Lawyers and disasters test Lloyd's

By ELLEN READ

The increased risk of terrorism, a higher incidence of natural disasters and a growing taste for litigation mean that the insurance industry must change or become irrelevant.

That is the brief that the chairman of Lloyd's, the world's largest insurance market, is sharing during his visit to New Zealand, the first by a Lloyd's chairman in its 314-year history.

"If we don't keep abreast of the changes, they have the potential to overtake and engulf us," London-based Lord Peter Levene told the British-New Zealand Trade Council.

He said September 11 had altered forever the way people thought about terrorism.

Both the nature of attacks (suicide bombers, biological weapons) and the impact of terrorism (it's now in our streets and homes) had changed.

The result, coupled with an increased incidence of natural catastrophe and a growing global taste for litigation, was that companies now saw business interruption as the No 1 threat.

"Lloyd's believes this accounts for 20 to 25 per cent - of US$10 billion [$17.4 billion] - of the overall September 11 loss," he said.

In New Zealand, where the Government does not provide terrorism cover, businesses needed to know they could access commercial cover, Lord Levene said.

The global rise in litigation and its impact on business also demanded insurance changes.

Litigation was seen as an American problem, but going to court to sue other people or companies had become a national pastime in many countries.

This 'compensation culture' could start with seemingly insignificant things, such as McDonald's being sued for not warning customers that its coffee was hot - but the impact on the insurance market was staggering and would mean higher premiums.

"Here, where the compensation culture has not spun out of control, I would urge all of you to do what you can to ensure that the march of the litigation society does not gain pace," he said.

"We cannot allow ourselves to create a culture in which you have everything to fear, unless you have a good lawyer."

Doom and gloom aside, he said that one role of insurance companies was to enable people to take risks.

This went back to Lloyd's 17th century roots where the insurance cover arranged in Edward Lloyd's Thames-side coffee house in London allowed investors, traders and pioneers to go about their business.

"Lloyd's has always had links with New Zealand, covering the ships and the cargo, and many of the businesses, making the risk of taking on a new, unspoiled land, a risk worth taking," he said.

Lloyd's still had New Zealand links - mainly in aviation and commercial property - with its business here increasing by 50 per cent from 2000 to over $80 million last year. Lloyd's is the world's leading insurance market, providing specialist insurance services to businesses in over 120 countries. It is the world's second-largest commercial insurer and sixth-largest reinsurance group.

Although Lloyds was hard hit by September 11 claims, Lord Levene said the market was in good shape, "the best it's ever been".

Lloyd's has a policy of not investing more than 5 per cent of funds in equities.

This meant the market missed out on the highs of global stocks but by putting money into cash or bonds had ensured its funds were in a safe haven.