the arctic opens up p20/media/files/news-and-insight/... · rio 2016 how can lloyd’s brokers and...
TRANSCRIPT
Rio geaRs up foR the 2016 olympic games p10DaviD lang on stReamlining claims p16exploRe austRalia’s gReat BaRRieR Reef p27 caRBon captuRe & stoRage: the Race is on p28
the aRctic opens up p20
summer 2012 lloyds.com
01_Cover_(9pt)_des8.indd 1 21/05/2012 10:51
CARBON CAPTURE & STORAGE page 28
Care has been taken to ensure accuracy of information, but neither Lloyd’s nor the publishers can accept responsibility for omissions or errors. Lloyd’s is regulated by the Financial Services Authority. © Lloyd’s 2012.
SUMMER 2012 lloyds.com
Published on behalf of Lloyd’s (lloyds.com) by Sunday (sundaypublishing.com)
If you would like to contribute to the next issue, please email [email protected]
COVER ILLUSTRATION BY PATRICK GEORGE
02_Opener_des7.indd 1 16/05/2012 08:02
03
06global InsIghtNews from around the world including: a new terrorism consortium in Asia; insuring emerging risks in the US; new opportunities created by Mongolia’s mining boom; the uncertainty in risk modelling in New Zealand and Australia; and how Brazil’s energy industry is growing
rIo 2016 How can Lloyd’s brokers and syndicates respond to the specialist needs of the 2016 Olympic Games in Rio de Janeiro? 10
15 vision 2025 A long-term plan for the Lloyd’s market
16 DaviD lang The Head of Claims at Lloyd’s explains how CTP is changing the claims process
20 arctic risk Industry experts debate the possibilities created by a newly accessible Arctic
27 catlin seaview survey A groundbreaking scientific expedition aims to reveal the world’s oceans
05 introDuction We welcome you to the new-look Market magazine and reveal the features inside this issue
18 infographic The economic losses and insurance claims due to natural disasters in 2011
35 upDate Upcoming events, employment news and international contact information
Features
tItanIC How the ill-fated RMS Titanic was still being insured after she sank34
Regulars
Foresight
summer 2012 lloyds.com
28 carbon capture We examine insurance-sector opportunities arising from the emerging Carbon Capture and Storage industry
32 Jan blumenthal Is it time for the German insurance market to look to foreign markets?
03_Contents_(9pt)_des7.indd 1 21/05/2012 11:57
Statistics Relating to Lloyd’s 2012 edition now available This guide provides key facts and figures about the Lloyd’s market. It includes a summary of financial statements and the historical performance for all active syndicates, plus detailed statistics on capacity, premium income, claims and loss ratios, and much more.
The 2012 guide also has new content, including Lloyd’s Premium Rate Index and extended capacity data for all syndicates and agents. get a copy or Find out more at lloyds.com/stats
04_Stats ad_v2.indd 1 16/05/2012 17:11
he Lloyd’s market is a centre for fresh thinking and Market magazine is no exception. This month, we relaunch our long-standing publication in a smaller, brighter format, packed with news, interviews, features and analysis.
In May, the Lloyd’s market welcomed Prime Minister David Cameron for the launch of Vision 2025 – a long-term plan which sees Lloyd’s as the global centre for specialist insurance and reinsurance by 2025. Describing the market as “extraordinary”, the Prime Minister said that Lloyd’s has “huge potential to go even further and faster” as the world expands.
In this edition of Market, we look at the 2016 Olympic Games to be held in Rio de Janeiro and the specialist needs and opportunities for brokers and syndicates to expand their business in Brazil. Also in this issue, we gather a select group of industry figures to discuss risks and opportunities for long-term development in the Arctic, as the region becomes easier to access and more commercially viable to energy, mining and shipping companies. And we speak exclusively to David Lang, Head of Claims at Lloyd’s, about the impact of the implementation of the new Claims Transformation Programme (CTP).
We will also be supplementing the relaunched magazine with regular online content, allowing you to access the latest news and opinion from anywhere in the world. You can discover the latest from Lloyd’s and sign up to receive regular alerts at lloyds.com/marketmagazine.
We hope you like the new-look magazine. Enjoy.
05
T
05_Intro_(9pt)_des8.indd 1 21/05/2012 11:58
Foresight
For more about the Xin Consortium’s groundbreaking model, visit xin-consortium.sg
Not only has the threat of terrorism in Asia increased greatly in recent years, its nature has changed too, as shown by events such as the hotel bombings in Jakarta in 2009, the Bangkok riots in 2010, and the growth of organisations such as the Islamic militant group Jemaah Islamiyah. Terrorism is no longer a case of planting a bomb under a car; often attacks are well thought-out and
involve long-term planning, which make them more difficult to predict. Any city, wherever it is, could be targeted, as could power plants and mines in remote areas – anything that could cause disruption and economic loss is a potential target. And you don’t have to be the target of an attack to suffer a loss. Businesses hundreds of metres away can be affected because
roads are blocked or the electricity supply is down. However, the region is still significantly underinsured, and, with that in mind, Amlin has joined with Markel, Canopius and Argenta to form a Singapore-based consortium launched in March to protect businesses across South-East Asia and the Asia-Pacific region. Under the name Xin – Chinese for ‘trust and integrity’ – we will attempt to raise awareness of the terrorism risk and the availability of specialist cover. This is the first time that four Lloyd’s syndicates have come together to act as one under a consortium, and the groundbreaking model means that we can provide a sizeable capacity – up to $110m for a single risk. Simon Clarke
Managing Director, Amlin Singapore
insights From the world of lloyd’s – by the market, for the market
asia
illu
str
ati
on
s: g
illi
an
ble
ase
06_Foresight_(9pt)_des20.indd 1 21/05/2012 16:13
Find out more about Solvency II at the Financial Services Authority’s web page fsa.gov.uk/solvency2
For more about the Qatar Financial Centre Authority, visit their websitetinyurl.com/qfca-home
StatiSticS Relating to lloyd’S 2012 out nowThis guide provides key facts and figures about the Lloyd’s market. It includes a summary of financial statements and the historical performance for all active syndicates plus detailed statistics on Lloyd’s capital, capacity, premium income, claims and loss ratios and much more. The 2012 guide also has new content, including Lloyd’s Premium Rate Index and extended capacity data for all syndicates and agents. To order a copy or to find out more, visit lloyds.com/stats
the lloyd’S PatRiotic Fund – changing liveSFor over 200 years Lloyd’s Patriotic Fund has supported serving and ex-service personnel and their families. The Fund has donated £200,000 to BLESMA (the limbless veterans’ charity) to support a programme of rehabilitation activities for seriously injured ex-servicemen and women during 2012.
The activities range from golf and angling to skydiving and skiing and BLESMA are inviting volunteers from the Lloyd’s market to help with events. In February, two representatives from the Lloyd’s market joined BLESMA’s skiing trip. Ian Adams and Henry Dyson saw how the donation from Lloyd’s Patriotic Fund is being put to good use. To read about their experience with BLESMA and to find out how you can get involved, visit lloyds.com/blesma
lloyd’S ShoP Visit the Lloyd’s shop online at lloydsshop.com or visit One Lime Street for quality business and personal accessories. From iPad cases to pens and postcards, there is a large range from which to choose.
Solvency II, the new EU-wide insurance regulation directive, doesn’t come into force until 1 January 2014, but implementation work at Lloyd’s is nearly complete, thanks to the efforts of both the Corporation and the market.
The most important change will be that the models insurers use to calculate capital requirements must be approved by regulators on a consistent EU-wide basis, replacing the current Internal Capital Assessment (ICA) model.
The original implementation date was 1 January 2013, and we’ve maintained that timetable so we can use the Solvency II model next year, rather than run it alongside the older model, which would be inefficient. At the end of July, we will submit it to the FSA for approval. The FSA then has six months to consider it, but in the meantime we will show that it meets the ICA requirements still in place for 2013.Paul aPPleton
Senior Manager, Lloyd’s Market Finance
07
europe
under Qatari law, property and assets can only be insured by a national company, which means that all significant risks are placed with five state-owned insurers and then ceded as reinsurance. Major companies such as Qatar Petroleum have excellent risk-management capabilities and deal with insurers directly; brokers then place risks as reinsurance, outside of Qatar.
