Industry Needs “New Architecture”: Lloyd’s Chair

The global insurance industry must establish a “new architecture” of cooperation and governance, and take a leading role in helping businesses understand the kind of risks that contributed to current economic woes, says the chairman of Lloyd’s.

In a speech to financial leaders in Boston recently, Lord Levene stressed the need for stronger regulations and common standards for insurers and reinsurers around the world.
“We need change, but we definitely don’t need another Sarbanes Oxley,” he said. “What we therefore need-for insurance and reinsurance too – is closer co-operation across borders, more harmonization of standards and greater mutual recognition between different territories.”

Industry boards, too, need a different approach to maintain public trust, he said, and demonstrate that they don’t condone excessive behaviour or reward failure.
Lord Levene drew on Lloyd’s own past as a lesson in rebounding from difficult circumstances, referring to its experience with “toxic liabilities” and subsequent restructuring. “If we have learnt one thing from the financial crisis it is that poor risk management was a big part of the problem. Let me clear. Risk is not and should not be a dirty word. However, we need to work to understand risk.”

Going forward, the industry is in a strong position to manage risk on two fronts-by helping business leaders understand what their risks are, and by providing solutions, he said, noting that Lloyd’s own research shows that “most global business leaders admit they have not yet adopted formal policies and procedures to respond to liability risk, although they have done so for other types of risk.” Lord Levene noted that businesses need to acknowledge climate change risk in their own policies and practices, and that all industries should discuss how to adapt buildings and infrastructure to safeguard them against climate change, and consider these issues when developing high-risk zones. “These are complex issues and we can’t just put them in the ‘too difficult’ box and walk away,” he said.

This story was originally published by Canadian Insurance Top Broker.