Lloyd’s CEO John Neal has said the industry will continue to struggle to meet the needs of clients amid new risks unless it gets better at educating around the benefits it brings.
Mr Neal was speaking to Aon Chair, Dominic Christian as part of the broker’s virtual renewal season series when he was asked how the industry can deal with the new breed of emerging risks.
“I think we have tried to be almost scientific about our approach to new risks,” he said. “We have been smart around products and services.
“We have been scientific about it but we have failed to be educational. We have not explained the difference between intangible and tangible risks, not the worth insurance can deliver when it comes to transferring those risks.”
“However, take the issue of Intellectual property,” said Mr Neal. “The product has been around for 15 years, but who buys it? Cyber cover is purchased in the United States but outside of the US no one buys it.”
He added: “I see some insurers falling into the trap of thinking that people buy insurance because they have to. We have to educate clients around what insurance can offer in terms of the mew risks they face. The more products we sell the cheaper the cover becomes.”
Mr Neal said the industry still laboured under the clients’ view of insurance and how it was categorised.
“When businesses take out a loan they see it as an asset,” he added. “When they buy an insurance policy they see it as a cost. It should be seen as an asset. You exchange money for a risk mitigation asset. It needs to be recategorised so it is viewed as an asset. Also we have to go back to address the needs of the customer today.”
Given the issues around the COVID pandemic Mr Neal pointed out that when Munich Re offered a pandemic product some years ago they had literally no takers for the cover.
He told Mr Christian in the broker’s biennial risk survey in 2019, pandemic coverage found clients put the threat of pandemic in 59th place while business interruption was fourth.
“Those who responded to the survey clearly did not fear a pandemic. However, what they were telling us as an industry was their real concern was around anything that would stop then trading. Many of those risks will be intangible, such as cyber risk, but the risk in the eyes of the client is the inability to operate.”
Mr Neal revealed that plans were in place for Lloyd’s to drive the ability of capital to access the market via Insurance Linked securities (ILS). The aim is for the first ILS structure to be in place next year.
“It will be different from the work we have seen carried out by the Bermuda market, but it will be complimentary,” he said.
Mr Neal also revealed that discussions had taken place prior to the COVID crisis over the future occupancy off the Lloyd’s building in Lime Street.
He said that if the market looked at the building and its aims for the future it was not fit for the market to move further into the 21st century.
“The building is 35 years old and will be 50 years old in 15 years’ time,” he added. “We discussed the issue prior to the COVID pandemic.”
Mr Neal added that the market was frustrated that its programme to get brokers and underwriters back into the building had been impacted by the increased restrictions in recent weeks due to the second wave of the virus.
“|The ability to get people back and meeting together, thoughtfully and responsibly, is vital for the market and its business. We were just getting there when the new restrictions came in which is frustrating. Numbers in the market were doubling week on week.
“That ability to meet face to face is important to the market and the way we operate,” he explained.