Brokers could add value in Qatar, but, outside of the oil and gas sector, their role is limited. companies such as aon and Marsh work mainly on reinsurance and are increasing their interest in the growing SMe sector. it takes time to build relationships when insurance penetration is low. however, with the establishment of the Qatar Financial centre authority and international universities under the Qatar Foundation, it is hoped that brokers will have a larger role to play in the country in future.ShankaR gaRigiPaRthy
Senior Compliance Manager, Lloyd’s Asia
mena
Solvency II – lloyd’S planS are ahead of Schedule
BrokerS to have larger role In Qatar
illu
str
ati
on
s: g
illi
an
ble
ase
06_Foresight_(9pt)_des19.indd 2 21/05/2012 12:00
Read the World Bank Group’s report on doing business in Mongolia in 2012tinyurl.com/businessinmongolia
Read a US Energy Information Administration’s report on this subject eia.gov/cabs/brazil/Full.html
Demand for Mongolia’s plentiful natural resources, which include copper, gold and high-quality coking coal, is driving a huge mining boom in the country. Investment is coming in from abroad, and Mongolia’s GDP is the fastest growing in the world.
However, there are risks. Poor infrastructure means that cargo and transportation risks are high.
Mining regulations are also in development – the government is looking at environmental liability with a view to introducing international standard requirements. Mongolia’s insurance market is developing quickly, and Marsh is taking an active role. There is demand for traditional covers, though, as a developing country, Mongolia is not litigious, so there is no real casualty exposure.JoHn HolMes
Asia Mining Practice Leader, Marsh
Brazil has the largest known oil and gas reserves outside of the Middle East. In the last five years, a third of the world’s new deep-water reserves have been discovered there and, by 2020, oil and gas production in Brazil is expected to more than double to 6.4m barrels per day. State-owned Petrobras, the country’s largest oil and gas company, plans to invest $225bn between 2011 and 2015. It currently has 44 semi- submersible and Floating Production Storage and Offloading platforms, and will have 94 by 2020. Currently, a single FPSO platform is insured for about $1.5bn, but with new technology, that figure is rising sharply, and the value may soon reach $6bn.
National and international companies are investing – including OGX and
Queiroz Galvão from Brazil, and Shell, BP and Chevron – which creates an opportunity for the insurance and reinsurance markets, and for Lloyd’s. There are risks associated with both the extraction and distribution of oil and gas, including construction, engineering and operational risks, and surety for suppliers – and as companies are very large, D&O coverage is also important.
The challenge is the high capacity required from both the insurance and reinsurance markets – on average, 85% will be reinsured globally – and the potential that exists for very large losses, as with the spill from the Deepwater Horizon oil rig in 2010. Marco casTro
Managing Director, Lloyd’s Brazil
Foresight
asia
latin america
Mongolia’s Mining booM presents new opportunities for the Market
06_Foresight_(9pt)_des19.indd 3 21/05/2012 12:00
09
To learn more about the author, read ‘Sixty Seconds with Hank Watkins’ lloyds.com/hankwatkinsinterview
The Insurance Council of New Zealand’s list of natural disasters and their cost: tinyurl.com/ICNZ-disastercosts
Lloyd’s direct business in the US is predominantly as a surplus-lines insurer, so growth opportunities include offering coverage not typically available in the admitted market. From cyber risk and renewable energy, to professional liability, aviation and trade disruption, the Lloyd’s market is the primary source of solutions for unknown challenges in a risky world.
Recent surveys suggest that senior executives and risk managers are spending more time assessing emerging risks – the peripheral threats that may not occur. We’re all too familiar with emerging risks that did materialise, including last year’s uprisings in the Middle East, the euro-zone debt crisis and the Japanese earthquake and tsunami, the effects of which are still being felt in rising commodity prices, restricted credit access and supply chain disruption. Few would claim that the impact of emerging risks hasn’t become more rapid and severe recently, or that the trend will slow down soon. HaNk WatkINs
President, Lloyd’s America
supportINg tHe kIlN sIerra leoNe MaratHoNAs well as being the title sponsor for the first ever Sierra Leone Marathon, Kiln Group has entered a 17-strong team of runners, which includes the financial director and chief actuary. The team aims to raise £50,000 for the Street Child of Sierra Leone charity that supports communities to reduce the number of children living on the streets in the country. Overall, the Lloyd’s market, including Kiln and Miller, are sending 28 runners to take part in the race, in June. Find out more and donate at kilnsierraleonemarathon.com
2012 Class revIeW of MexICoLloyd’s Class Reviews are essential reading for managing agents, Corporation staff, brokers and coverholders. Lloyd’s International Markets team has published a ‘class of business’ review of Mexico, comparing Lloyd’s business with its competitors in key territories, broken down by class of business. Two versions of the report are available – one for managing agents and a publicly available summary for brokers and coverholders – from lloyds.com/classreview
tHe Colourful HIstory of lloyd’s ageNtsMerchants, Mariners and Mavericks – Lloyd’s Agents, the First 200 Years looks at some of the characters who have worked within the London insurance market. The limited- edition book will be distributed to appointed Lloyd’s agents around the world to pass on to their clients. An e-book version will also be published, and will be available from lloyds.com/lloydsagentsbook
since 2010, New Zealand and australia have suffered disasters including bush fires and floods. In hindsight they weren’t adequately modelled. and although this is being addressed, uncertainty remains.
recent events have shown that risk models have deficiencies. Wellington has traditionally been identified as New Zealand’s major earthquake exposure zone, but it was Christchurch that bore total insured losses of NZd$17bn in 2010 and 2011. also, models didn’t cater for the property and land damage caused by soil liquefaction.
However, the countries still offer opportunities to diversify from peak catastrophe risks in more commonly exposed parts of the world, but only if modelled and priced correctly. We must be able to write risks based on clear information – giving a price that reflects risk. prices on loss-affected contracts and regions have seen large increases, but often from a low starting point.tHoMas lIlleluNd
Head of Asia-Pacific, Aspen Re
north america
oceania
EmErging risk in thE Us
UncErtainty rEmains in risk modElling for nEw ZEaland and aUstralia
06_Foresight_(9pt)_des19.indd 4 21/05/2012 12:00
10 / INSURING RIO 2016PART ONE OF A THREE-PART SERIES ON EmERgINg mARKETS wORdS by ROxANE mcmEEKEN
Illu
STR
ATI
ON
: SA
m w
AlK
ER
10_Rio_(9pt)_des14.indd 1 21/05/2012 12:03
11
his August, the focus will be on the competitors striving for gold at the Olympic Games, but insurers will be able to enjoy some of their own best performances too. That’s
because major sporting events come with large risks, and large risks mean big premiums – the average Olympic Games creates demand for some $5bn (£3.3bn) in gross written premium, according to Munich Re.
So, as London 2012 approaches, now is the time to look at opportunities arising from the next Olympic Games: Rio de Janeiro in 2016.
Given Brazil’s economic growth, the event could hardly be going to Rio at a better time; last year the country leapfrogged the UK to become the world’s sixth-largest economy.
Market looks at the insurance opportunities – and challenges – arising from Rio 2016, and how the Lloyd’s market can do more in Brazil.
Scale of demandAs with any major sporting event, the Olympic Games in Rio will create demand for a range of cover types. Matthew Ford is Partner at law firm Berrymans Lace Mawer, whose specialisms include public liability and the leisure sector. He says that the risks begin with the building work.
Facilities created for the 2014 FIFA World Cup, which is also to be held in Brazil, will be re-used, so Rio will already have a number of venues and infrastructure completed ahead of the Olympics. Even so, a huge £14.2bn will be spent specifically on construction for the 2016 Games.
Ford says that Rio 2016’s construction-related risks will therefore be significant and will run “from the risk of injuries on-site, to buildings not being completed on time, as well as the potential for damage to property from fires, floods and so on”.
A large number of firms will be involved in the building work, from architects and engineers to electricians and main contractors, all linked by a complex web of contracts. Inevitably, says Ford, “there will be hundreds of contractual disputes”.
During the Games, the transport system will come under severe pressure, too, as the number
ahead of the games, a new market emerges
Brazil is preparing to host the 2016 Olympic Games in Rio de Janeiro, the first Games to be held in South America. As the International Olympic Committee, Rio’s organising committee and hundreds of private companies involved in construction, security and consulting start to seek cover, we take a look at the event’s specialist needs. In recent years, Lloyd’s has raised its profile in Brazil, and there will be a wealth of opportunities for brokers and syndicates to expand their business in the world’s sixth-largest economy
T
illu
str
ati
on
: sa
m w
alk
er
10_Rio_(9pt)_des14.indd 2 21/05/2012 12:04
Between London and Rio Ten of the
top global
sports events
taking place
of tourists in the city is expected to double. “There will be more chance of accidents, and the consequences of a major incident, such as a tunnel collapse, would be more significant,” says Ford.
