Preoccupation with ‘old’ risks stymies innovation around real threats: Beale

The re/insurance industry remains preoccupied with the traditional risks it has always covered while ignoring changes to the risk landscape that mean much more significant threats are underinsured, overlooked and often little understood, Inga Beale, the chief executive of Lloyd’s, tells Intelligent Insurer.

Speaking in relation to a new report issued by Lloyd’s today (Thursday September 3), Beale said: “The fact is that the industry invests billions in risk models and analysis to better understand risks like US wind or earthquake but these are increasingly the big risks of the past.

“The risk landscape is changing and both governments and the re/insurance industry need a wake-up call so that real innovation can start to take place that will ultimately help manage these threats going forward.”

The study Beale is referring to, called the Lloyd’s City Risk Index, presents the first ever analysis of economic output at risk (GDP at risk) in 301 major cities from 18 manmade and natural threats over a ten-year period.

Based on original research by the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School, the index finds that a total of $4.6 trillion of projected GDP is at risk from manmade and natural disasters in these cities around the world.

But critically, it found that many of the perils that preoccupy the re/insurance industry, are rapidly slipping down the list of the biggest threats that face society.

Some of the report’s key findings include the fact that emerging economies will shoulder two-thirds of risk-related financial losses as a result of their accelerating economic growth, with their cities often highly exposed to single natural catastrophes.

Manmade risks such as market crash, power outages and nuclear accidents are becoming increasingly significant, associated with almost half the total GDP at risk.

A market crash is the greatest economic vulnerability – representing nearly a quarter of all cities’ potential losses.

New or emerging risks, such as cyber attack, are also increasingly significant. Together, they account for more than a third of the total GDP at risk with just four – cyber attack, human pandemic, plant epidemic and solar storm – representing more than a fifth of the total GDP at risk.

Beale said that she hopes this report will act as a catalyst for governments, re/insurers and other stakeholders to start to collaborate and work together in a way that will ultimately help society better manage these threats. She believes Lloyd’s is uniquely positioned to take a central role in this process.

“Lloyd’s has a proud history of innovation and this report shows where efforts need to be made in this regard in the future,” she said. “Risk managers are increasingly saying that insurers are only catering for a shrinking portion of their needs. We need to solve this and with its unique mix of underwriting skill, art and confidence, Lloyd’s should be taking a central role in this innovation going forward.”