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Aug 2018

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The changing face of risk in HK over 30 years - Marsh

Source: Asia Insurance Review | Aug 2018

Marsh has been a significant player on the global stage for over 140 years and presently operates in the spheres of insurance broking and risk management. While the firm is active in more than 130 countries, few of its offices could be better entrenched in the risk landscape than its Hong Kong team. We spoke to Ms Lei Yu and Messrs George Wu and Alaric Lee to assess the past, present and future of the risk landscape in Hong Kong.
By Paul McNamara
 
 
Thirty years ago it may have been known as Johnson & Higgins, but Marsh’s roots in Hong Kong go deep. In many ways the development of the firm in Hong Kong mirrors the growth of the risk sector, moving from a relatively simple landscape to one that is changing by the day to accommodate new developments.
 
To get a better understanding of how Marsh has grown alongside the insurance sector in Hong Kong, Asia Insurance Review spoke to representatives of three generations of executives from Marsh. Together they painted a picture of the past, present and future of a fast-changing risk landscape in one of Asia’s most vibrant hubs for business and finance.
CEO of Marsh Hong Kong Lei Yu, consultant with 40 years’ experience with the firm George Wu, and current head of the construction practice Alaric Lee collectively exude a confidence in the future in spite of the ever-changing risk landscape in the region.
 
Business flow from Hong Kong to China
“From the late 1980s to the early 2000s, Hong Kong was the gateway to China so there were a lot of foreign companies coming to Hong Kong to set up offices because they wanted to invest in China,” said Ms Yu. “The way they managed risk back then was quite different.”
 
“We had a lot of American and European companies setting up offices here and manufacturing plants in China. Our role was to help them set up their insurance arrangements,” said Mr Wu. “The insurance industry in China at that time was very green. We had to go into China and educate the Chinese insurance industry and clients about how to handle risk solutions.”
 
Some of the big infrastructure projects that Marsh Hong Kong was involved in as a risk adviser and consultant back in the early 1990s include iconic developments like the Three Gorges Dam, expansion of the Kowloon-Canton Railway and Daya Bay Nuclear Power Plant in Guangdong.
 
“Most of our clients in those days were multinational companies,” Ms Yu said. “Our role was as insurance and risk consultants. Most of the insurance players were international firms and the local presence was just a correspondent office. The local underwriting capability was quite limited.”
 
Marsh’s real roles were in coordination and education and this included bringing in all-risks insurance. Much of this expertise came from Marsh’s international network of offices. “We also brought in a lot of specialty insurance like directors’ and officers’ liability. At that time this type of insurance was quite new,” Mr Wu said.
 
During this phase there was a lot of consolidation and M&A, including Marsh’s acquisition of Johnson & Higgins and Sedgwick Group which heralded a new phase of sophistication in the insurance industry in Hong Kong.
 
Serving mid-market clients
Perhaps more importantly for Marsh Hong Kong, the acquisition of Sedgwick Chartered, a joint venture between Sedgwick and Standard Chartered Bank, brought with it a portfolio of new clients from the middle market segment. “Prior to that, Marsh had been focused very much on the large multinational end of the spectrum,” said Mr Wu. “Now we had a portfolio of banking clients, mid-market clients, and that is how we started our mid-market business. We also expanded our Hong Kong operations from 40 people to 120 people.”
 
The local commercial clients became a core focus for Marsh that was further augmented by the acquisition of HSBC Insurance Brokers which also came with a large number of local corporate and commercial clients so that by 2010, the company has changed a great deal.
 
Business flow from China to Hong Kong
“By this stage we also start to see a lot of Chinese companies coming to Hong Kong as a gateway for expansion,” said Ms Yu. “A lot of these companies come here for their IPOs and for financing. Their requirements on insurance and risk management are very different and so we had to develop more expertise and borrow expertise from our international branches.”
 
“These Chinese firms wanted more specialty insurance, they wanted a global insurance programme and they wanted to understand regulation and compliance on a global scale,” Ms Yu said. 
 
“Sometimes they needed to think about construction risk, political risk, product liability risk and so on. In 2010 we really needed to change our business model to be a bit more Chinese-centric. But we are also actively trying to find ways to help the local Hong Kong corporations to develop their business with the linkage of China. There is a lot of insurance and risk in that area as well and we are actively advising them.”
 
Many clients still require a lot of education but these days it is less about policy wording and more about the risks of investing globally including political risk and credit risk. “The other change we have seen is the rise in insurance companies from China and also local-grown insurance companies,” Ms Yu said. “If I look back 20 years, I see that probably 80% of our business came from multinational companies from North America and Europe and today that is very different and probably only 50% comes from these sources. We evidently see more business from China.”
 
Changing nature of risk
Marsh manages to reach the emerging sector of private equity and venture capital firms as well as firms looking to IPO that are using Hong Kong as a springboard through its strength in financial services. “We see that risk is different now,” Ms Yu said. 
 
“Twenty years ago, financial institutions were just thinking about professional indemnity. Now, with the internet, we see more and more financial institutions are worried about some of the emerging risks like cyber risk, crime risk and so on. We actively help business identify new risks in their business model and help them to grow their business.
 
“For the past three years our clients have been asking us about cyber insurance. Enquiries have quadrupled. They are looking for a risk solution,” said Ms Yu.
 
For this reason alone, Marsh has good cause to look to the potentials and threats of technology as a growth area for its business. “People traditionally saw insurance as very conservative,” Mr Lee said. “But now the industry is looking at developments in big data, AI, blockchain and so on. We still want to build on what we have achieved in the past 30 years but strive to do better using AI tools and blockchain tools to tailor risk solutions better for our 
clients.”
 
Gearing up for the future
“This also means that in the future we will be looking to hire people with analytical skills as well as industry-specific skills,” Ms Yu said. “You need to look at the data and interpret it through an industry lens and this gives us the edge in advising our clients on how they can be more successful.” 
 
“As clients become more technologically adept, so too will the insurance industry. Taking the developing blockchain technology as an example, it could enable insurers to make pay-outs quicker. Meanwhile AI technology could allow us to assess the risk nature of clients better. The insurance industry might therefore shift from an ‘indemnify and repair’ model to an ‘identify and prevent’ model. We just aim to guide the client better,” said Mr Lee. 
 
Ms Yu takes up this theme. “We see that as the future of insurance. You pay a premium and we will help prevent you from having a loss in the future. It is a fundamental change and it requires our skills and our mind-set to be very different. You are predicting what will happen to prevent something else happening,” she said.
 
“We have consistently proven to be ahead of the game and we follow our clients and their movements,” said Mr Lee. “We make sure we know what is coming ahead in terms of emerging risks and try to be preventative – being the risk consulting partner for our clients as technology develops.”
 
Eyes on the future
So what does the future hold in store for Marsh Hong Kong? “It will be very industry focused” said Mr Lee. “We will also see growth in commercial businesses, as have already witnessed the growth of sharing economies.”
 
“I think we will see more risk consultants,” said Ms Yu. “And they will have very in-depth industry knowledge. You will see us with more people with greater analytical skills. You will see us using new technology and tools more to service our customers. You will see us spending more time with the clients so that we can understand their business better. The risk landscape will be quite different.” A 
 
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