CaLCuLated RisksThis brings us to the possibility of reputational risk for the host country’s government and host city’s authority: “If an accident occurs while the world is watching and it could clearly have been avoided by putting better procedures in place, it will cause huge reputational harm,” says Ford.
Terrorism is another key risk. Marco Antonio de Simas Castro, General Representative and Managing Director of Lloyd’s Brazil, says that while terrorism coverage isn’t the norm in Brazil, simply because the country doesn’t have the exposure to this risk seen elsewhere in the world, “this will change when the country is hosting a global event with so much attention”.
A boycott, too, is typically seen as a risk to a major sporting event. For example, in 1980, 65 nations refused to compete in the Moscow Olympics because Russia had invaded Afghanistan the
1. woRLd univeRsity Games Summer Games,
Trentino, Italy, 6-17 July
2013; Winter Games,
Kazan, Russia, 11-21
December 2013
2. woRLd Games Cali, Colombia, 25 July-
4 August 2013
3. 15th Fina woRLd Championships
Barcelona, Spain, 19 July-
4 August 2013
4. 22nd oLympiC winteR Games Sochi, Russia,
7-23 February 2014
5. FiFa woRLd Cup Brazil,
12 June-13 July 2014
6. CommonweaLth Games Glasgow, UK,
23 July-3 August 2014
7. asian Games
Incheon, South Korea, 19
September-4 October 2014
8. asian Cup Australia,
4-26 January 2015
9. RuGBy woRLd Cup England, 4 September-
17 October 2015
10. CRiCket woRLd Cup Australia and New Zealand,
dates to be confirmed
when the woRst happensOn 7 July 2005, less than
24 hours after it was
announced that London
would host the 2012
Olympic Games, four
bombs went off in the
city, killing 52 people. It
was a grave reminder of
the risks major sporting
events can bring.
Andrew Duxbury,
Contingency
Underwriting Manager
at Munich Re, says:
“The risks to an Olympic
Games are very real. For
example, the 2010 Winter
Olympics in Vancouver
was challenged by
extreme weather, civil
unrest and the tragic
death of an athlete.
The uncontrollable or
unforeseen can occur,
so insurance has a
critical role to play.”
When considering
sporting events, it’s
useful to keep in mind
problems insurers faced
in previous years. For the
Olympics, you can look
back as far as 1908, when
Rome withdrew after
Mount Vesuvius erupted,
forcing the Italian
government to divert
resources to Naples.
The threat from terrorism
isn’t new, either. At the
1972 Games in Munich,
Palestinian terrorists
killed 11 Israeli athletes
and coaches and a West
German police officer.
Boycotts, too, have
disrupted the Games.
The US and Soviet Union
chose not to attend the
Olympic Games of 1980
and 1984 respectively.
Other events have also
had disasters. At the
1955 Le Mans 24 Hours,
a racing car crashed into
a grandstand, killing 83
spectators, and in Egypt,
this February, at least 74
people were killed during
a riot in a football stadium.
There are also financial
risks. The 1976 Olympic
Games in Montreal left
the city with a $1bn
deficit, while the cost of
the 2004 Athens Games
reportedly doubled
from the original £3.2bn
budget, contributing
to the current black
hole in the Greek
treasury’s finances.
2014 Olympic Winter Games, Sochi, Russia
2014 Commonwealth Games, Glasgow, UK
12 / INSURING RIO 2016
ima
ges
: 3D
Rei
D a
nD
get
ty
10_Rio_(9pt)_des14.indd 3 21/05/2012 12:04
Above: Rio will bring mountains, beaches and a Samba beat to the Olympic competition
previous year. But a boycott is considered very unlikely in this Games, according to Ford: “I can’t see why it would happen in Rio, as Brazil is not in a significant dispute with any other country.”
Disease and outbreak of civil disorder are considerations for any large sporting event but they’re not seen as particular concerns for Rio. However, running the Games brings further risks – particularly for the International Olympic Committee (IOC) and the local organiser – because athletes and spectators could be injured or suffer if the event is cancelled.
CompliCations of CanCellation On the face of it, event cancellation could appear to be the number one risk for Rio 2016. Certainly, it would affect the widest range of those with a stake in the Olympics. Andrew Duxbury, Contingency Underwriting Manager at Munich Re, says that in the event of cancellation, those with insurable interests are manifold: “For example, global sports bodies, national organising committees, TV companies, sponsors, merchandise manufacturers,
travel companies, hotel owners – the absolute sums insured will range from a few thousand dollars to hundreds of millions.”
The majority share of the exposed revenue is generated by the sale of the rights to broadcast the Games on television. “Contracts are negotiated with the world’s national television corporations and these command huge sums of money,” says Duxbury. “For example, in 2003 the IOC sold the main TV rights to cover Vancouver and London to NBC for $2.2bn.”
To understand just how much television companies stand to lose should the Games be called off, one needs to know the expected viewership.
“Official sources indicate that 4.7bn viewers watched the Beijing Olympic Games in 2008, 842m Chinese alone watched the opening ceremony and seven networks showed 3,600 hours of coverage in the US,” explains Duxbury.
However, Robert Wood, underwriter at HCC Specialty, says that cancellation of the entire event, as disastrous as it would be, remains an extremely remote possibility. “The biggest risk is often not event cancellation but interruption,” he says. “For example, something such as torrential rain on a particular day could mean some field events have to be rescheduled. If Usain Bolt doesn’t run in the 100 metres final on the scheduled day, advertisers may request a refund.
“Most contracts will cover the cancellation of the Games, but are often silent with regard to interruption or moving the time of events, so insurers need to think about this,” says Wood.
Insurers hoping to explore the Brazilian market will also have to contend with a highly competitive environment. “The economic turbulence in Europe and the US means that many insurers are
4.7bn viewers watChed the beijing olympiC games in 2008. 842 million Chinese watChed the opening Ceremony and seven networks showed 3,600 hours of Coverage in the us
13
ima
ges
: 3D
Rei
D a
nD
get
ty
10_Rio_(9pt)_des14.indd 4 21/05/2012 12:04
concluding Brazil is the place to be,” says Rolf Steiner, Swiss Re Region Head of Brazil and Southern Cone Reinsurance. “This is creating abundant capacity and, therefore, low prices, so right now the soft market is the biggest challenge.”
Steiner says that it is particularly difficult to make money in mainstream lines such as engineering and property, so Swiss Re focuses on specialist areas.
“There are many niches where the competition is less crazy, so, with quality underwriting and add-on services, you can write profitable business,” he says.
As ever, insurers should pay attention to the spread of risk to which they expose themselves. Wood says: “With an event such as an Olympic
Games there are numerous interests requiring capacity, which presents underwriters with opportunities to achieve apposite rating. However, you need to be careful not to inadvertently expose yourself to an accumulation risk.” For example, cancellation of the event, however unlikely, could leave an insurer facing
claims from a wide range of customers. Tough as the associated challenges may be,
few insurers would shy away from an Olympic Games, says Wood: “It’s the most prestigious risk you can write, as it involves the highest standards of infrastructure and security. But, of course, if something does go wrong, the effect of the loss could have significant implications to the whole market, both in London and Europe.”
FURTHER INFORMATION
The official website for the Rio 2016 Olympic Games is rio2016.org. To see
the city’s plans for the Games, visit olympic.org/rio-2016-summer-olympics
BREAkINg INTO THE BRAzIlIAN INsURANcE MARkETMarco Antonio de Simas Castro
has been Lloyd’s General
Representative & Managing
Director for Brazil since 2008. He
has more than 30 years of industry
experience having also worked at
ITAU Insurance Company, Willis
Reinsurance Brazil and VARIG
Brazilian Airlines.
EvEN THOUgH RIO wIll RE-UsE vENUEs ANd INFRAsTRUcTURE FROM THE 2014 FIFA wORld cUp, A HUgE £14.2BN wIll BE spENT spEcIFIcAlly ON cONsTRUcTION FOR THE 2016 gAMEs
“The Brazilian insurance
market is long-standing
and healthy, but, as Brazil
is not as developed as some
other economies, insurance
penetration remains low,”
says Marco Antonio de
Simas Castro.
While insurance penetration
is 12-14% in North America
and Europe, in Brazil it is
5% and worth $75bn in
gross written premium
(including life and non-life),
with the reinsurance market
worth just $3.2bn.
But the market is growing
fast; Castro expects insurance
penetration to reach 8% in
four years as the middle-class
grows, with the main lines
of business being motor,
commercial property,
personal accident and health.
