Category Business Continuity Management Briefing BCM - BCM & Risk Management - General
Corporate liability is a key risk facing the insurance industry
February 2008 The instability of global financial markets is the single factor which will most impact the insurance industry during 2008: this is one of the key findings of the Lloyd's annual underwriters survey.
The survey asked 138 Lloyd's underwriters questions about working in the Lloyd's environment, including what emerging risks will most challenge the insurance industry over the coming year. Instability of global financial markets was highlighted by survey respondents as the most prominent emerging threat of 2008. This echoed what was said at the annual meeting of the World Economic Forum, which was held in Davos, Switzerland, in January.
Global government and business leaders gathered to discuss issues of immediate concern for 2008. The repercussions of the US sub-prime crisis were at the top of the agenda for the week-long event, with uncertainty and volatility generally predicted for the coming year. More than half of those who participated in the Lloyd's survey believe that the compensation culture is out of control.
David Jones, Divisional Managing Director - Professional Liability, Markel International, explains the how the financial crisis will relate to insurers, "Over the next 12 months we are going to see the sub-prime web unraveling as the layers of collatorised debt obligations collapse from the pools of investors worldwide. There is an inevitability that increased property repossession will once again lead to litigation against mortgage brokers, solicitors and surveyors as the lending institutions seek to recover their losses without necessarily questioning their lending criteria."
Liability will be a key theme for Lloyd's 360 risk project in 2008, which has commissioned the Economist Intelligence Unit to undertake a survey of business leaders to get opinions on issues such as compensation culture and the global credit crunch. Eighty-two percent of underwriters questioned in the Lloyd's survey believed that more consideration is being given to corporate liability by insurance buyers, although 61% still felt that more preparation was needed. Andrew Miller, Director at BPL Global also believes that financial instability will be a key threat in 2008, and identifies another major concern:
The two main issues that will continue to drive our business are the "credit crunch" and the problems of terrorism and political violence. Both are really only just beginning to bite and their shared characteristic is that they are set to get worse before they get better. Forty-nine percent of survey respondents feel that the world will be a less stable place in 2008 and although 55% of underwriters feel that insurance buyers are giving greater consideration to terrorism and political risk in planning, 56% still feel that they need to do more.
Furthermore, only 21% believe that insurance buyers are giving greater consideration to climate change in risk management, which is a concern at a time when flooding and unseasonably high temperatures are highlighting the impact of climate change. Thirty-nine percent of underwriters questioned feel that climate change is likely to contribute to above average losses from the 2008 hurricane season after two years of benign loss experience.
However, despite all the uncertainty, overall 83% of the respondents believe that disaster and continuity planning is higher on the agenda for global business leaders than it was two years ago and over three quarters feel that risk managers are more sophisticated in their understanding of risk than two years ago. There is still much to be done, but it is encouraging that risk management seems to be higher on the agenda than ever as underwriters and business leaders alike face up to a challenging year.
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