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© Lloyd’s 2012
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Lloyd’s : The world’s specialist insurance market Emerging Risks in P&C Insurance
Pat Talley, U.S. Central Region Director
Lloyd’s America November 7, 2013
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The world’s leading specialist insurance market
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…and an appetite for unusual risks requiring innovative solutions
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Providing specialist
insurance
syndicates
200
A leading global
(re)insurer
territories
97%
Insure with Lloyd’s
Dow Jones 325 of underwriting
experience
years
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Key milestones in our history
1688 1880 1906
1925 1920 – 30s 1939
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The Lloyd’s market is known for its specialist expertise…
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EMERGING RISKS
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Lloyd’s defines an emerging risk as… “an issue that is perceived to be potentially significant but which may not be fully understood or allowed for in insurance terms & conditions, pricing, reserving or capital setting”.
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Lloyd’s firsts
The motorcar Terrorism Aviation Commercial
space flight
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New risks provide new opportunities!
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Source: Lloyd’s 2012 Annual Report
Classes of business in 2012 Primary class of business in 1680’s
Reinsurance 38%
Property 21%
Casualty 18%
Marine 8%
Energy 7%
Motor 5%
Aviation 3%
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Emerging Risk research reports
Microinsurance
Nanotechnology
Arctic Opening
Climate Change and Security
Managing Digital Risk
Space Weather
Lloyd’s Risk Index
Managing Natural Catastrophes in the US
Behaviour
Electromagnetic Radiation
Forecasting risk
Pandemic
Flood
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Cyber risk ► Business increasingly reliant on technology
across all activities
► Rate of technological change keeps
increasing
► Threat is growing (Sony, Citibank, Lockheed)
► Increasingly complex problem for business
► Risk managers need to develop/evolve digital
risk management strategies
► Lloyd’s tracking and analyzing cyber risk for
several years
► Both a threat and opportunity with growing
cyber insurance market
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Cyber Risk Insurance response
► Most traditional insurance policies do not
generally cover cyber risk
► Growing cyber risk insurance market -
especially around data breach
► Likely to grow more if proposed EU legislation
comes into place in next couple of years
► Lloyd’s developing cyber scenarios to test our
market in the event of a major cyber event
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Space weather
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The Sun’s weapons ► Solar wind – magnetic field streams that
escape “coronal holes”
► Solar radio bursts –strong bursts of natural radio emissions
► Coronal Mass Ejections (CMEs) –Caused by instability in sun’s magnetic fields (snapping). Emits high speed dense material into space.
► Solar flares – large radiation bursts arising from reconnection of magnetic fields – travels at speed of light
► Proton flares – form of solar flare that predominately contains proton particles
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Impact on Earth ► Electrical power can be lost
– Limited availability and cost of transformers
(developing world demand)
– Dependency of society and economy on
electricity.
► Telecommunications
– Mobile phones are vulnerable to
interference from solar radio bursts
– Wireless technology can be disrupted.
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Impact on earth ► Transport
– Interference with satnav signals used by aviation and maritime industry
– Induced currents on rail tracks (also pipelines)
– Radiation - risk at cruising altitudes
► Drilling
– Drilling requires accurate magnetic measurements
– One company reported swings of 12 degrees in 1989
► Finance
– Time stamping of financial transaction rely on satellite navigation signals
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Nanotechnology
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Nanotechnology
► Manipulation of matter a billionth of a meter wide
► Way nanotechnology is used as an enabling
technology makes it hard to track and value
► Nanotechnology present in many common
products
► Unknown effects on health and the environment
– Asbestos-like effect of carbon nanotubes
– Toxicity to aquatic life
► Most regulation of nanotechnology is done using
existing mechanisms and remains largely untested
► Regulation would reduce ambiguity on what is and
is not insured by an insurance contract
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Pandemic risk
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Pandemic Impacts ► With 30-50 year return period, pandemics
likely in future
► 1918 flu pandemic extreme, but may not be
worst case
► Globalisation may exacerbate (volume of
global traffic and increasing
interconnectedness)
► Economic impacts (repeat of 1918 event
cause an estimated 1-10% of global GDP)
► Many insurance lines could be affected – life,
health, general liability, D&O, Med Mal, BI,
event cancellation
► Secondary impacts (eg civil unrest)
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Climate change
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Climate Change ► Increasing evidence that climate change is
leading to more frequent, severe weather
events
► Increases in storms, temperature extremes,
droughts, wildfires and floods
► 1970-2010 number of natural catastrophes
increased by 300%
► Insured losses have increased nearly 10 times
between 1970 and 2010
► Number of factors contributing to increased
losses (increasing concentrations of
population and wealth in catastrophe-exposed
areas), but climate change important factor
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Behavior risk
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Behavior risk ► Cognition: Process of thinking, reasoning and forming judgements
Key findings of the report:
► Decisions can be affected by personal experience and current events
► Risk perception is context dependent
– People might take more risks in environments that promote ambition
► Risk perceptions vary over different timescales
– Short-term incentives can reduce foresight and long-term risks might be overlooked
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Ipsos Mori survey of: 588 C-suite executives 5 regions 19 Industries 25% sales ↑ $500 mm 75% sales ↓ $500 mm 50 risks in 5 categories Ranked by priority and level of preparedness
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2010 and 2011 natural hazards
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Top five business risks overall
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Conclusion – A game of two halves
► A clear divide is emerging in the evolution of risk management between smaller and larger companies, with further variation determined by whether they operate in an established or faster growing market.
► Larger companies in faster growing markets are following the evolution of their peers in established markets, recognising the heightened priority of business risks and their relative lack of preparedness to deal with them.
► Larger companies in established markets are moving increasingly towards a ‘more prepared than prioritised’ position. They have recognised their vulnerability to risk, made it a greater priority and invested in more comprehensive risk transfer (insurance) and risk management (mitigation) measures.
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Lloyd’s Global Underinsurance report
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Lloyd’s global underinsurance report
► Commissioned by Lloyd’s and produced by the Centre for Economic and Business Research. Issued November 2012.
► Examines the development of insurance markets across 42 countries, analyzing data related to non-life insurance premiums, GDP and previous economic losses resulting from natural disasters.
► Found evidence of underinsurance in 17 countries, most of them emerging economies. 2011 estimate for these countries: $168.11bn
► Of 11 natural disasters in China from 2004 – 2011, only 1.4% of losses were covered by insurance. Uninsured loss averaged $18.91 billion annually and $208 billion during the period.
► Hurricanes KRW in 2005 resulted in record damages of $170 billion, of which $65 billion (38%) were insured. The 2008 earthquake in Sichuan province caused $125 billion in damage, of which less than $350 million (1%) was insured.
► Significant opportunities in high growth economies await the insurance industry and its stakeholders. Shifting the burden from government to the insurance industry = stronger growth platform.
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Bridging the Gap - The cost
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Why the world needs insurance
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Conclusions
With the cost of natural catastrophe damage increasing
every year, businesses, governments and insurance
companies need to act to bridge this insurance shortfall:
1.Businesses – need to take a longer term view. This
includes better contingency planning to protect supply
chains.
2.Governments – need to invest more in mitigation
measures such as flood barriers and coastal defences, and
promote, for example, strong building codes to minimise the
damage done by the next big catastrophe.
3.Insurance – the insurance industry needs to take steps to
better understand risk in growth economies – enabling them
to research and price new risks.
© Lloyd’s 2012
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