Meanwhile, the reinsurance
market grew by 20% in 2010,
so there is definite potential
for foreign insurers. So how
can you break in?
The good news is that the
market has had a presence
in Brazil since 2008, when
the government ended the
monopoly of state reinsurer
IRN and opened the door to
foreign companies. Eight
syndicates now operate
in Brazil via Lloyd’s.
“It makes a big difference
to have a local presence and
staff that speak the local
language, and we provide
syndicates with the
infrastructure that makes
it easy for them to establish
that local base,” Castro says.
“But, as the syndicates are
underwritten in London,
they only need to have one
or two people based here
developing business.”
The importance of having
a local base in Brazil has
been made all the more
important by legislation
that was passed in March
2011 requiring 40% of
all reinsurance business
to be placed with locally
registered companies. It
has prompted companies
such as Swiss Re to apply for
local registration in Brazil.
“This is a drawback,” admits
Castro. “But it still leaves 60%
of business, which is more
than enough. Plus, local
companies are required to
retrocede 20% of their
business, which effectively
leaves access to 80% of
the business.
“However, Brazil remains
a very attractive market and
Lloyd’s is very well positioned
within it, so we would expect
to see more syndicates based
here in the future – it could be
up to 15 in five years’ time.”
illu
str
ati
on
: eli
sab
eth
mo
ch
14 / INSURING RIO 2016
10_Rio_(9pt)_des14.indd 5 21/05/2012 12:04
15
lloyd’s vision 2025
s thousands gathered in the historic Underwriting Room, and with the British Prime Minister by his side, Lloyd’s Chairman John Nelson unveiled Vision 2025 – a long- term plan for Lloyd’s to be the global centre
for specialist insurance and reinsurance in 2025. The ambitious and dynamic vision – produced in consultation with the market – sets out bold plans to increase Lloyd’s business in emerging high-growth markets and truly internationalise the Lloyd’s underwriting community. It further seeks to internationally diversify Lloyd’s capital base and people to better reflect the range of territories where Lloyd’s will increase its market share.
Taking to the stage at the Vision 2025 event on 11 May, Prime Minister David Cameron praised the Lloyd’s market for its ambition and contribution to the British economy. Describing the market as “extraordinary”, he said: “I welcome the drive and ambition with which Lloyd’s is pursuing plans for where it wants to be in 2025. This is a great example of the bold and dynamic approach we need as we work to foster sustainable economic growth across the country.” He added: “This great British industry has huge potential to go further and faster as the world expands.”
So what’s next for Vision 2025? For Lloyd’s CEO Richard Ward it’s a strategy of steady evolution, not rapid revolution. “This vision sets out ambitious plans for the
Lloyd’s market to grow, internationalise and diversify,” he explains. “The level of interest among top-quality overseas insurers in coming to Lloyd’s is high, but we will be managing the entrance of these new providers carefully.”
With its unique concentration of underwriting talent and brokers clustered closely around the Lloyd’s building, London will remain the focus for Lloyd’s business activities. Working collaboratively will be crucial to the Vision’s success – and not just among underwriters, brokers and the Corporation. Around 50,000 people work in and around the Lloyd’s building to support the market’s infrastructure, including legal professions, actuaries and accountants. The vision also outlines the need for powerful hubs in certain major overseas markets to support the London base.
Ultimately, Vision 2025 is about ensuring business carried out at Lloyd’s is reflective of growth in the global economy. In the short-term, the focus will remain on market modernisation. Longer-term, the market will seek to attract capital and business from high-growth economies.
Stroll through the Room in 13 years and what will have changed? Beyond the likely influx of increasingly sophisticated mobile communication devices, the short answer is plenty. New technology will help process data and information more quickly. The market itself will diversify and become more reflective of the countries and nationalities we do business with. Lloyd’s will be making maximum use of brokers’ international distribution networks. But Lloyd’s will also remain true to the values and traditions which make the 324-year-old market unique. Face-to- face negotiations between underwriters and brokers will always remain at the heart of what Lloyd’s does.
A
FURTHER INFORMATION
To find out more about the implementation
of Vision 2025, visit lloyds.com/vision2025
Vision 2025IllustratIon by Carter Wong DesIgn
15_Lloyds Vision_des9.indd 1 21/05/2012 12:07
16 / DAVID LANGINTERVIEW BY SALENA NOELILLUSTRATION BY GARY NEILL
n the year since being appointed Head of Claims, David Lang has overseen the implementation of the
Claims Transformation Programme (CTP) across the market. � e goal of the CTP is to build on Lloyd’s reputation for fast and consistent processing of fair claims, and it is signi� cantly changing the way in which insurance claims are handled at Lloyd’s. Of the 215,000 open claims currently in the market, 11,000 are handled under the CTP and from July 2012 all classes of business will be in scope.
FURTHER INFORMATION
To fi nd out more about the Claims Transformation Programme, visit lloyds.com/claims
Fast and fair:Streamlining claims for the futureDavid Lang, Head of Claims at Lloyd’s, explains how implementing CTP has revolutionised the Lloyd’s claims process
01 Dividing claims into
standard and complex
types has made claims
processing more effi cient
and streamlined.
02 Reducing the
number of agreement
parties on the majority of
claims means they are
processed more quickly.
03 A more fl exible
framework for CTP lets
managing agents adopt
a business model that
they desire.
04 We plan to establish
a range of initial checks
to ensure claims are
channelled through the
system effi ciently.
05 By standardising the
way the market handles
statistical data, it can be
used and interpreted in
a cohesive manner.
THE FIVE MAIN CHANGES THAT CTP IS BRINGING ABOUT
I
Market magazine: How much progress has been made since the CTP launched?
David Lang: At the start of the programme we set out four performance measures – speed, quality, market perception and cost – and we’ve exceeded our expectations in all four. � ere’s been a 39% decrease in the time it takes to respond to a claim transaction, and although that doesn’t account for the time between transactions or the time it takes for an insured to � le the claim, it’s a massive improvement in the part of the process Lloyd’s can in� uence. As well as processing claims quickly, our assessment of each claim has remained as rigorous as ever and, as a result, 76% of Lloyd’s brokers surveyed by Gracechurch Consulting said CTP was the same as or better than the alternative process*. Of course, cost is slightly harder to measure, but the overall cost of processing claims hasn’t changed.
CTP is raising the claims department’s profi le within Lloyd’s. What are the benefi ts of that?
We realised that people didn’t fully understand how the old claims process worked. By explaining in simple terms what we do and how we’re changing, everyone has gained a better understanding of their place in the market. � is has allowed great bene� ts – it has enabled them to deliver the best possible customer experience. � is is what will distinguish the Lloyd’s market from its competitors.
What benefi ts are behind the idea of increasing the segmentation of claims?
Lloyds is preeminent in handling large, complex claims. However, smaller, standard claims should be handled di� erently. Historically, two agreement parties were required to validate a claim, and while this is still the case for complex claims, with CTP a single party can now agree a standard claim on behalf of the entire market. � is streamlining not only helps increase the number of standard claims processed, but releases precious resources to deal with more complex claims.
How has CTP increased the options for managing claims in-house or outsourcing them?
CTP has introduced � exibility to how managing agents work. Lloyd’s is able to provide the framework within which agents can either outsource parts of the claims-handling process or perform them in-house. As well as permitting choice over business model, this is useful when a managing agent has a resources gap, or there is a surge in the number of claims the agent is handling. We’re already seeing managing agents outsourcing parts of their claims-adjusting to external companies.
How is the upgrading of the market’s IT progressing?
CTP addresses the processes, but what it doesn’t do is address big IT infrastructure issues – that’s what Project Darwin will do. It will encompass both the Lloyd’s market and companies and will completely modernise the technological infrastructure of the London insurance market during the coming years.
*GR
AC
ECH
URC
H C
ON
SULT
ING
CLA
IMS
PER
FOR
MA
NC
E M
ON
ITO
R, 2
011
16_Lang_des11_9pt.indd 1 21/05/2012 12:08
1717
*GR
AC
ECH
URC
H C
ON
SULT
ING
CLA
IMS
PER
FOR
MA
NC
E M
ON
ITO
R, 2
011
16_Lang_des11_9pt.indd 2 21/05/2012 12:08
UNITED STATESAPRIL & MAY _ SEVERE WEATHER
$24.6bn
$0.6bn
$17.75bn
CARIBBEAN/UNITED STATESAUGUST _ HURRICANE IRENE
$0.26bn$5bn $8.55bn
Economic loss The total estimated cost incurred from a disaster because of injury and loss of life, and damage or destruction of property Insured loss The proportion of the economic loss that is insuredIndustry claims Lloyd’s claims are a proportion of the total industry claims
Economic loss
Industry claims
Lloyd’s claims
Total global economic loss in 2011 reached nearly $435bn – compared with $226bn in 2010. Total insured losses for the global insurance industry from natural catastrophes and man-made disasters reached more than $107bn in 2011. In 2010, insured losses were less than half that, at around $48bn. If Japan had been fully insured, 2011 would have been the costliest ever year for the insurance industry.
