While 2012 wasn’t as tumultuous as 2011, it had its share of insurance shaking trends and events. Here in roughly chronological order are some of them:
1) The costs of the flooding in Thailand in 2011, wasn’t conclusively calculated until 2012, when it became apparent that the re/insurance industry’s total losses would top $15 billion. It also became apparent that the world’s extended global supply lines could be severed by such an event, causing business interruption, and contingent business interruption claims to skyrocket.
2) When the Costa Concordia ran aground off the Italian coast, it became the world’s most expensive shipwreck, with the re/insurance industry expecting to pay out close to $1 billion in claims. It also prompted calls for a review of safety procedures including evacuation preparations, crew competence, stability issues and safe navigation guidelines.
3) The Association of British Insurers (ABI) issued what turned out to be a rather prescient warning that England, Wales and Scotland were facing increasing flood threats. 2012 has become the wettest year on record in the UK, with repeated flooding in various parts of the country. The latest floods, triggered by heavy rains are presently causing even more damage and losses for UK re/insurers.
4) Maritime pirate attacks continued to plague shipping, especially in the waters around Somalia, where the pirates are based, and as far afield as the middle of the Indian Ocean. But the marine community is fighting back, with increasingly successful coordinated naval operations in the region, and the employment of more sophisticated security measures, including armed guards on vessels at risk.
5) The UK wasn’t alone in having to deal with massive floods. In March the Australian states of Victoria and New South Wales were hit by a series of floods with economic losses expected to top $1.5 billion.
6) While the challenges posed by global warming and climate change may well have been a root cause for a number of natural disasters, the subject wasn’t exactly hot button issues in 2012. While endless debates dragged on with little progress made, the changes being wrought upon the world’s weather continued. The re/insurance industry is one of the few that have taken measures to address what is a major concern. 2012 may well be the hottest year on record, which increases the ravages caused by droughts and brush fires. As noted, it also contributes to abnormal amounts of rainfall and augments the power, and the damages, of cyclonic storms. Europe’s largest insurer, Germany’s Allianz SE, posed the problem directly to a number of experts, asking the question: “How does climate change affect the business model of a large insurance company?” Meanwhile the UN has continued to warn the world of the potential disasters from warmer temperatures, including
7) Sanctions on Iran, backed by the U.S. and the European Union, which are designed to dissuade the country from pursuing its assumed nuclear ambitions, went into effect over much of 2012. Marine insurers were particularly affected by the impact of an insurance ban on the availability of liability insurance, which covers ship owners against personal injury and pollution claims, which is largely controlled by Europe-based protection and indemnity (P&I) clubs, specialist insurers who are owned by their ship owner/customers.
8) Even if it came shortly after April Fool’s Day, Aon’s announcement that is now officially a plc (public limited company; i.e. a corporation) wasn’t a joke. The world’s largest broker completed its change of the corporate domicile of the parent company of the Aon group of companies from Delaware to the U.K. Now Aon is looking at 2015 for its new London headquarters – across the street from Lloyd’s – to be completed.
9) The fallout from Europe’s financial crisis continued to impact the insurance industry, as regulators are seriously considering including large insurance groups as falling into the category of a G-SIFI (globally systemic important financial institution). While no one really balks at attaching the label, and the concurrent regulations, to global banks, tarring the re/insurance industry with the same brush is seen by many as an unnecessary and burdensome initiative. The Geneva Association, an insurance “think tank,” located in the city, has published a number of papers, reflecting industry views that the G-SIFI designation should not be applied to the insurance industry, as “insurers aren’t banks.”
10) The Olympic Games in London was one of the biggest stories of the year, and the insurance industry was heavily involved. Reports of the involvement, however, were hard to come by, as the Games organizers required participating companies and brokers (Marsh was the lead broker) to sign pledges not to discuss their involvement. Thanks to underwriter Elizabeth Seeger at Hiscox the IJ managed to get a bit of information. However, the types of coverage required do fall into familiar categories, and the London market was well prepared to deal with them. The coverage comprised three main categories: liability, event cancellation and property damage. Each sector covers the specific risks that are involved, and in some cases they overlap. Fortunately the Games came off with no major incident.
11) XL Group’s CEO Mike McGavick lobbed a bomb at the re/insurance industry. In his keynote speech at the European Insurance Forum in Dublin he asked “how relevant is the insurance industry in today’s globalized world? He backed up his answer – that is increasingly less relevant – with some provocative statistics. McGavick challenged the industry to start gathering and correlating data to come up with “new solutions to new problems” and start recruiting as much new talent into the industry as it can in order to do so.
12) Waiting for Solvency II’s implementation for the European Union’s insurers has become something like waiting for Godot. The start date, which was until recently 2014, has now seemingly been pushed back yet again to 2016. While the “three pillars” – capital models more aligned with levels of risk, extended risk management requirements and increased transparency and reporting – are still seen as the basis for the regulations, they have grown so unwieldy that a number of people in the industry seriously doubt that they will ever be fully implemented.
13) The Arctic ice cap shrunk to a new low in 2012, surpassing a record set only five years ago. The finding supports both the existence of global warming and creates a new model for the entire region. Increasing numbers of large ocean going vessels will be able to journey through ice free polar waters, undersea mining and drilling operations will become possible and, as that ice melts, sea levels will continue to rise.
14) Technology has moved so rapidly that not only the insurance industry, but also business in general, is now facing a sea change in the way all types of data, including personal and corporate information, is collected and stored. How well re/insurers deal with this new reality could well determine the industry’s future course. Jeffrey Kingsley, an attorney with the law firm of Goldberg Segalla, who specializes in the arcane world of cyber risks, pointed out in an IJ interview that the insurance industry must change its perception of the types of risks it covers from the physical, tangible loss model and make the transition to an intangible loss model to cover the “cyber risks” inherent to the internet exposures for electronically stored information, protocols and procedures.”
15) Lloyd’s of London Chairman John Nelson, who took over from Lord Peter Levene in 2011, has lost no time putting his stamp on the venerable institution. In addition to continuing the introduction and use of modern technology, to save time, eliminate errors and lower costs, Nelson announced a plan – Vision 25 – which will profoundly alter Lloyd’s. His aim is nothing less than to open the Lloyd’s market to the world by bringing in brokers and underwriters from around the globe, much as the UK’s banking sector did in the 1980’s.
16) In retrospect the first nine months of the year were the calm before the storm for the re/insurance industry. The storm that broke had a name – Sandy – that will not soon be forgotten, and not only in the northeastern U.S. Before devastating large areas of states along the U.S. coastline, Sandy pounded several Caribbean Islands, notably Cuba and the Bahamas, killing 21 people and extensive damage.