Standards driven sustainable solutions key in emerging markets says Lloyd’s chairman at SIRC

He also warned that if the influx of alternative capital into the insurance markets is not properly managed it could damage the integrity of the industry. In his keynote address, the Lloyd's chairman said his industry must deliver innovative solutions to emerging risks or lose relevance in the modern economy. Described by Mr Nelson as a 'meeting of the future of the insurance industry', this year's annual SIRC saw a record 900 delegates from 48 countries gather in Asia's leading insurance hub.hideHe told attendees: "We want to develop professional standards in Asia. Through this we will achieve what we all want-high insurance penetration, high levels of security for the policy holder, good returns on capital in the industry and improved economic growth and security." Moving insurance penetration levels in Asia, currently estimated at around 1.5% by Lloyd's, decisively upward, while at the same time maintaining strong professional and regulatory standards is key, said Mr Nelson. "This must be both in the interest of economies and our customers, the insureds. I believe getting the right balance between growth and standards is something that we should all be engaged in," he said. "Growth and standards are not irreconcilable, but two sides of the same coin." He raised concerns over the influence of the abundant new alternative capital entering the global insurance market on industry standards. This represents a particular risk in high growth markets such as Asia, he said. "I am concerned about the risks that some of this capital may present. We need to guard against cheap capital being deployed with more emphasis on short-term focus rather than long-term stability. That could be a risk in a high growth region such as Asia," said Mr Nelson. The strength of the insurance industry is that it knows risk, prices accordingly, measures aggregate risk, is able to supervise its own underwriting and satisfy the regulators, pointed out Mr Nelson. But he warned that some of the new structures and vehicles being used by the alternative capital do not meet these criteria. "We have seen examples of where risk and pricing have not been given sufficient focus in other parts of the financial services industry, and seen the results of this... For me it is vitally important that the insurance industry maintains the integrity of its business model," he said. "I think that is something that Lloyd's have been quite vocal about and I know the regulators, certainly in Europe, are keeping a close eye on that because there are some dangers that we have to keep watch on," he added. However, Mr Nelson believes that much of the new capacity arriving predominantly from the capital markets is here to stay. There are signs that capital portfolio mangers are beginning to look at insurance as an asset class, much as they started to look at real estate and property thirty or forty years ago, said the Lloyd's chairman. This development represents an opportunity as well as a risk for the insurance industry and its clients, he said. "These capital resources are a huge opportunity for the risk transfer industry if we use them sensibly, sustainably and always in the interests of the customer. It will fuel insurance requirements that are sure to grow as economies, particularly in this region (Asia), commercialise and industrialise and as insurance penetration rates increase," he said. The insurance industry must also rise to the challenge of innovation, encouraged the Lloyd's chairman. "One of the biggest issues facing the global insurance industry today is the relevance to modern business and in particular our need to innovate and cover new types of risk," he warned. Mr Nelson said he was fascinated by how few of the top ten risks rated by leading organisations in Lloyd's' latest Risk Index survey were potentially covered by insurance. "We want to work with you to understand how to cover some of these rising risks in Asia. If we can find ways to do this we will have served our customers well. But it is essential to us that any growth is sustainable and ultimately that means profitable," he told the gathered insurers and reinsurers. He also challenged his industry to work more closely together and exchange information across the growing number of insurance hubs around the world. This will enable the industry to better understand the global risk landscape and therefore service clients, he said. "Risk in Asia not necessarily the same as the US or Europe. Legal and regulatory systems are different and clients, the insureds, have different expectations of what they want from insurers and we need to learn all of this," he added.

Standards driven sustainable solutions key in emerging markets says Lloyd’s chairman at SIRC

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