NEW YORK—As markets grow in developing countries andlosses escalate, insurers will have to reassess risks and likelyconsolidate to meet the rising demand for coverages and limits, anindustry executive says.

In an address here yesterday before a joint meeting of theAssociation of Professional Insurance Women and The New YorkChapter of CPCU Society, Clive R. Tobin, chief executiveofficer of Torus Insurance Holdings LTD, said the staggering costof loss is challenging insurers to find more ways to raise financesand “build relationships with the capital markets.”

In the late 1970s, he recalled, a commercial account wouldsubmit an application seeking coverage for $25 million to $50million in loss. Today, he said, corporations seek programs thatwant coverage terms up to $5 billion in some cases, or they won'tentertain further discussion.

At the same time, losses have escalated dramatically, risinginto the $30 to $40 billion range. The number of locations that canbe hit with double-billion dollar losses has also grown. Tobinnoted that the earthquake in Christchurch, New Zealand, with apopulation of 300,000, cost the industry around $30 billion.

He surmised that if the New Zealand event could produce thatmuch loss, an earthquake striking San Diego or San Francisco wouldproduce losses in the hundreds of billions of dollars.

“I don't want to be alarmist, but we never expected thesefigures 25 years ago,” said Tobin. “It is a challenge where we needto ask 'How do we raise capital?' It is a challenge we should notunderestimate.”

The industry, he said, needs to take a closer examination ofrisk in China, for instance, where the chance of great earthquakeshas been documented over many centuries, causing massive loss oflife and destruction.

One major risk that is not getting enough attention, he said, isthe growth of industrial zones where potential losses are not fullyappreciated. He pointed to last year's floods in Thailand thatcaused substantial business-interruption losses for many globalcompanies because parts they depend upon from there could not beproduced, shutting down production elsewhere.

Turning to the insurance industry's response to the changingrealities, Tobin said companies are poised for massiveconsolidation over the next 10 to 15 years as reinsurers seek toacquire insurers in order to increase capital and driveefficiencies. At the same time, insurance brokers with theirability to slice and dice client information will more and morebecome the underwriters of their client's risk.

Brokers will “rent” placements from insurers because it willremain too expensive for them to start insurance companiesthemselves, Tobin predicted. Insurers will also find themselves inthe position of being less able to dictate terms and conditions onaccounts because brokers will have the upper hand.

However, he cautioned that one unknown is how regulators willreact to these marketplace changes.

Contract certainty will also become more important, Tobin said,especially in such places as China and India, where the legalsystems are uncertain regarding contract issues. He saidunderwriters will have to produce products with parametrictriggers, which set out loss payment under terms of a clearlydefined event.

He explained this must be done to make the insurance contracts“meaningful” to clients in these emerging markets and ensure quicksettlements.

“We, as an industry, have to be ahead of the game,” Tobinstated.