Summit News: Demand for cover will rise
DEMAND for insurance cover is expected to increase through the economic downturn as businesses look to provide greater protection for their assets and shareholders, according to Lloyd’s chief executive Richard Ward.
Speaking at the opening of the Insurance Day Summit London, Dr Ward said that the Lloyd’s market was well positioned to capitalise on the opportunities presented by the recession.
He said that the insurance industry had shown itself to be independent of the economic cycle and, in an upbeat message to delegates, noted that the insurance industry had ‘historically always done well during recessions’. “We have an opportunity to trade through this cycle as well,” he added.
“Insurance is largely a non-discretionary product, and while asset values will fall, businesses and individuals will still need to buy cover for their risks.
“In fact some argue that the demand for insurance will be even greater as businesses seek to protect their assets and shareholders.”
Dr Ward confirmed that Lloyd’s was now witnessing a greater desire among buyers to spread risk and cited a recent poll by Oliver Wyman and Rims as evidence. The poll revealed that a third of corporate risk managers and executives said that they had replaced or expected to replace their insurance companies, due to perceptions of their insurers’ financial health.
Furthermore, he said that a second survey had recently found that a third of CFOs, risk managers and treasurers had said they had specifically cut the amount of insurance they placed with AIG, Hartford and XL over concerns about their respective futures.
“The current climate presents us with extraordinary opportunities and we in London will be the beneficiary of that,” he continued. “All financial security and rating information will come into play as insureds come into the London Market looking to spread their risks.”
Dr Ward also warned delegates of the emergence of new risks which were very specific to the recession presenting challenges and opportunities in the months ahead.
“Everyone talks about climate change and liability but what about the more specific risks from the recession?
“Initial findings show that the recession is likely to have a significant impact on political risk with expropriation risks set to rise as the recession deepens.
“Also, as pressure increases on state finances, we are likely to see growing protectionism, nationalisation and forced review of business contracts.
“Civil unrest is also coming back into play as is demonstrated by recent events in Luxembourg, and France. This will impact the supply chain and will impact us as re/insurers.”
But Mr Ward saved his greatest concern for the ever-increasing threat posed by piracy. There have been more than 200 reported acts of marine piracy in the Gulf of Aden and off the coast of Somalia over the past year.
“We are going to see a significant increase in piracy as the recession deepens and not just in the Gulf of Aden, although this area is obviously a major concern, as 50 merchant vessels go through the region daily with an estimated 300 in the area.
“When you consider that more than 90% of all world trade is transported by sea and other waterways and the largest container ships with cargoes of up to 13,000 containers are worth in excess of $1bn — this is a frightening thought — not least because of the risks to the crews, “ Dr Ward said.
Lloyd’s said that it had recently commissioned a report on political risks and recession. The findings will be revealed next month.
