Lloyd’s seeks to compel market to better understand emerging risk threat

The Lloyd’s market is moving to tackle the key emerging risks amid concerns over the ability to understand the aggregation threats posed by geopolitical risks and cyber.

Lloyd’s chief of markets, Patrick Tiernan revealed the market has undertaken a data collection exercise around three scenarios over major geopolitical risks in the Taiwan Straits region of Asia in an effort to model the worst case scenarios, having been stunned by the fallout from the Russian invasion of Ukraine.

“It is critical that we learn the lessons from Ukraine and how geopolitical risk can impact the market,” he said. “The claims have not simply been the expected claims around the invasion. We have seen a number of claims which have arisen because of the sanctions regime and from areas which were unexpected.”

As such he said Lloyd’s will be approaching the market to ask for data on loss exposures to three scenarios which get increasingly significant.

“These will include classes such as aviation, marine, cyber, political risk, political violence and property,” Tiernan added. “We will be seeking feedback on how well the market is able to manage accumulations.”

He said the area had been chosen for the exercise because of its significant role in global trade and the scenarios will examine the impact of differing political relationships in the region alongside the effect on the global economy and the supply chain.

“We are not looking to be alarmist,” he added. “We have not expressed a view on the likelihood of any of these scenarios. However, we have deliberately looked at what we consider to be a worst case scenario.”

At the end of the process Tiernan said the market would be given feedback and discussions would be held as to “how you are managing these aggregations”.

The market is also set to tackle its approach to the coverage of state backed cyber-attacks with Kiernan saying the steps it wishes to take are in an effort to drive clarity for the client and for the market around coverage.

As of 31 March the market has said it will require “clarity of coverage” in all Lloyd’s cyber polices around catastrophic state-backed cyber-attacks.

“We know this has generated considerable noise in the market,” he added. “But I want to reiterate our unflinching commitment to this move, and our continued belief this is an important point of maturity for our market, and the industry.

“We are not indifferent to the customer impact and we are not running away from this risk. Lloyd’s is not mandating any wordings, rather we are insisting on clarity and assurance that these risks are structured and priced appropriately, and that aggregations are understood.

“Let me be clear the time to debate this has long since passed, now should be a time to put energy into developing new products and propositions to respond to this change.”

“If other markets and jurisdictions feel now is the time to be giving away cover to build market share then good luck to them,” Tiernan added.

He explained that Lloyds was monitoring the market to identify any issues of systemic risk to ensure that its syndicates understood the risks they were assuming and the exposures that come with them.

Tiernan said work has already begun in a cyber pre-mortem for the market which will focus on the operational and commercial aspects of how the market would respond to a major cyber event.

“Our base theory is that mutualisation of the risk will be helped by having accessible, affordable contract certain products that are capitalised for the risks they are designed to cover.”

He continued: “Ultimately we want to be able to support that demand growth and retain our leadership position. We do not want to be forced into a post event volte face.”

The market is also set to tackle its approach to the coverage of state backed cyber-attacks with Kiernan saying the steps it wishes to take are in an effort to drive clarity for the client and for the market around coverage.

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