No island is an island

By Resolve Editor Kate Tilley

New Zealand’s geographical separation from other parts of the world did not isolate it from the impacts of global ramifications for the insurance industry, NZ’s Lloyd’s general representative Scott Galloway told the NZILA conference.

In a presentation entitled “No island is an island”, Mr Galloway said risks could not be viewed in isolation. The interconnectedness of the insurance industry was demonstrated in the aftermath of the 11 September 2001 terrorist attacks in the US, which created global ramifications.

Mr Galloway said the Covid-19 pandemic was a shock for the insurance industry and its economic and social impacts were still being felt. Preparedness for such systemic risks was found wanting and the jury was out on preparations for similar future events. “We need to develop products for the protection gaps that can’t be covered solely by the insurance industry.”

He highlighted the increasing severity and frequency of events caused by climate change. Insurance Council of New Zealand figures show the January 2023 Auckland floods cost NZ$1.6 billion and the February 2023 storms accompanying Cyclone Gabrielle were NZ$1.5 billion.

Geopolitical risks

Cyber threats were a growing risk, with global economic losses estimated to reach US$10.5 trillion by 2025. The risk was so fast moving that it was hard to price and exacerbated by geopolitical risks, like the war in Ukraine.

Cyber insurance was Lloyd’s fastest growing class of business and the market was expected to treble from 2022 to 2030 to £35 billion.

Technical advances, like generative AI tools, were “game changing”. AI also created risks because its wide availability meant it would be used for nefarious purposes, including theft, fraud and privacy breaches.

AI had the ability to respond without consideration for ethical issues.

Geopolitical threats added complexity to the risk landscape and created new challenges, including supply chain disruptions, cyber threats, energy and food security, and climate transition as net zero commitments had implications for energy security.

Reputational risk

Rising public pressures and reputation risk for governments and private sector entities were driving policy and business responses. The push for organisations to meet ESG targets impacted on governance structures.

Mr Galloway said semiconductor manufacturing, which predominantly occurred in South Korea and Taiwan, already had faced significant disruptions from the Covid-19 pandemic and a severe drought in Taiwan that led to water shortages. It was also at risk from geopolitical risks like tensions between China and the US.

A positive was that the Lloyd’s market was an innovator and helped its coverholders test new products.

For example, a NZ coverholder, Bounce, had developed a parametric product for earthquake cover.

Mr Galloway said Lloyd’s saw NZ as a good place to write business because it had high insurance penetration, a good regulatory environment and legal system, and low levels of corruption.