Lloyd's Urges Rethinking on Cat (catastrophic) Losses

[highplainsdem]

http://www.insurancejournal.com/news/international/2006/03/24/66733.htm

Lloyd's Urges Rethinking on Cat Losses
March 24, 2006

In a speech at the "Forces of Nature" conference in London Julian James, Lloyd's Director of Worldwide Markets, said that the time has come for the insurance industry to rethink how it handles catastrophic risks.

-snip-

Last year, through its Realistic Disaster Scenarios (RDS), Lloyd's asked market firms to analyze their ability to handle a scenario involving a windstorm in the Gulf of Mexico resulting in losses of US$60 billion. "A number of people said 'that would never happen; you are being too conservative' and always thinking the worst," James explained. "But Katrina happened and we were close to it."

This year Lloyd's said it will "introduce two new scenarios with losses of up to US$100 billion. James queried, however: "Now we are thinking – are we being conservative enough? The severity and frequency of these events are going up and we need to work harder to understand catastrophic risks. We are in a new territory here."

As a consequence of so many natural disasters being linked to global warming and climate change, James stressed that it is up to the insurance industry to get actively involved in debate. Although he didn't say as much, one could add that the failure to do so could be – well – catastrophic.

[hatrack]

1. Very, very interesting article

If reinsurance companies are indeed getting serious about darkening their worst-case scenarios and adjusting costs accordingly, this is a fundamental shift in how they're handling risk in light of climate breakdown.

Oh, and if so, would anyone like to guess as to where your property insurance rates are heading? Hint: "down" is not the answer.