As Loss Costs Rise and New Markets Emerge, Industry Must Transform to Meet Demand

Clive R. Tobin, CEO, Torus Insurance Holdings speaking in New York at APIW & New York CPCU meeting yesterday. (Photo: Sonya Szostak) Clive R. Tobin, CEO, Torus Insurance Holdings speaking in New York at APIW & New York CPCU meeting yesterday. (Photo: Sonya Szostak)

NEW YORK—As markets grow in developing countries and losses escalate, insurers will have to reassess risks and likely consolidate to meet the rising demand for coverages and limits, an industry executive says.

In an address here yesterday before a joint meeting of the Association of Professional Insurance Women and The New York Chapter of CPCU Society, Clive R. Tobin, chief executive officer of Torus Insurance Holdings LTD, said the staggering cost of loss is challenging insurers to find more ways to raise finances and “build relationships with the capital markets.”

In the late 1970s, he recalled, a commercial account would submit an application seeking coverage for $25 million to $50 million in loss. Today, he said, corporations seek programs that want coverage terms up to $5 billion in some cases, or they won’t entertain further discussion.

At the same time, losses have escalated dramatically, rising into the $30 to $40 billion range. The number of locations that can be hit with double-billion dollar losses has also grown. Tobin noted that the earthquake in Christchurch, New Zealand, with a population of 300,000, cost the industry around $30 billion.

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

“I don’t want to be alarmist, but we never expected these figures 25 years ago,” said Tobin. “It is a challenge where we need to ask ‘How do we raise capital?’ It is a challenge we should not underestimate.” 

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

One major risk that is not getting enough attention, he said, is the growth of industrial zones where potential losses are not fully appreciated. He pointed to last year’s floods in Thailand that caused substantial business-interruption losses for many global companies because parts they depend upon from there could not be produced, shutting down production elsewhere.

Turning to the insurance industry’s response to the changing realities, Tobin said companies are poised for massive consolidation over the next 10 to 15 years as reinsurers seek to acquire insurers in order to increase capital and drive efficiencies. At the same time, insurance brokers with their ability to slice and dice client information will more and more become the underwriters of their client’s risk.

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

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

Contract certainty will also become more important, Tobin said, especially in such places as China and India, where the legal systems are uncertain regarding contract issues. He said underwriters will have to produce products with parametric triggers, which set out loss payment under terms of a clearly defined event.

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

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


Resource Center

View All »

Integrated Content & Communications: A Key Business Issue For Insurers

Insurers are renewing their focus on top line growth, and many are learning that growth...

High Risk Insurance Coverage in the E&S Market

Experts discuss market conditions, trends and projected growth in a rapidly changing niche.

Top E-Signature Security Requirements

This white paper covers the most important security features to look for when evaluating e-signatures...

EPLI Programs Crafted Just For Your Clients

Bring us your restaurant clients, associations and other groups and we’ll help you win more...

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Get $100 in leads with $0 down!

NetQuote's detailed, real-time leads have boosted sales for thousands of successful local agents across the...

The Growing Role of Excess & Surplus Lines in Today’s...

The excess and surplus market (E&S) provides coverage when standard insurance carriers cannot or will...

PropertyCasualty360 Daily eNews

Get P&C insurance news to stay ahead of the competition in one concise format - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.