NATURAL DISASTERS: ECONOMIC LOSSES and insurance claims, 2011
18 / LOSSES AND CLAIMS
18_Infographic_des6.indd 1 18/05/2012 16:56
$30bn
$15.3bn
$1.4bnNEW ZEALAND
SEPTEMBER* _ EARTHQUAKE
AUSTRALIAJANUARY _ FLOODING
THAILANDJULY-NOVEMBER _ FLOODING
JAPANMARCH _ EARTHQUAKE
$30bn
$45bn$1.95bn
$35bn
$210bn
$10.78bn$2.2bn
$2.4bn$0.3bn
Industry claims
Lloyd’s claims
TOTAL ECONOMIC LOSSES AND INSURANCE CLAIMS IN 2011Economic loss: $434.8bnIndustry claims: $107.2bnLloyd’s claims: $20bn
19
SOURCE: AON BENFIELD*2010
18_Infographic_des6.indd 2 18/05/2012 16:56
20 / DISCUSSIONPORTRAITS BY BERND SCHIFFERDECKER
A recent report from Lloyd’s shows that the Arctic is becoming more accessible and commercially viable to energy, mining and shipping companies. But can this new accessibility be exploited, and if so, how? We ask a group of industry experts
Market magazine: Why has there been so much interest in the Arctic recently?
Benno Reischel � e Arctic is of great interest to a wide variety of parties, and we increasingly see questions raised about the risks and opportunities. In our recent report we wanted to provide an overall view of
the opportunities and risks involved in future development, along with some answers on how to manage them. We wanted to consider how risks can be managed responsibly and what insurers such as Lloyd’s can o� er by way of support.
MM: Why is the Arctic now seen as an opportunity for economic development?
BR Scientists have shown that climate change is happening in the Arctic, and this is opening up access to the region. For example, each year there is less seasonal sea ice, and that ice is now much thinner than in the past. This is opening up new sea lanes and increasing access to oil, gas and mineral deposits.
Clockwise from top left: Jamie Balmer, Judy Knights, Neil Roberts, Simon Boxall and Benno Reischel
20_Arctic Risk_(9pt)_des21.indd 1 21/05/2012 12:10
21
20_Arctic Risk_(9pt)_des21.indd 2 21/05/2012 12:10
22 / DISCUSSION
will be the governments and taxpayers in these countries, in particular Russia and Greenland, but also the US, Canada and Norway.
MM: What are the main challenges for economic development in the region?
NR Arctic marine risks are challenging to underwrite. � e Arctic is a large, diverse and remote area. Weather conditions are poor, polar winters are long and dark, mapping and satellite communications are poor, and there is a need for special strengthened vessels and expert crews. Ship owners will have to balance savings from using the Northern Sea Route against risks they face and the costs of essential icebreakers.
JB Companies looking to develop oil and gas assets in the Arctic risk escalating costs. Every company that has developed in the Arctic has ended up with a much higher bill than anticipated. Everything is at the frontier of technological development.
JK Companies also face operating risks from the environment and weather conditions, which can lead to mechanical failure and necessitates duplication of expensive equipment. Examples of measures taken to manage this risk include a requirement in Greenland for the presence of two drilling units in their waters, so that a relief well can be started immediately and in the Beaufort Sea there is a requirement to ensure that in the event of a blowout, a relief well can be drilled in the same season as the original well.
BR Reputational risk is one of the biggest challenges for companies operating in the Arctic. If anything goes wrong, the world will be watching. Environmental damage and pollution are potentially harsher in the Arctic than elsewhere, and more diffi cult to
“Arctic marine risks are one of the most
challenging to underwrite at the
moment. The Arctic is a large, diverse
and remote area.”NEIL ROBERTS
Judy Knights � ere has been successful development of oil and gas in the Arctic for some 25 years, and this has been done with consideration for the environment. But the region’s resources are becoming more accessible due to climate change, and the price of oil at more than $100 per barrel makes it more economically viable.
Neil Roberts There may also be opportunities for the shipping industry, depending on the nature of climate change. There is already the Northern Sea Route above Russia, but it is not currently commercially viable for most shipping companies. There were shipments last year via this route, but they are really just testing the possibilities at the moment.
BR Our report also highlights opportunities for the � shing industry, as warmer seas have led to some improved � sh stocks. Arctic tourism is becoming more popular, too.
MM: Who stands to bene� t the most from developing the Arctic?
Jamie Balmer Realisation of vast oil and gas assets is likely to present the main opportunities. The Arctic is thought to hold 13% of the world’s undiscovered oil and 30% of its undiscovered gas resources. And that may just scratch the surface, because we know so little about this remote region. The main people to benefi t will be big oil companies that are fi nding it increasingly diffi cult to locate and develop oil elsewhere, as development of oil and gas in the Arctic will require technical expertise that only they can provide. The other benefi ciaries
20_Arctic Risk_(9pt)_des21.indd 3 21/05/2012 12:10
23
JAMIE BALMER SENIOR ANALYST
Balmer is responsible for
a number of reports on the
oil and gas sector at Infi eld
Systems Limited, a
specialist energy industry
analyst fi rm. He has also
worked as a business
analyst for RBS.
SIMON BOXALLMANAGING DIRECTOR,
MARSH ENERGY PRACTICE
Boxall leads Marsh’s
activities in Greenland,
having visited key clients
and government agencies
on several occasions. He
advises on Artic insurance
and risk management.
JUDY KNIGHTS MARINE AND ENERGY
CLASS OF BUSINESS
EXECUTIVE, LLOYD’S
Knights has worked in
the industry for 32 years.
She’s responsible for
managing policy towards
Marine and Energy
underwritten at Lloyd’s.
BENNO REISCHEL HEAD OF NORTHERN
EUROPE, LLOYD’S
Prior to joining Lloyd’s,
Reischel worked for
a large German insurer,
where he assessed
and insured Arctic and
Antarctic risk exposures
of German multinationals.
NEIL ROBERTS SENIOR EXECUTIVE,
UNDERWRITING, LLOYD’S
MARKET ASSOCIATION
Roberts has worked in
the Lloyd’s market since
1985. He acts as market
liaison with the maritime
community and various
government departments.
OUR EXPERT PANELHere’s who made up our panel of experts, and why they have particular expertise in assessing
the insurance needs of companies wishing to explore the changing Arctic landscape
highly challenging risk environment. But this is not an entirely new issue. We have been working with our clients for some time on issues such as dealing with harsh environments.
MM: What makes the Arctic di� erent?
BR The Arctic is of global signifi cance, so any impact – whether climate change or pollution – can have a global impact. Delicate management of the Arctic is of upmost importance for all industries looking to expand there.
JB An environmental disaster in the Arctic would have far greater impact on a company’s reputation compared with an incident in another part of the world. Even the smallest leak, that would otherwise not get picked up on, could potentially sink a company.
JK The potential implications of a leak or a fi re are greater in the Arctic. In the North Sea a company might be able to contain the situation quickly, evacuate a rig and control the well, but the facilities to do this would just not be available nearby in the Arctic.
MM: Is it safe to develop the Arctic?
NR � e oil majors will be � rst to develop the Arctic, but there will
clean up. We’ve also seen political and regulatory developments. The Arctic is already highly regulated, with an emphasis on environmental protection, but further regulations are likely, which will make Arctic economic development more costly.
Simon Boxall � e Arctic presents a unique combination of risks, including very tough technical challenges such as winter darkness, ice � ows and a lack of infrastructure. So there are a lot of speci� c risks and exposures which, in combination, produce a complex and
highly challenging risk environment. But this is not an entirely new issue. We have been working with our clients for some time on issues such as dealing with harsh environments.
MM: What makes the Arctic di� erent?
BR The Arctic is of global signifi cance, so any impact – whether climate change or pollution – can have a global impact. Delicate management of the Arctic is of upmost importance for all industries looking to expand there.
