Biba 2012: Insurance industry failing to respond to new risks

The insurance industry has failed to respond adequately to new and emerging risks, according to Lockton chief executive Julian James.

James, who was speaking to Insurance Times at the Biba 2012 conference, said that the industry had fared well over the last two to three years, particularly against the backdrop of the global economic crisis and a year of unprecendented natural catastrophes.

But he said that, since the Thai floods and the unpredicted losses that ensued, combined with the increased threat of cyber risk and other emerging risks, only a few new products had come on the market in response.

“You could say there is a really missed opportunity for the insurance market,” James said.

“And in the worst case you could say the insurance market has not responded well to the needs of its customers.

“Therefore, if people want to make sure our industry stays relevant to the future world they have to do better with innovation.”

James said it was in industry-wide problem for brokers and insurers alike and it was up to both segments to respond to the risks that are emerging.

He said that cyber risk was an area that companies were only starting to get their heads around, mainly in terms of data security and protection, while there was a lack of insurance products covering reputational risk, particularly relevant given the $2bn trading loss by JP Morgan that rocked the financial world.

“The industry needs to do a better job of thinking about what new products people need to buy and what is going to help them in their business,” he said.

Another big risk and unknown quantity is nanotechnology, which is looming large, according to James.

James also raised the issue to claims payment, saying that, while the strength of the industry to pay claims was at an all-time high, he questioned whether some companies were willing to pay them.

“Clients are now beginning to ask questions about what’s the right product and price, and also is this carrier going to pay claims,” he said.

“If you are going to differentiate yourself, you have to establish a reputation to pay up when disaster strikes.”

He has also raised concerns about companies cutting costs in the wrong areas of the business, particularly in this current age of austerity. “People try to save money in areas that affect the business,” he said.

“You see companies cutitng costs from the wrong areas of the business, but really they need to do so in order to make it more efficient, so the focus needs to be on areas that don’t deliver.”

James expressed concern about the eurozone debt crisis and the wider implications, which combined with economic and political instability, will have a knock-on effect on insurance companies’ assets.

He said that governments’ debt downgrades coupled with the possible break-up of the euro was going to impact growth.

For brokers, he said, that meant providing the best advice and experience to their clients.