London has the opportunity to take the lead in the insurance industry’s response to the threats posed by climate change and cyber risks.
In the second of his two articles, Dave Matcham, CEO of the International Underwriting Association (IUA) said the opportunity for London to lead the industry is there for the market to take.
“The London market is a world leader for specialty solutions and the presence of major insurers in the City provides a unique opportunity for proactivity in the climate change and cyber spaces,” he said.
“Lloyd’s and the London company market are renowned for providing cover for the most difficult and sophisticated risks and are thus very well placed to lead the global (re)insurance industry response. Aside from having the relevant knowledge and expertise, the London market is committed to ensuring any transitions or development are managed responsibly.”
“If policy decisions are made solely in reaction to pressure from outside groups, there is the potential for business to move to unregulated jurisdictions, beyond the influence of the London market,” he added.
“Policy decisions must be well thought out and data driven, and must engage industry and impacted communities and stakeholders, in order to prevent the proliferation of insurance activity elsewhere in the world which is counterproductive to the London market’s overarching goals.”
“That being said, I have no doubt that the London market will successfully handle this responsibility and will continue to act as a global leader in the areas of climate change and cyber.”
Public v private
He said that as demand for solutions increases the question as to how much will need to be placed into public/private is still unanswered.
“In respect of climate change, this remains to be seen. Climate change models are notoriously variable, however, given the high likelihood of a disorderly transition at it now stands and the level of risk that will likely be present by the time major intervention takes place it could mean an increased likelihood of a public/private solution being necessary.
“Regarding cyber, there remain issues around ensuring alignment between what the customer seeks to purchase cover for and what the insurer is prepared provide cover for. While the market has made significant advances in this area, particularly in respect of silent cyber, further reducing this disparity could go a long way towards managing risk and exposures. The size of the exposures also means that reinsurance will play a crucial role, and emphasis should be placed on ensuring that there is no coverage gap between insurers and reinsurers.”
“For both climate and cyber, any form of public/private partnership seem unlikely at the moment and if they ever became serious propositions they would need extreme care in their formulation,” he added.
Committing to change
Given the challenges Matcham said the IUA was already supporting the London market and its member in the creation of the industry’s response to the risks.
“At present the IUA has one climate change committee, the IUA Climate Risk Committee, and when it was formed, we had a large number of members wishing to join it,” he explained. “We also have four cyber committees: the IUA Cyber Underwriting Group, the IUA Cyber Legal and Claims Subgroup, the IUA Cyber Reinsurance Committee and the IUA Non-Affirmative Cyber Committee.
“These committees bring together risk officers, underwriters, compliance managers and other specialised practitioners from across the company market. At these committee meetings, members meet to discuss recent observations and find solutions to market-wide problems, within the confines of competition law. Presentations are made in the meetings, where specialist practitioners share knowledge on their area of expertise. Subgroups are formed to deal with specific areas of challenge. Committees will occasionally produce white papers, which act as thought pieces and points of reference for the industry.
“The IUA has also established strong relationships with both regulators and international trade associations. Through open communication with and feedback channels with organisations such as the FCA, PRA, HM Treasury, Insurance Europe and the Global Federation of Insurance Associations (GFIA), the IUA is able to convey regulatory developments to its members and to influence policy on their behalf. Staying abreast of developments in countries such as the United States, Bermuda and various European countries allows the IUA to monitor and accumulate best practice.”