2012: A turning point for the insurance industry...?
As we come to the end of 2012, the general view is that the insurance industry has gone through a relatively 'normal' year especially when compared to 2011. Yes, in terms of overall balance sheet impact, 2012 could be described as a normal year but the real impact of 2012 may only become apparent in the coming years as the industry addresses a number of external influences that may directly or indirectly reshape the future of our industry.
Here are some examples from the most notable events of 2012 that are likely to influence the industry in the years ahead.
Iranian Sanctions: As noted in our April Blog: Iranian Sanctions and Insurance..., the sanctions backed by the US and the EU went into effect over much of 2012 with a significant impact on marine insurers and European-based P&I Clubs. In effect, the marine insurance industry was marooned without a life boat and without due consideration for the untold environmental disasters that could have occurred as a consequence. Will we now see an increase in such ill-conceived political actions in the coming years regardless of their wider global impact? If so, how should the industry react?
Pirate Attacks: Maritime pirate attacks continued to plague shipping - especially in the waters around Somalia. Will such attacks now become part of modern-day shipping and if so, what radical measures need to be taken by both the shipping and the insurance industries to avoid such risks becoming uninsurable?
Costa Concordia: When the Costa Concordia ran aground off the Italian coast, it became the world's most expensive shipwreck with an estimated $1.0 billion price tag. Given the size of these 'floating hotels' have we now reached a point where there is insufficient focus on risk management, with the leading fleet operators more focused on profit margin than safety and risk-mitigation procedures? If so, insurers need to do more to push for a review of safety procedures and to force such operators to put safety before profit.
Solvency II: The new risk-based capital model for European re/insurers has become a self-defeating exercise with the implementation date being further extended to 2016. As noted in our July Blog: Protectionism thriving as Solvency II falters... the political agendas now at play and the prospect of an individual member state implementation process, the single EU-wide solution may now never be achieved. If this is the eventual outcome then EU-re/insurers will have spent millions to implement the requirements of a new solvency regime that may never come to pass. Will this force EU regulators to simplify their overly-complex approach and look to perhaps adopt a more US-style solution?
Technology: Technology has moved so rapidly that not only the insurance industry, but also business in general, is now facing a sea change in the way all types of data is collected, stored and processed. How re/insurers deal with this new reality could well determine the industry's future course. This is especially true in motor insurance. As noted in our May Blog: Motor Insurance... but not the way we know it! the industry needs to embrace new technologies such as telematics, automated traffic law enforcement and even Google's self-driving car as a way of forcing change in the age-old pricing methodologies and restore the economic balance between insurer and insured.
Flooding: Other than the insurance industry - led by Allianz - the ongoing challenges posed by global warming and climate change were notable by their absence from the global stage in 2012. With 2012 being the wettest year on record in the UK with repeated flooding in various parts of the country and similar devastation experienced in the Australia in March, has the time come for a unified approach to the management and funding of flood exposures worldwide?
As has now become apparent from the 2011 flooding in Thailand, the world's extended global supply lines can be severed by such catastrophic events causing business interruption claims to increase to unprecedented levels. As noted in our November Blog Would Pool Re 2 solve the UK's flood insurance problems? there now needs to be greater co-operation between governments and global insurers to mitigate the impact of these large-scale risks and spread the funding of subsequent losses between the main stakeholders. If not, such risks could become uninsurable (as is now the case with home insurance in some parts of the UK) with dire consequences for both our local and global economies.
There is a sense of inevitability about 2012 that suggests a change is not only in the wind for the global insurance industry but that such a change is to be welcomed by insurers and insured alike. Only time will tell if the events of 2012 prove to be the catalyst for this much needed change.
Happy New Year to everybody everywhere and good luck for 2013.