“See if you can guess whose chest hair we famously insured?” said Patrick Tiernan (pictured above).
The Lloyd’s chief of markets gave a keynote speech on Monday at the Steadfast Convention in Brisbane. During his presentation he gave amusing examples of some of the unique risks the London home of insurance has covered.
Insurance Business is in Queensland’s capital city for the event regarded as the largest general insurance conference in Australia. Organisers say about 2,000 insurance professionals are attending over the three days.
The chest hair belonged to Tom Jones.
Other unique coverages, said Tiernan, included the guitar playing hands of Keith Richards, the tongue of Kiss rockstar Gene Simmons, the football legs of David Beckham and the voice of Dolly Parton.
Even the moustache of Aussie cricket legend Merv Hughes, said Tiernan, was covered by insurance facilitated by the London market.
Then the talk turned to more serious matters.
“Right now, from our perspective, everything is in flux concurrently,” said Tiernan. “That’s never happened before in the 335-year history of Lloyd’s.”
This perspective, he said, comes from crunching an “incredible amount of data” and also from looking at “external catalysts.”
He said politics, geopolitics, economics, demographics, climate and conflict are all bringing huge challenges at the same time.
Tiernan divided this risk challenge into three big insurance sectors: property, casualty and specialty.
“Or put another way,” he said, “physical risk, societal risk and geopolitical risk.”
Tiernan said that for decades the big nat cat physical risks for the industry were wind related, like tornadoes, cyclones and windstorms and then also earthquakes.
“But in recent years, with rising exposure values and demographics to do with where people are living, we’ve got four new perils that we have to bring into that range of what’s most important to us,” he said.
He said these risks - likely exacerbated by climate change - are severe convective storms, floods and fires. These all occur in the United States, he said, and then the fourth new peril is earthquake in New Zealand.
He said climate change means that flood, fire and drought “will definitely continue to be negatively impacted as the planet warms.” For wind perils, he said “there is no consensus yet” as to whether climate change will worsen them.
“But from our perspective, the worst is yet to come in terms of insured losses from climate,” said Tiernan.
Next, the Lloyd’s chief discussed societal risks.
“In insurance circles, we probably talk quite narrowly about what’s happening in casualty in terms of award inflation or social inflation as some folks call it,” said Tiernan. “I like to call it what it is, which is legal system abuse, because it’s driving up awards, which is driving prices up with casualty.”
He warned that, in many cases, this is already unsustainable.
“We are going to have to collaborate with governments in order to get some legal reforms, some tort reform, otherwise, we’re going to get into a position of unaffordability,” said Tiernan.
He said brokers, particularly in the US, were talking about the “intangible assets” they can no longer find coverage for.
Tiernan discussed how the world has seen “a massive shift” during his lifetime of about 50 years.
The biggest global companies, he said, are no longer oil and gas firms producing physical, tangible assets. Today, he said, the biggest global players tend to be on the intellectual property side of business, like tech companies, with intangible assets.
He suggested that insurance is struggling to keep pace with this big shift.
“I think, from an insurance perspective, our products need to make that same journey so we’re actually capturing the main risks that are in the heads of boardrooms and executive suites around the world,” said Tiernan.
However, he said, not everything can be insured.
“There is always going to be a big gap between human suffering, economic damage and the insured losses from any events,” said Tiernan. “But I think, for all of us here, where we know there are protection gaps that can be serviced, we do need to work harder together to ensure what can be insured is being insured.”
He gave examples of how Lloyd’s collaborative efforts have helped create insurance-related offerings to “fill these gaps.”
“A Disaster Risk Facility (DRF) was set up at Lloyd’s by seven syndicates coming together to solve really difficult physical problems,” said Tiernan.
He said this facility offers about half a billion US dollars of potential capacity. One example of this facility in action, he said, is a parametric insurance solution for cyclones provided by insurance broker Karen Hardy’s Redicova.
“One of my favourites, is Wildfire Defense Systems,” said Tiernan. “This is a syndicate in a box in Lloyd’s, they established in 2001 and came into Lloyd’s 20 years later.”
He said this company consists of about 500 risk engineers, firefighters, scientists and project managers who’ve come together to try and protect properties in California impacted by wildfire.
“They provide products directly to commercial insurers and through broker networks,” he said. “Their results are stunning and not just for the economic protection but for that feeling that only insurance can bring in someone’s time of need.”
Tiernan said Wildfire Defense Systems put a plaque on the houses that they protect.
Tiernan also gave a small indication of what to expect on Thursday when Lloyd’s releases its official results
“If I can indulge a little about what we’re seeing from the risk bearing capital perspective,” he said. “The results for 2023 are very strong: an 85% combined ratio, so everybody did pretty well.”
However, he said from 2017 to 2023, even with last year’s “strong results” the capital has only made a return on an average of 3.6% every year.
“It’s just not really good enough to bring in new capital and excitement to our market,” said Tiernan. “So I think that the market is going to remain disciplined [and] I think the pricing environment that we currently see globally will sustain with different local factors.”
Despite the challenges, he remained somewhat optimistic.
“I think the opportunity for the best to thrive is immense.”
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