January 13, 2005 by Canadian Underwriter
2004 was marked by a series of “disasters” for the insurance industry not just natural catastrophes like the Atlantic hurricanes, but also corporate catastrophe in the form the investigations into broker compensation and non-traditional insurance products. In light of this, the industry needs to focus on “early warning systems” to reduce the impact of these disasters in the future, Lloyd’s chair Lord Peter Levene told an audience of insurers in Boston this week.
The three defining events of 2004 were the investigations sparked by New York Attorney General Eliot Spitzer, the Asian tsunami disaster and the battle over World Trade Center coverage for the 9/11 terrorist attacks, Levene says. “I wish I could report that the defining events were triumphs, which enhanced the standing and reputation of our industry in the eyes of consumers and business leaders — but that is not the case. Each defining event presents the insurance industry with a major challenge to get our house in order and improve our reputation,” he concludes.
The industry needs to focus on critical areas of risk management, including transparency and contract certainty, and it must maintain strong balancesheets in order to ensure it can deal with future disasters, Levene adds.
Levene was in Malaysia with his family at the time of the tsunami and says the event, along with the Atlantic hurricanes and Pacific typhoons of 2004 are a stark reminder of the need for better disaster preparedness, as well as the requirement to maintain pricing discipline. “The surge in catastrophic events also reminds us of the importance of pricing risk correctly. The critical role of insurance is to pay claims, to assist the process of rebuilding. But the industry can only do that if its balance sheet is strong,” he says.