding job in managing capital for shareholders, in delivering on a value proposition to customers and distribution partners.”

That decentralised decision-making doesn’t necessarily conform to any particular business model, philosophy or method. “One of the things that people often ask me is, what is the Berkley way? The truth is, there is no one Berkley way.

“We are a collection of 60 different businesses with a shared set of values, and each one of these businesses has its own culture that is a reflection of the people running that business.

“The reality is that those 60 businesses that make up the group may technically be owned by our shareholders. But practically speaking, the team of people running and managing them look, act and behave as though they are owners. A culture built on a sense of extreme ownership is very powerful.

“It’s not a common model, because it’s hard. But we are big believers in trust and confidence.”

That isn’t an model that suits everyone. “People who are comfortable with taking on authority or responsibility and the accountability that comes with it tend to do great here; people who are more comfortable just being rule-followers will find perhaps an entrepreneurial environment like this is not for them.”

He concedes that while there is plenty of room in insurance for people who are entrepreneurial and creative, “oftentimes, you don’t see them emerging at the top end of companies that are more interested in rule-following”.

And he believes people’s general lack of understanding about insurance is a challenge when it comes to attracting talent. “But if you subscribe to the idea that the world is moving at a faster pace, with new challenges and new risks being introduced to society every day, it’s not a very big leap to recognise the opportunity to be creative. There is a new dynamic set of problems that need to be solved every day.”

Nor does he think the industry’s contribution to society is well-recognised. “Much of our activity one way or another is in support of humanity, whether it is protection when the unforeseen event occurs and the industry helps society get back on its feet, or whether it’s on the investment side, where insurance provides capital for societies to continue to grow and prosper.”

Mr Berkley recognises that technology, data and analytics play an increasingly vital role, but “human interaction is still the important part of this business”.

Trusted talent: Berkley aims to empower local teams

Berkley’s unusually decentralised culture spreads across its operations in North America, Latin America, Europe and Asia. And Mr Berkley believes his company’s “long-term view” assists its growth in new markets.

“We perhaps think about things a little bit differently than some of our peers,” he says. “We don’t look to manage the business solely for the next month or the next quarter, or even just the next year. We are building the business for where we will be five years, 10 years and 20 years from now.

“We will grow over time, but we will grow thoughtfully. We are an organisation that is not driven by the top line – we are driven by the bottom line. A healthy bottom line is what allows us to be safe and sound and solid for all of our stakeholders, both today and tomorrow.

“Basically, growth will come where the opportunity exists – and the discipline will remain in place across the board every day.”

As for Berkley’s home market, Mr Berkley says the US insurance market is both “very competitive and very cyclical”. With a caveat: it’s not like it was.

He says the insurance cycle continues to be driven by two human emotions, fear and greed. “Depending on what moment we’re living through, that’s what determines which emotion is overshadowing the other.”

Like some Australian insurance leaders, he notes a “decoupling” of product lines in terms of where they are in the cycle at any given moment.

“Once upon a time in the United States, all product lines marched through the cycle somewhat in lockstep. More recently, product lines have splintered, and they all continue to be cyclical, driven by some of those same realities.

“However, they are not marching in lockstep together any more. For example, you could have a very firm property market while simultaneously you can have a directors’ and officers’ market that has become exceptionally competitive.”

The US market is seeing property cat pricing peaking and some of the professional liability market becoming increasingly competitive.

“We continue to have some challenges around what’s been labelled social inflation, where increasing awards coming out of the legal system continue to drive claims costs up. Rate adequacy continues to be a moving target.”

Berkley is also a significant player in the London market – it has both insurance and reinsurance operations there – and Mr Berkley agrees its position as a global insurance centre remains, but it is not what it once was.

He says that even before Brexit the global industry was moving towards a more local focus. “There is great expertise in London, but there is a desire, a drive, to be closer to a marketplace. When you’re thousands of miles away, it’s more difficult to have your finger on the pulse.”

The industry wants to move closer to the customer, he tells Insurance News.
“The Lloyd’s model – while it still has great merit and clearly still plays an important role – has its challenges as well.

