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Issue 102 - 20th May 2010

• Lloyd’s gains China insurance licence
• Joe has a go at market’s reputation
• Biba chief in lobby initiative
• Life gets tougher for risk managers says broker
  

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Lloyd’s gains China insurance licence

Underwriters at Lloyd’s are now able to conduct direct insurance business in mainland China after the market was awarded a licence to operate. Lloyd’s China was granted the licence by the China Insurance Regulatory Commission (CIRC) to write direct insurance which will be in addition to their existing reinsurance licence. The news was announced by Lloyd’s Chairman Lord Peter Levene on a visit to Shanghai yesterday. Lord Levene, Lloyd’s Chairman, was visiting the UK Pavilion at the World Expo in Shanghai when he revealed the CIRC has granted the market and its syndicates the ability to write insurance business. The world’s most populous nation has long been seen as the jewel in the crown of the emerging markets but access to the market has been a slow process for the international insurance community. Lord Levene said he welcomed the news and believed it was an important step in Shanghai’s efforts to create an international financial services hub. “This is a very significant development for both Lloyd’s and the Chinese insurance market,” he told delegates at the World Expo. “We are most grateful to the CIRC for their help and to the Shanghai Municipal Government. This will be a further important building block in the development of Shanghai as a major international financial and maritime centre.”

Joe has a go at market’s reputation

Over 3,000 brokers and insurers from 20 countries were in London this week for the Annual British Insurance Brokers’ Association Conference and were treated to a barnstorming address from Willis Chairman and CEO Joe Plumeri. Mr Plumeri spent little of his 45 minute address on the thorny topic of contingent commissions instead he issued a impassion plea for the mark to make a greater effort to enhance its reputation at a time when regulators in the US and Europe were drive through new rules which would tar the industry with the same brush as the banking sector which has been roundly disgraced for its actions in prompting the global financial crisis and subsequent recession. “Insurance drives the global economy and I believe that we do not get the credit we deserve,” he said. The industry had to drive a greater understanding of what it does and the capital behind it in the light of new moves by US regulators to bring in a new financial services regulatory regime and the European Union’s revision of the insurance mediation directive. Mr Plumeri said he believe the IMD would address how it believed intermediaries were to be remunerated with the abolition of commission still on the agenda. On the United States regulators and their efforts he was far blunter. “They do not understand that insurance is different from the banks and they don’t understand the difference between a securities broker and an insurance broker,” he explained. We need to send a single clear message about what we do and what we provide to the global economy. In the recent crisis 207 banks failed but not one insurance company. Without insurance there would be no construction no world trade, and no global economy. We should be proud of what we do and make sure the world knows the vital role that insurance plays in our way of life.” Away from regulation Mr Plumeri said the world had become a riskier place with the extreme events which had been deemed to be the stuff of Hollywood movies now a reality and requiring insurance products and capacity. “In the past we have gone to the cinema and watched a film where a global pandemic kills tens of thousands and walked out afterwards to say ‘thankfully it is just a movie’ as we now know the threat of a global pandemic is real and we are told we are still not out of the woods over the recent pandemic,” ha said.
The “black swans”, those events which were deemed to occur every 50-100 years were now regular occurrences and as such the industry needed to make sure it was keeping up with the pace of the changing needs of clients, he told delegates. “We have to ask ourselves whether we are contemporary to the new major risks we face in the world,” said Mr Plumeri. “Are we able to deliver the service and the products that meet the needs of the new riskier environment in which we live?” He said the Icelandic volcano and the Chilean earthquakes demonstrated the natural peril and the Deepwater Horizon loss was a case in point in terms of the man made disasters as was the potential multi trillion dollar costs of the global financial crisis. “We have a disaster in the Gulf of Mexico in which we cannot cap a broken well five miles beneath the sea, these are new eras of risk for the world and with it the insurance market which is being asked to protect firms and individuals from loss,” added Mr Plumeri.

Biba chief in lobby initiative

The Biba conference started with a rallying call from the Association’s Chief Executive who warned the cost of regulation could well end London’s time as the world’s premier insurance and risk centre. Eric Galbraith said the new UK government had the opportunity to drive proper regulatory reform but warned that the costs to intermediary were becoming unsustainable “Biba has long argued that the current cost and style of supervision for general insurance intermediaries is way out of line with what is happening elsewhere,” he said. “We want our new government to develop a more cost-effective, appropriate and proportionate regulatory regime that truly reflects the low risk nature of general insurance intermediaries' activities.” He warned: “The UK's position as leader and as the centre of excellence for risk management and insurance is at risk. “Regulatory changes in Europe, Solvency II, the banking crisis and the economy all impact our sector. Politicians and policy makers know we, in the insurance sector, are not part of the banking issues. We have been telling them this for the last 18 months - it is now down to our coalition government to work with the sector to the secure the future. “Coalition government will necessarily have to encompass diverse and often opposing political beliefs and will mean new ways of working, requiring more negotiation, better listening and a preparedness to co-operate if it is to succeed. “This makes it more important than ever for Biba to continue our public affairs and public relations work both in the UK and the EU.” He said Biba would be launching it biggest lobbying campaign ever and would target those politicians in Europe and the UK which can influence the approach of the lawmakers and regulators to ensure that the system for insurers and intermediaries gave the market a chance to innovate and deliver. “There have been a number of proposals published relating to future regulation of the UK's financial markets and we believe that through our lobbying activities and our standing in the sector we will be at the forefront of all these issues and well able to represent members interests,” he said.


Life gets tougher for risk managers says broker

A report from Broker Marsh says the risk manager’s role is not becoming any easier despite the green shoots of recovery in the global economy.  The Report Competition Nets Rewards – Multinational Client Service Insurance Market Report 2010 states thatdespite the global economic crisis, the commercial insurance market is poised to remain stable through 2010, but new challenges are emerging for risk managers. It found that while business opportunity appears to be brightening in 2010, the financial crisis has brought risk management to the fore within and beyond finance and treasury departments. Global risk managers are challenged by new boardroom demands of insurer security, balance sheet transparency, and heightened accountability. “With the ever-increasing complexity of global exposures, successful risk management today depends on timely information, regulatory awareness, and thoughtful anticipation of the range of local and global scenarios,” said George Davies, UK Leader of Marsh’s Risk Management Practice. “For global risk managers, the extent of their visibility - extended to the highest levels of their organisations - is the new world of financial risk and accountability.” It added that on a regional basis Intense competition among insurers, increased capacity, and fewer insured catastrophe losses kept US insurance markets generally stable in 2009. Barring a large catastrophic event, property insurance markets will likely continue to stabilise and premium rates will moderate in 2010 it added. Clients across Europe, the Middle East and Africa were able to secure premium rate reductions for most classes of business in the second half of 2009, but there is evidence of rising loss ratios in many lines of business - which could prompt carriers to review pricing. Local markets are generally expected to stabilise over the course of 2010. It also warned that risk managers need to monitor global insurance and tax regulations, which are being enforced more vigorously than in the past. “In the European Union, Canada and elsewhere, tax authorities have begun to challenge multinational companies’ insurance programmes with a view to assessing and collecting unpaid premium-related taxes - a trend that is likely to escalate,” it added.

Jon Guy
Editor
Global Broker & Underwriter

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