NEW YORK—The past year brought a first for AIG Property Casualty—a meteorite claim filed by a Siberian warehouse insured against earthbound space debris.
“History doesn’t repeat itself; it rhymes,” quoted Peter Hancock, CEO of AIG Property Casualty, at the Annual Insurance Executive Conference held here yesterday, drawing a parallel between Mark Twain’s words and the changing global risk landscape.
Speaking on a panel outlining emerging risks and opportunities within insurance, Hancock listed climate change, cyber insurance, alternative capacity and public-private risk transfers as trends watched by AIG’s P&C company.
“Although 2013 was mostly a benign weather year, modeling perils must make presumptions that weather events will become more severe,” he said, naming climate change and urban and suburban development as factors increasing catastrophe losses.
Cyber breach was also high on Hancock’s radar. According to the executive, about 525 breaches occurred so far in 2013, affecting companies that need to contend with different privacy and notification laws in nearly every state, as well as impending protocols for government action. The fallout from data leaks is now quantifiable, as 76% of customers will close an account if they suspect their information has been compromised, and corporate stocks drop by an average of 5% after a breach.
“It’s a real risk that is massively underinsured” with little carrier expertise and not much customer demand, said Hancock.
Turning to other risks, Hancock said public-private risk control mechanisms may ensnare the insurance industry and wider economy as the National Flood Insurance Program (NFIP) “is renewed every year despite its costs and the distortions it creates to the building industry” by allowing real estate development in flood-prone areas.
Meanwhile, the Terrorism Risk Insurance Act (TRIA) is “stuck” although “it hasn’t cost taxpayers a dime, but it is very good for society,” said Hancock. Furthermore, he said, workers’ compensation lines simply “cannot go without it.”
The economy has spurred the industry to look towards alternative capital arrangements as a solution to low investment yields in recent years, but the executive believes it is a “temporary phenomenon driven by current quantitative easing.”
However, he says, the insurance industry has been avoiding the investment risks that plagued the financial industry and its unwary customers prior to the recession.