“The Arctic is thought to hold
13% of the world’s undiscovered oil
and 30% of its undiscovered gas
RESOURCES. And that may just scratch the
surface, because we know so little
about this region.”JAMIE BALMER
be natural caution from the more prudent companies. � ey won’t proceed until they are absolutely sure about what they are doing. � ey will consider all the risks and hazards, and make sure their people, equipment and reputations are safe.
JB Oil companies will invest to minimise the risk and make sure facilities in the Arctic are safe. Risk management strategies have evolved during the past 30 years, in particular following major incidents such as Piper Alpha in the North Sea. Also, oil companies mitigate risk by trying out new technologies in more benign areas. For example, cutting-edge subsea developments are in use in the North Sea and Barents Sea now, so by the time they are used off the Arctic shelf it will be a proven technology and less likely to fail.
MM: What is the role of good risk management and governance?
BR As our planet’s resources become more scarce companies will become more interested in developing the Arctic and be prepared to take the associated risks. But it needs to be managed properly. Insurance is only one way of managing the risks –
20_Arctic Risk_(9pt)_des21.indd 4 21/05/2012 12:10
the most important part is to avoid losses through risk mitigation and management.
SB Oil companies typically have very good risk management, governance and crisis management in place. But they should consider whether it is a match for the unique challenges in the Arctic, especially as some stakeholders will not have experience in this arena. Also, risk-governance expertise is spread unevenly amongst Arctic nations, so collaboration will be vital. There should be no secrets when it comes to Arctic risk management.
MM: What is the role of insurance?
NR Insurance helps facilitate enterprise by reducing risk, and will be there to support industry. Insurers also have a role in encouraging good risk management by requiring certain standards to be in place, as well as
requiring risk surveys. And insurers di� erentiate between risks, which can also encourage best practice.
SB Insurance plays a vital role by transferring risk to professional carriers, thereby underpinning critical investments. Insurers are already insuring drilling and exploration in the Arctic and protecting oil companies’ producing assets. We help underwriters develop a deeper understanding of the risks being offered to them, which enables them to price such risks more competitively. For example, we use risk engineers to develop understanding as to which risks are conventional, and which may be innovative or unique to the Arctic environment. Also, there is a need for high-calibre risk management and transfer to help protect local populations from adverse events. For example, insurance can help protect societies by providing pollution cover: governments need to be sure that operators have robust fi nancial instruments in place that can be called upon to pay for the cost of pollution mitigation and clean-up.
JK Lloyd’s has a long history of innovation and developing products in response to emerging risks. And the Arctic is a place where we can use our expertise to help companies manage risks more e� ectively.
BR Lloyd’s has provided cover in the Arctic for many years, but we could be on the cusp of a rush for the Arctic. To what extent will the insurance industry be able to respond? In principle, Lloyd’s will as far as possible help to manage the risks through insurance. But the market’s capacity is fi nite.
SB transferring risk to professional carriers, thereby underpinning critical investments. Insurers are already insuring drilling and exploration in the Arctic and protecting oil companies’ producing assets. We help underwriters develop a deeper understanding of the risks being offered to them, which enables them to price such risks more competitively. For example, we use risk engineers to develop understanding as to which risks are conventional, and which may be innovative or unique to the Arctic
“As insurers, we are venturing into
a new and rather unknown area, so
we have to ask questions and
make sure risks are insurable.”
BENNO REISCHEL
FURTHER INFORMATION
If you would like to read the Lloyd’s Arctic Risk Report referred to in this piece,
‘Arctic Opening: Opportunity and Risk in the High North’, visit lloyds.com/ArcticReport2012
24 / DISCUSSION
MM: What are the main challenges that insurers face?
BR � e key challenge is reliable data, which will allow underwriters to asses and price risk vigorously. Because there has been relatively little activity in the Arctic, there is less data to evaluate exposure. As insurers, we are venturing into a new and rather unknown area, so we have to ask questions and make sure risks are insurable.
SB The main challenge relates to developing a professional understanding of the risks they are asked to underwrite. We strongly believe that, especially in an Arctic context, every risk brought to market is unique. As brokers, we have a role to play in ensuring that this differentiation is effectively projected, so that the risks can be covered and priced appropriately. Here again, we rely on our skilled industry risk engineers to provide detailed analysis to support underwriter negotiations.
NR Insurers are very approachable, but they can only work from the information they have, or are able to ascertain – and that is where a price can start to vary. If an underwriter does not have enough information, they will assume the risk is worse and put the price up. And that can help focus commercial instincts – if lack of detail leads to expense, companies will become more open with the information they provide to insurers.
20_Arctic Risk_(9pt)_des21.indd 5 21/05/2012 12:10
Canada
alaska
russia
greenland
arCtiC oCean
north pole
atlantiC oCean
paCifiC oCean
25
ma
p: ia
n d
utn
all
routes aCross the top of the worldClimate change is happening. Each year, there is thinner seasonal sea ice in the Arctic. This is increasing
access to oil, gas and mineral deposits, and opening up four major new sea lanes for global shipping.
The northwest passage
has been sought by explorers for
hundreds of years as a trading
route between the Atlantic and
Pacific oceans. It hugs Canada’s
Arctic coastline for 9,324km.
Between the months of July
and September, it is currently
63% accessible to shipping,
although this is expected to
rise to 82% by 2045-59.
The northern sea route
heads across Russia’s northern
coast and is 5,169km long. It
is currently 86% accessible
to shipping between July and
September, but could be ice free
by 2045-59. During the next 10-20
years, the route is the most likely
to be subject to large-scale
development and could become
a major global energy corridor
between Russia and East Asia.
The north pole route is
6,960km. It is currently just 64%
accessible to shipping between
July and September. By 2045-
59, Arctic conditions may have
changed so much that it could
be ice free, so a route across
the North Pole – bypassing the
Northern Sea Route and the
Northwest Passage – becomes
commercially viable.
The arCtiC Bridge is a
seasonal sea route linking
Russia to Canada. It is 7,135km
in length and is already 100%
accessible to shipping between
July and September.
20_Arctic Risk_(9pt)_des21.indd 6 21/05/2012 12:10
Coming soon… Lloyd’s, Cover to Cover Our new brochure has been designed specifically for potential policyholders. It can be used by brokers or coverholders to explain how the Lloyd’s market works, the types of risk we cover and our Chain of Security. You can even co-brand it with your own logo. Find out more at lloyds.com/BRANDHUB
26_Cover to Cover ad_2.indd 1 18/05/2012 17:06
he Catlin Seaview Survey is a collaboration between global insurance company Catlin Group Limited, the not-for-profit
organisation Underwater Earth, and Google. An innovative camera, developed specifically for the expedition, will capture thousands of 360-degree underwater panoramas which, when stitched together, will allow people to go online for a virtual dive at all of the locations visited by the Survey. Around 50,000 panoramas will be accessible when the project is completed, which will help form a baseline data set of the structure and biology of the reef.
Stephen Catlin, the founder and Chief Executive of Catlin Group Limited, says: “We’re proud to be part of the team leading this pioneering project. The results will be broadcast on a scale never attempted before, so it is an exciting time for science.”
The expedition launches on the Great Barrier Reef in September 2012, and during the coming years the Survey intends to expand to reveal the oceans in regions of importance across the world.
Catlin Seaview Surveywords by richard robinson image from catlinseaviewsurvey.com
27
A pioneering scientific expedition – the Catlin Seaview Survey – will reveal the composition and health of coral on Australia’s Great Barrier Reef through a comprehensive visual study
Take a virtual dive on the great barrier reef
T
FURTHER INFORMATION
The content captured through the Catlin Seaview
Survey will be accessible through various Google
platforms, and will also be available at
catlinseaviewsurvey.com
27_Catlin_(9pt)_des9.indd 1 18/05/2012 17:11
28 / CARBON CAPTURE words by roxane mcmeeken IllustratIons by leandro castelao
28_CCS_(9pt)_des10.indd 1 16/05/2012 11:51
29
The UK government recently announced a £1bn competition to accelerate the development of an infrastructure that will remove industrial carbon dioxide emissions from power plants. What’s more, the plan could get the first schemes operational by 2016. It’s an ambitious programme – particularly for an emerging industry. There’ ll be unique challenges and fresh opportunities for the insurance sector
n April this year, the UK government launched a £1bn competition to encourage energy companies to capture
and store carbon dioxide. Selected firms will be commissioned to build plants which capture the carbon dioxide emitted by power stations burning fossil fuels, and pipe it off site to be stored deep beneath the ground or sea. The plants are planned to start operating between 2016 and 2020, and as carbon capture and storage (CCS) hits its stride in the 2020s, the government expects the industry to contribute some £6.5bn a year to the British economy.
