Unstable Financial Markets Top Risk Management Watch List

London – Instability within the financial markets represent the biggest threat to the global insurance industry, according to a survey conducted last month by Lloyd’s of London. The survey asked 138 Lloyd’s underwriters to answer questions about working in the Lloyd’s environment, including the identification of those emerging risks that will most likely challenge the insurance industry over the coming year.

Forty-nine percent of survey respondents feel the world will be a less stable place in 2008 and, although 55% of underwriters feel insurance buyers are giving greater consideration to terrorism and political risk in planning, 56% still feel they need to do more.

Furthermore, only 21% believe insurance buyers are giving greater consideration to climate change in risk management, which is a concern at a time when flooding and unseasonably high temperatures are highlighting the impact of climate change. Thirty-nine percent of underwriters questioned feel that climate change is likely to contribute to above-average losses from the 2008 hurricane season after two years of benign loss experience.

Lloyds’ has identified liability as a key theme for its 360 risk project in 2008, which has commissioned the Economist Intelligence Unit to undertake a survey of business leaders to garner opinions on issues such as compensation culture and the global credit crunch. More than half of those who participated in the Lloyd’s January survey believe that the compensation culture is out of control.

Also, 82% of underwriters questioned in the Lloyd’s survey believed insurance buyers are giving more consideration to corporate liability, although 61% still felt more preparation was needed.

Andrew Miller, director at BPL Global, London, echoed the sentiments of others who believe financial instability will be a key threat in 2008, and identifies another major concern: “The two main issues that will continue to drive our business are the ‘credit crunch’ and the problems of terrorism and political violence. Both are really only just beginning, and their shared characteristic is that they are set to get worse before they get better,” he said.

But despite all the uncertainty, 83% of the respondents believe that disaster and continuity planning is higher on the agenda for global business leaders than it was two years ago, and more than three quarters feel risk managers are more sophisticated in their understanding of risk than two years ago. There is still much to be done, but it is encouraging that risk management seems to be higher on the agenda than ever as underwriters and business leaders alike face up to a challenging year.

Source:  Lloyd’s of London