One ray of sunshine breaking though the storm clouds over London’s financial centre is shining on EC3 home of London’s insurance sector.
Speaking in Germany at Munich University’s Chair of Insurance Services in early May 2009, Lord Levene, Chairman of Lloyd’s remarked “despite some high profile casualties, the overall impact of recent events on the general insurance industry has been limited. The whole financial sector is not some house of cards destined to fall and the insurance industry is relatively well placed to weather recession.”
And the reasons why the London insurance markets can be reasonably optimistic? While insurance companies have clearly suffered investment losses, they are generally well-capitalised and some have raised further capital to bolster their balance sheets. Also insurers do not have the same need for liquidity which has so damaged the banking sector. As with any recession there will be some increase in claims – and not all of them legitimate – but insurance claims are completely uncorrelated to investment returns so losses on insurers’ investment portfolios are not automatically compounded by an increased claims incidence.
So it’s all good news then for insurance buyers in South Africa placing risks in the London markets? Let’s not get carried away, while there is some watery sunshine in the insurance sector – it’s not full on sunbathing weather. Insurance buyers being increasingly concerned about counterparty risk; who is ultimately going to pay the claim when the suntan turns to third degree burns and what financial shape are they in? Here Lloyd’s offers significant strengths – as a subscription market it offers a wide spread of risk between well-capitalised syndicates. Counterparty risk however is a two-way street, buyers in South Africa will need to take a closer look at the quality of their insurers – but London market underwriters will also be taking a closer look at businesses to which they delegate underwriting authority. Coverholders in South Africa can expect an increase in the level of audit and inspection from London-based managing agents.
Taking the resilience of the London insurance market as read – It’s only any use to insurance buyers in South Africa if they can first access the market and second get paid promptly of there’s a claim.
The last month has seen further developments in speeding the claims process. In early May, 120 people attended a presentation on a proposed method for bringing binder claims within the scope of the Electronic Claims File (ECF) system – which is good news for coverholders in South Africa. ECF was launched in the autumn of 2006, and is designed to make claims handling in the London market more efficient by removing the delays caused by the transfer of paper files with the ultimate aim of an enhanced service to policyholders. The Market Reform Group is now considering the next steps for these proposals.
However much sunshine there will always be those who don’t care what’s in their sun cream as long as it makes them tan and there will be others who could write a thesis about SPF protection levels. Well for those who like to know what’s going on inside the bottle, in late May Lloyd’s announced that it had put the complete Market Bulletins archive online with a dedicated Google search facility. These Bulletins are the formal means that Lloyd’s uses to advise the market of business critical issues and can be found on the Lloyd’s website (www.lloyds.com).
But enough of insurance, as this column is being written the Cricket World Cup has just ended with no success for either South Africa or England and the British and Irish Lions tour has just entered its crucial stage. After a rousing, but ultimately unsuccessful comeback in Durban the Lions are looking forward to the second test against the Springboks in Pretoria. By the time this article appears I guess we’ll all know who has the bragging rights.
Danny Maleary is Business Development Director of CTC-Axiom, an insurance and reinsurance support specialist headquartered in London. It is a member of the Insurance Support Services Division of Charles Taylor Consulting Plc (CTC). CTC-Axiom advises on and manages business processes and exposures by working in partnership with Lloyd’s Managing Agents, insurers, reinsurers and broker.