“Carbon capture and storage is set to become the most dominant form of climate change mitigation worldwide,” says Luis Prato, Senior Underwriter at Catlin Group.
The emerging industry, then, will present a new opportunity for the insurance sector. However, a number of questions concerning carbon storage remain unanswered, including the potential scale of liabilities. So how can insurers meet the challenge of CCS?
New territory The problem with assessing the liabilities associated with CCS is that it’s a new process. According to the Global CCS Institute, there are more than 70 projects to build large-scale plants worldwide, including one in the North Sea at Peterhead in Scotland, but Europe currently has only two complete and operational plants: the Norwegian sites at Sleipner and Snøhvit.
Catlin Group is one of many insurers who are currently weighing up CCS before potentially launching a product. “Insurance depends on historical data to design and price products, but this is a field without data,” says Prato.
Alexandra Vincenti, a research executive within Lloyd’s Emerging Risks and
I
28_CCS_(9pt)_des10.indd 2 16/05/2012 11:51
30 / CARBON CAPTURE
Research department, says that they are following CCS closely. She describes some of the concerns around the technology: “This is a new risk, so we don’t know what level of indemnity to put on it yet. But we do know that it will have a long tail, as carbon could be buried for hundreds or even thousands of years.”
A list of unknowns Jerome Neufeld, a Lloyd’s Tercentenary Research Fellow, is researching carbon storage at Cambridge University.
“Carbon dioxide will be injected into the ground, both onshore and offshore, 800m to 3km deep in places such as
coal seams, saline aquifers and depleted gas and oil fields,” says Neufeld. “Carbon dioxide is light and buoyant, so it tries to rise to the surface. An impenetrable seal – a ‘cap rock’ – will be put on top of the area, but it is possible the gas will escape.”
A second unknown is whether carbon dioxide seeps out gradually over decades or in a shock burst. Although Neufeld sees the latter as unlikely, insurers must factor in that the consequences could be fatal.
A tragic case in point is Lake Nyos, in northwest Cameroon, which lies in the crater of a volcano that leaks carbon dioxide into the water. While the carbon dioxide typically stays at the bottom of the lake, seismic movements appear to have triggered a sudden release in 1986 which suffocated more than 1,700 people nearby.
Slow leakage could have disastrous consequences, too. Carbon dioxide mixed with water creates carbonic acid, so carbon dioxide entering seawater could damage marine life and harm the livelihoods of those who depend on the sea. Similarly, if carbon
CArbon dioxide will be injeCted into the ground, both onshore And offshore, 800m to 3km deep. An impenetrAble seAl will be put on top of the AreA, but it is possible the gAs will esCApe
28_CCS_(9pt)_des10.indd 3 16/05/2012 11:51
31
dioxide was stored in aquifers, it could pollute drinking water.
The potential for sequestered carbon to escape into the atmosphere is another quandary for insurers. Energy companies are set to receive government incentives for developing CCS, and Prato asks: “If the carbon is released into the air, do the carbon credits have to be paid back?”
And if they do have to be paid back, then by whom? It could feasibly be the energy company, the contractor that built the storage facility, the company that injected the carbon, or the operator of the facility. Another grey area is the time frame. With carbon dioxide expected to be stored for at least 100 years, will there come a point at which some degree of leakage is deemed acceptable?
The carbon price itself is the final major risk with which insurers seeking to enter into the CCS market will have to contend.
“Our key concern is the ‘man-made’ liability of the obligation to repay carbon credits in cash,” says Prato. “There is a great deal of uncertainty around this.”
Indeed, currently the carbon price is set artificially by regulators in order to spur energy companies to pursue climate-change mitigation strategies, but it is difficult to forecast the price decades or even centuries ahead.
There’s always an Upside The good news for insurers is that some elements of the CCS process are tried and tested, and therefore relatively straightforward to cover and price.
“CCS involves some familiar risks seen in power and pipeline work, such as those around transporting and
drilling,” says Jatin Sharma, Head of Offshore at renewable energy specialists GCube Underwriting, which is looking closely at CCS. The risks of transporting carbon dioxide are akin to shipping natural gas.
The nuclear industry offers further hope for insurers. Here, governments have tended to assume at least part of the risk – the UK government assumes a certain amount of the liability for nuclear decommissioning, for example.
The specialist pooling arrangements that insurers formed to cover the UK nuclear industry also suggest how the CCS challenge can be met. Andrew Voysey, Secretary to the ClimateWise insurance industry initiative (see panel on left), says that a similar pool could be created for CCS.
“It will be difficult for individual insurers to justify the commitment required, so the challenge will certainly be best met through collaboration,” says Voysey.
“While the technological side of CCS may need unconventional pooling methods, conventional approaches could be used for the tried-and-tested elements of the process,” says Prato. “This will open up CCS as a wider field with which insurers will feel more comfortable.”
ClimaTewise prioriTises CCs ClimateWise, the insurance
industry group facilitated
by Cambridge University, is
focused on responding to
climate change-related risks,
and has identified carbon
capture and storage as a “clear
priority”. The group, whose
members include Lloyd’s,
agreed in March to work with
the UK-based CCS Association,
which aims to promote carbon
sequestration and whose
members include energy and
engineering companies such
as Jacobs Engineering, Rio
Tinto and Shell.
Andrew Voysey, Secretary
to ClimateWise, says the
organisation’s work on CCS is in
the “exceedingly early stages”
but it will shortly assess five
financial security instruments
identified by the CCS
Association as possible routes
for the insurance industry to
support carbon sequestration.
“Among the options for
dealing with carbon emissions,
CCS seems to have a significant
role to play, and yet it’s furthest
from being a commercial
reality,” says Voysey. “There
is a need for collaboration to
meet the CCS challenge, and
that is where ClimateWise can
help. We would encourage any
Lloyd’s members to join us.”
FUrTher inFormaTion
Take a look at damtp.cam.ac.uk/user/jneufeld for more information about the work of Lloyd’s
Tercentenary Fellow Jerome Neufeld and for a bibliography of research papers on CCS
28_CCS_(9pt)_des10.indd 4 16/05/2012 11:52
jan blumenthal, Lloyd’s general representative for germany, has set himself the goal of raising the visibility of the lloyd’s market in the country
he euro-zone crisis and the export-led boom in German industry are making Germany’s insurance buyers look
to markets outside their own borders for insurance solutions, according to Jan Blumenthal, Lloyd’s General Representative for Germany.
Blumenthal, who, in January, succeeded Burkard von Siegfried following his retirement after 20 years in the role, believes the Euro’s difficulties have highlighted issues with insurer solvency and the long-term sustainability of the German insurance market. It shows that countries can’t ‘go it alone’ – they should look beyond their domestic markets.
German buyers want to be sure that their insurers will be there when they need them. “Lloyd’s is a transparent market that enjoys an excellent A+ financial-strength rating,” he says. “And it is also a front runner in preparing for Europe’s new capital rules, Solvency II.”
Germany’s thriving export sector is another reason why German buyers could benefit by engaging with international insurers. “From large multinational corporates to medium-sized family-run technology companies, German businesses are selling goods across the
world. Germany is a big beneficiary of globalisation, and this trend lends itself to Lloyd’s,” says Blumenthal.
German companies, including small- to medium-sized firms, need access to the world insurance market. “For the domestic insurance market in Germany to be sustainable, it must act as one with the wider European and global insurance markets.”
Germany’s domestic insurance market is competitive, but it remains relatively closed. “Clients believe that they can get everything they need in the German market, but there are many products available at Lloyd’s that they do not know about – such as insurance to cover mergers and acquisitions,” he says. Lloyd’s is also a leading market for international catastrophe and political risk insurance, which could help German companies exporting to, or operating in, unfamiliar markets.
“German companies operate in international markets, and have international boards and shareholders. It is now time for Germany to open up to the international insurance market. Lloyd’s is easy to access and is in a strong strategic position,” says Blumenthal.
He has set himself the goal of making the Lloyd’s market more visible in Germany. “I want to promote Lloyd’s as a strategic, stable and reliable partner for insurance.”
Germany’s in-house brokers are an important target group. Many large German companies operate insurance brokers to arrange their own insurance, as well as to offer insurance to employees and clients. “Lloyd’s has many products and the capacity to offer in-house brokers, who could potentially become Lloyd’s coverholders,” he says.
There are already 20 Lloyd’s coverholders geared to small- to medium-sized companies in Germany, and their number is expected to grow as coverholder business increases by 10-20% per annum. There are also opportunities for managing agents at Lloyd’s to work with domestic German brokers – both international and national – as well as regional and specialist brokers.
