Versicherungswirtschaft: We live in times of political crisis, there is blind terrorism all over the world and our society is so easily hit by cyber attacks. Has our world become more risky?
John Nelson: The Lloyd’s City Risk Index, our groundbreaking study of the GDP at risk in the world’s top 301 cities, identified two separate changes that are worth exploring. Firstly, the world’s economic output is becoming increasingly dominated by cities. The top 301 cities across the world provide 50% of global GDP. By 2025, these cities will account for two thirds of global GDP. This creates challenges for insurers like Lloyd’s, but also the businesses and policy makers in those cities. Secondly man-made risks, like cyber attack, terrorism or economic collapse, are becoming increasingly important threats which need to be considered by risk managers. In Frankfurt, for example, the top three risks to the economic output are a stock market crash, an oil price spike, and a cyber attack. These three risks have an estimated potential economic cost of 7.82 Billion US-Dollar over the next ten years.
What are the consequences for insurers? Has risk perception changed at Lloyd’s?
The most important change is the way we model risk. We are focusing on better and more intelligent data analysis, and Lloyd’s is committed to improving modeling and forecast accuracy. What is also clear is that many manmade risks can be extremely rare in occurance but with significant costs associated. The interconnected nature of modern business means we need to carefully model risk and understand how, for example, a flood in China can affect a German car manufacturer.
There is ample capacity on the markets for large corporate risks and reinsurance as well. How will this change the markets?
The industry is supported by record levels of capital both at an insurance and reinsurance level. As a consequence, the market remains highly competitive.
Where do we stand in the insurance pricing cycle?
Lloyd’s core strength is underwriting discipline. Focusing on underwriting discipline and understanding the risks that we are insuring allows Lloyd’s to operate and thrive in any part of the insurance cycle.
Insurers are criticized for not being innovative. Can they improve?
Absolutely. Lloyd’s prides itself as the global specialist insurance hub. Our concentration of underwriting expertise enables the Lloyd’s market to handle risks that other insurers struggle to manage. Last year we have launched our Innovation…