Having witnessed the tsunami disaster first hand, the chairmanof Lloyd's made a call for early warning systems, which, he said,were vital to prepare for global risks, both natural andcorporate.

Lord Levene of Portsoken, who recently was named to a secondterm as the insurer's chairman, spoke to senior industry officialsin Boston on the need for better risk management and increasedefforts to mend the industry's reputation. “It is not only theinsurance industry and corporate boards that need to address riskmanagement,” he said. “The world needs to prepare for the mostunthinkable disasters. Risk management should be addressed byeveryone.”

Levene, who was vacationing in Malaysia with his family when thetsunami struck, noted that the event came at the end of a recordyear for natural catastrophes, with insured losses of more than $50billion. Major disasters in 2004 included a record typhoon seasonin Japan and the four hurricanes that damaged one in five dwellingsin Florida. This was a sharp reminder that the risk from naturalcatastrophes is increasing and that insurers need to rethink howthey evaluate financial risks, Levene warned.

“The surge in catastrophic events also reminds us of theimportance of pricing risk correctly,” he said. “The critical roleof insurance is to pay claims, to assist the process of rebuilding,but the industry can only do that if its balance sheet isstrong.”

Last year only reinforced the trend toward higher losses.“Rising population densities and growing concentrations of peopleand businesses in catastrophe-prone areas are the drivers,” Levenesaid. “It suggests that the way in which we prepare for disastersmay not be quite right. Even where the risk itself is slight, theconsequences may well be great enough to warrant betterpreventative measures.”

New York Attorney General Eliot Spitzer's investigations intopayment practices and the World Trade Center insurance dispute werethe other two defining events of 2004, highlighting the need forthe insurance industry to tackle its reputation and practices inthe coming year, Levene said.

“I wish I could report that the defining events were triumphs,which enhanced the standing and reputation of our industry in theeyes of consumers and business leaders, but that is not the case,”he said. “Each defining event presents the insurance industry witha major challenge to get our house in order and improve ourreputation.”

Effective risk management, combined with greater transparencyand contract certainty, are necessary to restore the industry'starnished reputation, he believes, citing a National Underwritersurvey revealing that only 23 percent of risk managers receivedtheir final policies error free and in a timely fashion.

“In the Silverstein case, it was found that only one insurer hadissued a final policy on the World Trade Center prior to theSeptember 11th attacks,” he said. “To any outsider, it must seemhighly unusual that this single agreement should not be in place.The insurance industry owes it to its customers, as well as toitself, to ensure that cover is fully agreed and clearly documentedright from the start.”

The Spitzer investigation, which has prompted scrutiny of theindustry from other state attorneys general, in addition tocorporate leadership changes, criminal charges against seniorexecutives, and redefined business practices at the largestbrokers, emphasizes the need for greater transparency. “We need totake careful stock of our inter-relationships and workings,” Levenesaid. “We need to be clear and unambiguous on who is doing whatexactly, for whom, and at precisely what cost.”