Insurance industry still on “edge of a cliff,” Lloyd’s says

Despite relatively good times compared to the hurricane disasters of 2005, the global insurance industry nevertheless risks falling off “the edge of a cliff” if it becomes complacent, Lloyd’s director of worldwide markets, Julian James, warned in a speech to the U.S. insurance industry.
In a recent speech to the Property Casualty Insurance Conference, James observed that since 2001, “it appears the industry has engineered a turnaround in its financial performance that is nothing short of miraculous.”
In particular, he noted a return on surplus of around 10.5% in both of the last two years. “Last year even saw an industry underwriting profit despite the worst hurricane season on record,” he said.
Nevertheless, the insurance market should be preparing itself for a possible reversal of fortune, James said. Specifically, weak premium growth, a downward pressure on non-catastrophe rates, and increasing industry surpluses can all be interpreted as signs of stagnant demand and oversupply.
“Despite our current good fortune, I could make a strong case that we are still standing near the edge of the cliff,” James warned. “Unlike in 2002, we just don’t realize it.”
The insurance industry will need to face several challenges in the future, James said.
One will be to meet the needs of the changing geographic demands driven by globalization.
“As the centre of gravity of the global economy moves, wealth patterns will shift dramatically, and so too will insurance demand,” James told delegates. “We believe that those who turn their attention to now, will be tomorrow’s winners.”
And in terms of improving the industry’s public reputation, James added, the industry should challenge the notion that profitability is a dirty word.
“Ignore the headlines and look at the facts,” said James. “The industry paid out almost US$170 billion dollars to cover losses from natural catastrophes in the last decade including US$80 billion over the past two years alone to deal with U.S. hurricanes
“The next time disaster strikes, the public will expect the insurance industry to be there and to do the same thing. And we will, as long as we are allowed to make an adequate financial return.”