“The reality is that those 60 businesses that make up the group may technically be owned by our shareholders. But practically speaking, the team of people running and managing them look, act and behave as though they are owners.”

“London does not have the same role in the industry that it had generations ago … while still important, it is not without its challenges.”

He says much of the Lloyd’s and London market’s value proposition is under pressure. “I think there continues to be expertise in London. But expertise can be found in other parts of the world more easily now.”

He says the value proposition behind global licensing is less of a differentiator. And the subscription market – “one of the great competitive advantages that Lloyd’s had historically enjoyed” – can be marginalised in a digital age.

“If you go back in time, there were underwriters all sitting in a room, and a broker could march from one underwriter a few paces to another, and build capacity. Today, brokers can do that sitting anywhere, and they can interact and engage with underwriters and capacity all over the world.”

Covid played a role in breaking down the reliance on centralised structures. “All of a sudden, everyone had to go home. But the show, one way or another, had to go on. I think that crystallised this recognition that physical proximity is important in some ways, but for other activities it’s not the be-all and end-all.”

Berkley was a very early adopter of what is now a trend – employing local specialists rather than “parachuting people in from a distant land to some remote location”. He sees the commonly held concept that insurance is the same everywhere as a “gross generalisation”.

He says the industry needs “people who are local, who are from that community, from that nation, who don’t just understand the business at a high level but understand the culture and how business is done in that marketplace”.

He says the industry should also recognise that the ways different cultures think about and manage risk isn’t universal. Developing markets are becoming more sophisticated very quickly. Mature market approaches to dealing with risk should not “necessarily just be imported by people from other parts of the world.

These local markets are developing the intellectual capital and the skills and understanding of how to use the tools to more effectively manage risk and capital in their local territories.”

As for technology in insurance, Mr Berkley sees developments so far as “just the tip of the iceberg. Technology is going to change this business dramatically. But I don’t think technology is going to marginalise people.”

Data, analytics and artificial intelligence are “tools that are going to allow us to make better decisions more quickly. Further, I don’t think these tools are just for actuaries or data scientists. They are going to be used throughout an organisation around how we think about selecting and pricing risk, how we adjudicate claims and how we think about a variety of other activities.

“But this will take time. This is an industry where one needs to have a high degree of confidence in these tools before you lean into them.”

Tip of the iceberg: Mr Berkley says technology will bring massive change

“The realities of climate change are forcing the industry to reconsider how it thinks about certain types of risks. That adjustment oftentimes can lead to some very challenging situations.”

He sees climate change and its influence on weather as a multifaceted issue for the insurance community.

“The industry needs to recognise the impact of climate change on the industries and communities that we serve.

“The realities of climate change are forcing the industry to reconsider how it thinks about certain types of risks. That adjustment oftentimes can lead to some very challenging situations.”

Mr Berkley acknowledges the various debates around what the industry’s role should be regarding fossil fuel-related industries. “How should that instruct us from both an underwriting and an investing perspective?”

Until scalable alternatives are found – “and we are supporters of many initiatives” – it’s going to take time for society to pivot.

“Undoubtedly, it’ll take longer than many would like.” The world is “not currently in a position to immediately abandon traditional sources of energy”.

He says insurers are affected by changing risks on both the underwriting side and the investment side. “One needs to be conscious of the changing environment and be forward-looking and responsive in a timely manner.”

On reinsurance, Mr Berkley has words of comfort for Australian insurers facing a climb in rates.

“When we look at the reinsurance market, we need to draw a bit of a distinction between liability versus property. The reality is that the property, or property cat reinsurance market in particular, went through an extended period where there was a frequency of severity. That proved to be a very painful period for many reinsurance companies.

“The response to that was greater discipline returning to the marketplace. We’ll have to see how it unfolds from here. Currently, it would appear the property cat reinsurance marketplace – barring the odd unforeseen event – has likely peaked, and more likely than not, we will see flat pricing, to be followed by an erosion in pricing.

“On the liability side, I think it’s really a matter of the reinsurance market coming to grips with the lack of discipline that led to unattractive results in the past several years. Much of the claims activity coming into focus is challenging. The reinsurance marketplace is going to see that reality more clearly, and it will likely lead to greater discipline.”