Insurance Jottings

Britain’s Insurance Sector Urged to Compete by Selectively Diverging from EU Rules

A senior official from Britain’s insurance sector on Wednesday laid out the case for selective divergence from EU rules to add to London’s appeal as a competitive global financial centre.

 

Britain left the European Union on the 31st January and will have full freedom to write its own rules for banks, asset managers and insurers once a transition period ends on the 31st December 2020.

 

The financial services sector is Britain’s biggest tax contributor, generating £75.5 billion (US$98 billion) annually in tax.

 

Julian Adams, director of public policy and regulation at insurer M&G, said some wholesale market rules inherited from the EU could be amended as professional investors need less protection than retail customers.

 

“One of the areas I would be focusing attention on here is the distinction between retail and wholesale,” Mr Adams told the House of Lords’ sub-committee on EU financial affairs.

 

Taking a different approach for the wholesale market, which includes dealings between banks, exchanges and asset managers, could promote the international competitiveness of London as a place to do business, Mr Adams said.

 

Mr Adams, a former senior Bank of England regulator, cited some of the EU’s capital rules for insurers as an example for changes.

 

This week Britain and the EU set out their approaches to trade talks. Access to the bloc’s financial market would be based on alignment of regulation under an EU system known as equivalence.

Equivalence covers about 40 different financial activities.

 

Mr Adams, also deputy chair of the Association of British Insurers, said there was a strong case for not requesting equivalence in every activity.

 

Britain will be faced with trade-offs between protection of investors and keeping London competitive, he said.

 

Other officials, however, for instance from the banking sector say divergence from EU rules could lead to Brussels denying Britain access to the European market.

 

Miles Celic, chief executive of TheCityUK, which promotes Britain as a financial centre, said there was no sector consensus on where Britain could diverge from EU rules.

 

“It’s important that there is a structure that manages where we align and diverge,” Mr Celic told the lawmakers who are looking at financial rule-making after Brexit.

 

Catherine McGuiness, leader of the City of London financial district, said on the 4th February there was no big demand in the sector to row back on regulation.

 

Marine sector should confront the rising cyber threat it faces

Standard Club press article

The breakneck pace at which the marine industry is digitalising and increasing connectivity means it is critical for the sector to be more open about cyber-attacks.

 

It is not an overstatement to describe the rise of cyber risk in shipping as one of the most substantial threats to the industry for the coming decade. Yet when offered ways of transferring some of this risk, why do so many companies instead decide to run the digital gauntlet?

 

Henry Preedy-Naysmith, Deputy Underwriter for Strike and Delay, discusses why the marine sector should confront the rising cyber threat it faces in the latest issue of Insurance Day.

 

The article is available and reproduced with kind permission, and on the Insurance Day website here.

 

Why P&I insurance is more vital today than ever before

Standard Club press article

The storm raged outside. Restricted visibility, the Master stared anxiously into the darkness and listened intently for clues of imminent danger from close traffic. The vessel was on reduced speed as it butted into heavy seas and the weather forecast did not indicate any imminent relief. He hoped that the lashings on the deck cargo were secured correctly and that the seals on the hatch covers were weathertight”.

 

Experienced mariners have encountered many such situations during their careers at sea.

 

Adverse weather, rough seas, risk of cargo damage and dense traffic are just a small sample of the challenges faced. The vast majority of voyages today, however, are performed safely and efficiently, thanks principally to competent crews, well-found ships and prudent owners / managers.

 

Despite best efforts, collisions, groundings, pollution and environmental damage, fires and personnel injuries do occur, and these are the risks and liabilities to which P&I insurers respond.

 

Read the full article on SAFETY4SEA’s website, here.

 

TransRe partners with insurtech Allphins to launch new energy analytics platform

Reinsurer TransRe has partnered with energy insurtech company Allphins to develop a data analytics platform for offshore energy reinsurance.

 

Lloyd’s First Syndicate-in-a-Box, Operated by Munich Re, Aims to Be an Innovation Lab

Lloyd’s is expecting big things for 2020 as it rolls out the key initiatives for its massive modernisation project designed make it easier to do business with Lloyd’s and, ultimately, reduce the cost base of the market.

 

One of the cornerstones of the “Future at Lloyd’s” project is to make it easier for new sources of capital to come into the market, facilitated in part by its so-called syndicate-in-a box (SiaB) initiative, which Lloyd’s describes as a new way “to bring innovative, accretive and profitable business into the market for a set period without the need for a physical presence in Lloyd’s.”

 

The first company to announce its own syndicate-in-a-box is Munich Re Syndicate Ltd (MRSL), a longstanding Lloyd’s managing agent and Munich Re subsidiary. At the end of September, it announced it is launching Munich Re Innovation (MRI) Syndicate 1840, as the market’s first SiaB. MRI was ready to begin underwriting in January 2020.

