Insurers must react to cyber, emerging risks: NICC speakers

NICC MONTREAL – The insurance industry needs to be more responsive to emerging risks so carriers can remain relevant to policyholders, industry executives suggested Thursday at the National Insurance Conference of Canada.

“The challenge for the industry is, how do we react to the new risks that our clients are experiencing, arising from changing technology?” said Stephen Catlin, executive deputy chairman of XL Group plc. One of those risks is cyber, Catlin added during the global leaders’ panel at NICC, held at the Sheraton Centre in Montreal.

“The challenge with cyber in particular – it is the most systemic risk I have every come across,” said Catlin. “I have done this job 42 years as of today, actually, and I have never seen something which is so potentially enormous.”

Catlin, who began his career in the Lloyd’s market in 1973, went on to found Catlin Underwriting Agencies – the predecessor firm to Catlin Group Ltd. – in 1984. Dublin-based XL Group plc completed its acquisition of Catlin Group in May, 2015.

During NICC, Catlin suggested that terrorist attacks, floods, typhoons are “finite losses,” and explained why he thinks cyber is different.

“Pretend you’re a terrorist for a minute and you want to do the most damage you possibly can,” Catlin said. “What would you do? One thing you could do is to take down the Internet. Think about the consequences of the Internet being shut down globally today. Then think about the consequences over seven days and think about all the things we do in our daily lives that are affected by the Internet.”

In addition to cyber, other emerging risks include driverless cars and unmanned aerial vehicles (or drones), suggested Tom Bolt, director of performance management at Lloyd’s, who also spoke on the global leaders’ panel.

“We are already doing a great job competing on the things we already know how to do and are pretty well shaped,” Bolt said. “A couple of years ago, I told the underwriters at Lloyd’s, ‘You have to quit competing over a bigger slice of the pie, and you need to start making some new pies.’”

Bolt added: “There is no end of emerging risks, but there does seem to be a bit of reluctance to step outside of the box from what you normally make.”

Insurance carriers “are becoming increasingly challenged to make certain that we are relevant to our policyholders,” Catlin suggested. “We could do a better job of what we are doing. I’m afraid it’s true that catastrophe losses over the last 10 years – the percentage insured has gone down, not up. So we’re not even selling what we’re good at that well.”

Also on the panel was Greg Hendrick, chief executive of XL’s insurance operations, who suggested it is easier to write insurance for risks that are modelled.

“A big pot of money is coming into the marketplace is from folks who don’t want to step out and be in front of something,” Hendrick said. “They would rather have a model, and take a much lower return, 4, 5 or 6%, because their alternatives are 0, 1 and 2 %.”

NICC, an annual event produced by MSA Research Inc., continues until Friday.

The global leaders’ panel was moderated by Eric Anderson, chief executive officer of Aon Benfield. The fourth panelist was Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers.

Kading noted that around the world, Canada’s Office of the Superintendent of Financial Institutions (OSFI) is known as an “expert innovator” in capital analysis and supervision.

“OSFI is also known around the world as an enterprise that has created a walled garden, a protected local market with very stringent regulatory requirements,” he added. “Canada would be viewed as one of nine jurisdictions with a regulatory reinsurance collateral framework that probably, based on evidence elsewhere, has impeded competitive markets in the reinsurance sector.”

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