“There are a wide number of professional German brokers who would be interested in the products that local German insurers currently do not have,” he says.
Lloyd’s could also be an attractive market for German insurers, as it can provide them with additional reinsurance capacity, as well as solutions that would enable them to sell specialist insurance under their own brand names.
“We have been opening up the German market for Lloyd’s managing agents. The time is right to grow in Germany.”
FURTHER INFORMATION
To find out more about the German insurance market and Lloyd’s
presence there, visit lloyds.com/Lloyds/Offices/Europe/Germany
32 / interview words by samantha coulthard illustration by elisabeth moch
T
32_Blumenthal_(9pt)_des12.indd 1 21/05/2012 12:12
33
Key facts about the German insurance marKet
jan blumenthalJan Blumenthal has more
than 30 years’ insurance
experience in the US,
German and London
markets. He previously
worked at Willis, in
Germany, where
he was chief client
advocate and network
country manager. He
joined Lloyd’s in January.
Germany’s non-life
insurance market is the
largest in Europe and
the second largest in
the world behind the US
The German Insurance
Association’s 469
member companies
underwrite 450 million
insurance contracts
each year
There are 591
insurance companies
currently operating in
Germany. Of that
number, 217 are
non-life insurers and
36 are reinsurers
99.7% of all companies
in Germany are
Mittelstand (SMEs),
with fewer than 500
employees, or €50m or
less in annual revenue
Lloyd’s German office
opened in 1987 and is
located in Frankfurt
Lloyd’s managing
agents with offices
in Germany include
Beazley, Catlin, CV
Starr, Hiscox, Kiln,
Liberty Syndicates
and Omega
source: swiss re “world insurance in 2010” sigma study
source: german insurance association
source: BaFin
source: lloyd’s
source: lloyd’s
source: lloyd’s
32_Blumenthal_(9pt)_des12.indd 2 21/05/2012 12:12
34 / HERITAGEWORDS BY TIM OLDHAMIMAGE FROM CORBIS
rokers Willis Faber & Co arrived at the Lloyd’s underwriting room early in 1912 seeking to insure two of the world’s largest ocean liners: RMS Titanic and her sister ship, RMS Olympic. A large number of di� erent underwriters took
portions of the risk, ranging from £200 to £75,000, and both ships were fully insured for just £7,500 per ship.
At this time, Lloyd’s was a vastly experienced marine insurer with a reputation for promoting safety and innovation. Indeed, former Secretary to Lloyd’s Sir Henry Hozier was a pioneer of his time, creating a network of coastal signal stations across the world. Determined to use new wireless technology to improve shipping safety, Hozier worked with Italian inventor Guglielmo
Marconi, and by 1898 all the Lloyd’s signal stations were equipped with radio. One of these, the Lloyd’s Cape Race signal station in Halifax, Newfoundland, played a crucial role in the Titanic story.
At 11.40pm on 14 April 1912, travelling at 22 knots, 350 miles o� Newfoundland, Titanic
struck the submerged spur of an iceberg. At 2.20am, she sank beneath the waves.
On the morning of 15 April, news that Titanic had struck ice had already arrived from Cape Race. Reinsurance rates rose sharply during frantic negotiations and reached 60% by noon following con� rmation from Cape Race that the liner was sinking. Shortly afterwards, however, a message from the Exchange Telegraph in New York claimed that Titanic was safe and under tow. Rates plummeted to below 25%. How the di� ering accounts came about is unclear, but hours after Titanic had reached her � nal resting place underwriters were still agreeing to insure her – unaware of her fate.
Within 30 days, Titanic’s owners White Star Line had been paid in full, but the ship left a profound legacy, as the disaster prompted signi� cant improvements in maritime safety. � e fate of Titanic remains a reminder that while risks change, they never disappear – and that no ship is unsinkable.
Titanic’s fate prompts a landmark treatyWhen RMS Titanic struck ice in 1912, radio communication was still in its infancy, so even after she had reached her � nal resting place, underwriters were still reinsuring her
RMS Titanic leaves Belfast for sea trials in 1912. She was built at the shipyards of Harland and Wolff in the city
there’s always a fi rst TIME…
B
34_Titanic_(9pt)_des6.indd 1 16/05/2012 08:26
AustrAliAAdrian HumphreysLloyd’s General Representative, Australia+61 (0)2 9223 [email protected] BrAzilMarco CastroManaging Director and General Representative, Brazil+ 55 (21) 3266 [email protected] CAnAdADeborah MoorLloyd’s General Representative, Canada+1 416 360 [email protected] ChinAEric GaoLloyd’s General Representative, China+86 21 6162 [email protected] hong Kong Kim SwanGeneral Representative, Hong Kong+852 2918 9911 [email protected] JApAnIain FergusonRepresentative and Chief Operating Officer+81 (0)3 5656 6926 [email protected] northern europeBenno ReischelHead of Northern Europe+44 (0)207 327 [email protected] singAporeKent ChaplinHead of Asia Pacific, Lloyd’s Asia+65 6538 7088 [email protected] southern & eAstern europe & AfriCA Enrico BertagnaHead of Southern, Eastern Europe and Africa+39 026 378 [email protected] uK/irelAndKeith SternUK & Ireland Regional Manager+44 (0)207 327 5933 [email protected] usAHank WatkinsPresident of Lloyd’s America +1 212 382 [email protected]
lloyds.Com/lloyds/offiCes
AirmiC ConferenCe, uK11-13 June, LiverpooLFor the third successive year, Lloyd’s will host an exhibition stand at the Airmic conference. It will be manned by Keith Stern, Lloyd’s Regional Manager, UK and Ireland. He will be joined by representatives from the Lloyd’s market.For more inFormation: [email protected]
regionAl event, hungAry26 June, BudapestLloyd’s first regional event in Hungary will open with speeches and presentations from Lloyd’s representatives: Enrico Bertagna, General Representative, Italy and Head of Southern, Eastern Europe and Africa, and Witold Janusz, Lloyd’s General Representative, Poland. It will be followed by panel discussions featuring Lloyd’s brokers, managing agents and local brokers on the topic of risk evaluation in Central and Eastern Europe. For more inFormation: [email protected]
reinsurAnCe ClAss of Business event, frAnCe3 JuLy, parisThe Lloyd’s France office will host a Reinsurance Class of Business seminar and cocktail reception on 3 July. Lloyd’s is the world’s third-largest reinsurance market regarding non-life business, but has only a small share of the French reinsurance market.For more inFormation: [email protected]
monte CArlo rendez-vous, frAnCe7-13 septemBer, monte CarLo Annual gathering of more than 2,500 professionals marking the beginning of the annual negotiation process ahead of renewals. Lloyd’s will host a cocktail reception on 10 September. For more inFormation: [email protected]
lloyds.Com/events
Jose Ribeiro Director, International Markets, Lloyd’s Jose Ribeiro will leave the corporation in May to take up a new position in Brazil. He joined Lloyd’s in September 2007 as Director, International Markets, with responsibility for promoting the market across the globe.
Gioia GhezziChief Operating Officer, Willis GroupIn her new role as chief operating officer at Willis Group, Gioia Ghezzi will oversee a number of corporate functions while managing global structure to drive revenue growth and increase efficiencies. Ghezzi succeeds Tim Wright, who is now chief executive officer at Willis International.
Robert Hiscox Chairman, HiscoxRobert Hiscox has announced plans to step down in 12 months’ time, after almost 50 years with the company. Hiscox joined in 1965 and took over its leadership five years later upon the death of his father Ralph, the company’s founder.
John McGonigle Head of Affinity and Special Risks, JubileeLloyd’s insurer Jubilee has appointed John McGonigle as head of affinity and special risks. McGonigle assumes responsibility for the profitable performance of Jubilee’s diverse affinity and special-risks portfolio, and its service delivery to broker and affinity partners.
Georgina Smart Equine Underwriter, Kiln Kiln has appointed an equine underwriter in preparation for developing products in that area for the first time. Georgina Smart, who has spent 12 years working in the Lloyd’s market, will focus on specialist risks for sports and leisure horses.
gloBAl ContACtseventsmArKet movers
35
35_IBC_des11.indd 1 21/05/2012 12:14
Lloyd’s One Lime Street London EC3M 7HA Telephone +44 (0)20 7327 1000 Fax +44 (0)20 7626 2389lloyds.com
36_OBC_(9pt)_des8.indd 1 21/05/2012 15:30