 

In keeping with Lloyd’s mandate that such vehicles underwrite business that is new and different and not currently available in the traditional Lloyd’s market, MRI will focus on emerging risks, green energy solutions, autonomous vehicles and on mitigating the financial risks of extreme weather events including the use of parametric products.

 

But Munich Re is unlikely to be alone for very long in its SiaB venture. Lloyd’s said about 30 companies have expressed interest in its newest business concept.

 

In an interview with Carrier Management last year, Stuart Newcombe, active underwriter of the MRI syndicate, described the unique attributes of SiaBs and the benefits of the offer for Lloyd’s and Munich Re.

 

“A key premise of a syndicate-in-a-box is that we can’t be just another source of underwriting capacity for normal lines,” he emphasised. “You won’t find us writing conventional lines such as property and casualty or motor, for example. We must offer something that makes it unique and therefore brings value to the Lloyd’s market.” (Related article: “The Unique Requirements of a Lloyd’s Syndicate-in-a-Box“)

 

Fail-Fast Initiative

The syndicate-in-a-box concept is designed and run by Lloyd’s as a “fail-fast initiative,” Mr Newcombe said, noting that both Lloyd’s and Munich Re want the SiaB to provide an innovation lab, a sandbox for innovative products.

“I see it very much as an incubator – offering products, which are innovative, new, and don’t fit naturally and comfortably with traditional products,” he said.

 

Mr Newcombe would like to see these products move rapidly from the incubator box to become more standard specialty insurance offerings. “Then we can start looking at whatever the next new thing is. I would like to see that progression of risks from test-bed to fully established and then move on to the next round of testing for a new product,” he said.

 

Products in MRI’s Pipeline

For its green energy offering, MRI will offer a product which supports the investors who back renewable energy projects. If a solar farm develops a systemic fault and ceases to operate in a few years, the investors would first turn to the manufacturer to fix the fault by way of warranty or repair, Mr Newcombe explained. If, however, the manufacturer is no longer trading, the investor would own “a huge number of broken solar panels with little ability to repair or replace them, while it still had a significant amount of debt.”

 

Mr Newcombe said MRI covers that gap, which allows people wishing to invest in green energy to secure funding because their funding is protected.

 

On the other hand, MRI will not cover physical loss or damage for the solar farm, which would be in the remit of a traditional Lloyd’s syndicate, such as Munich Re Syndicate Ltd.

 

The use of parametric products is another area of interest for MRI. “While parametrics aren’t new and there are lots of them around, what we’re seeing now is that they’re moving down the customer scale from large commercial clients to SME,” Mr Newcombe noted.

 

Big data and data modelling are enabling insurers to write parametric products in a more scientific manner to reduce the basis risk. “In the near horizon, we’d like to use that data in digital distribution to give the customer the certainty provided by parametric products,” he said.

 

Mr Newcombe cited as examples hail coverage for valuable goods stored in the open, or crop protection against flood, drought or excessive frost.

 

“If you’re a market gardener with crops particularly susceptible to a late frost, you might be interested in such protections,” he said, noting that these products would be enhancements to traditional insurance products, not replacements.

 

Parametric cover “would give the customer more options about how they can financially manage their risk.”

 

MRI also is focusing on emerging risks such as the testing of autonomous vehicles, much of which has been handled thus far in the United States. “However, that’s now going global,” he said. “Companies are now looking to make sure the tests of autonomous vehicles fit the peculiarities of their nation’s roads.”

 

Hitting the Ground Running

MRI is making sure it hits the ground running when it begins underwriting in January. It has spent the final three months of 2019 having conversations with Munich Re units and brokers so the product pipeline is ready.

 

Initially, Mr Newcombe sees a lot of business coming from Munich Re business units, which are looking for solutions to insurance problems. “Lloyd’s has one of the best primary licence networks in the world – if not the best – and that is obviously a very attractive feature for a Munich Re colleague who might be looking to find a good, efficient way to place a primary risk,” he said.

 

MRI has also already had inquiries from Lloyd’s brokers who are looking to find markets for their clients.

 

“So business is going to come both ways: It’s going to come from the Munich Re side, and hopefully, the syndicate will also provide capacity for the wider London market,” he said.

 

What will success look like? “We want to make sure we are writing the right balance of business with sufficient scale to achieve our expense and profitability targets,” stressed Mr Newcombe, who confident the new venture will be a success.

 

“Top-line growth is not the goal, but we will need to achieve a certain amount of scale to make everything else work. It’s very much about getting the business mix right.”

 

Business as usual for re/insurance industry post-Brexit

It will be largely business as usual for the re/insurance industry during the Brexit transition period and attention will focus on the details of the future trade deal that is due to come into force next year, according to Ivor Edwards, a London-based partner at international law firm Clyde & Co.