From natural disasters such as earthquakes and hurricanes to manmade threats such as terrorism and cyberattacks, today’s communities and businesses face an unprecedented array of risks. The risk management and insurance industry is rising to the challenge with technology-based tools, new products and improved outreach to support preparedness and resiliency. Industry professionals, students and academics gained from the perspective of the field’s leaders at the 2018 Insurance Forum, sponsored by the CSUF Mihaylo College Center for Insurance Studies and Lloyd’s North America, on Oct. 2.
With increased population and infrastructure at risk coupled with the challenges of climate change, the annual cost of damages from natural disasters has increased nearly tenfold since the 1970s. At the same time, human-caused risk ‒ ranging from terrorism, geopolitical unrest and cyberattacks to stock market crashes ‒ has risen to become the leading risk category for contemporary society.
CSUF Mihaylo College Insurance Forum keynote speaker Hank Watkins, president of Lloyd’s North America, which oversees the 332-year-old insurance giant’s operations in the United States and Canada, explained that identifying the risks facing communities and then mounting actionable preparedness initiatives is essential to ensure the resilience of the economy and society in the 21st century.
“There is great importance in recognizing risk before it happens and doing all you can to mitigate it,” he said. “It takes much longer than expected to rebuild, yet disasters can happen much faster than we anticipate. The purpose of this day is to understand the major threats, both manmade and natural, that impact all of us.”
Originally founded to provide maritime insurance in 17th century England, Lloyd’s has expanded its scope and focus to operations around the world and coverage for virtually all forms of risk imaginable, as managed by the market’s 90 syndicates.
Entering the California market in the late 1800s and playing a key role in rebuilding following the devastation of the 1906 San Francisco earthquake, Lloyd’s has remained a major player in the Golden State’s insurance landscape ever since. Today, the state is the second-largest market for the global giant.
At the Insurance Forum, Watkins announced that the company is planning to provide coverage for the Canadian cannabis market, upon the legalization of recreational marijuana in that country.
Watkins also profiled the Lloyd’s City Risk Index, which examines the threats to annual gross domestic product (GDP) for 279 cities and metropolitan regions worldwide, including more than two dozen in the United States, where the combined risk exceeds $87 billion.
Perhaps not surprisingly, Tokyo, situated in one of the world’s most earthquake-prone regions and in close proximity to the geopolitical threats of North Korea, leads the world in metropolitan risk according to the Lloyd’s format. New York City holds second place, while Los Angeles comes in at seventh place.
The highest threat category is stock market crashes, which can wipe out trillions in paper wealth and impact personal, corporate and public sector finances. The second spot goes to cyberthreats followed by natural disasters.
As Lloyd’s works to minimize the insurance gap and initiate applied research into community risk management, the insurance market seeks to forge a dynamic relationship with Mihaylo College’s Center for Insurance Studies, the largest such academic program in the western United States.
“We are here to launch a new way of collaboration between Cal State Fullerton and Lloyds. We seek to develop new partnerships and explore new solutions,” said Weili Lu, the center’s director and a professor of finance.
Understanding the Insurance Field to Promote 21st Century Resilience
Jim Lynch, chief actuary and vice president of research and education for the Insurance Information Institute, told attendees of the Insurance Forum – and many were students or recent alumni of the Mihaylo College program – that the contemporary field not only offers consistent growth and opportunities, but also is a leader in powering the broader economy and offers opportunities for those seeking to make a difference in the lives of others.
“We have consistent results and the ability to withstand problems,” he said, noting that the field made at least $34.5 billion last year, despite the more than $92 billion in losses from the 2017 Atlantic hurricanes. “Insurance is a mature industry, so we grew at about the same rate as the economy as a whole.”
Facing three main categories of disruptive forces – catastrophes, geopolitical risks and economic upheaval – the insurance industry supports economic resiliency in uncertain times through promoting safety and security, economic and financial stability, and development.
“Everything that is built depends on insurance. We are a very important industry, maybe more so than we know, since we are experts at when things go wrong,” said Lynch.
With $761 billion in surplus U.S. property and casualty insurance alone – a figure that rises to $4.5 trillion globally – Lynch noted that the industry remains in healthy shape despite the rising toll of catastrophe. However, with at least 70% of the world’s losses in the past decade uninsured, there are numerous opportunities for the field to grow.
Lynch said the insurance industry is supporting resilience through three initiatives: new products, including some that dovetail with financial instruments; increased marketing to consumers of all kinds; and public education.
From Cyber Threats to Climate Change, a Look at Subsets of the Market
With 20 speakers and moderators from the public and private sectors, the 2018 Insurance Forum featured discussions on challenges specific to Southern California, such as the risk management and insurance implications of wildfires, and broader concerns and opportunities relating to emerging risks impacting drones, digital spaces, blockchain and cryptocurrencies, and next-generation solutions such as Uber, Lyft and AirBnB.
Tina Kirby, head of innovation and product development for specialist insurance underwriter Beazley Group, explained that parametric insurance – which provides an alternative to traditional indemnity-based plans by pledging to make a payment upon the occurrence of a triggering event – is likely to expand with its clarity to the consumer and appeal to lower- and middle-income individuals and families.
Noting that only $20 monthly provides a $10,000 benefit for a major California quake under this system, Kirby views this format as particularly attractive to millennials.
“We think that this parametric product is going to fall into the same ethos that these people are growing up with and that they feel comfortable with,” said Christopher Borders, an advisor for Jumpstart Insurance Solutions Inc., who presented with Kirby. “We think parametric will work with the format millennials have grown up with in the gig economy, in which they are accustomed to balancing multiple jobs.”
On climate change, Kirby sees a major threat of increased loss and devastation, but also an opportunity for all fields to innovate using sustainable practices, with risk management and insurance leading the way.
“We have all the technology we need to be energized renewably, but it costs money. The goal for insurance is to determine how we can assist,” she said.
Mark Knepshield, senior vice president for McGriff, Seibels & Williams Inc., an insurance brokerage firm based in Birmingham, Alabama, discussed the insurance industry response to cyber risk, noting that cyberwarfare, which was pioneered by Russia during the invasion of Crimea beginning in 2014, has grown to become a concern for all sectors of the economy.
“How much disruption would there be if you couldn’t turn on your computer tomorrow?” he asked. “Managing between property and cyber insurance is becoming increasingly important for insurers.”
With a market that is expected to grow quickly to a $7 billion industry, fed by demand and an increase in related actuarial data, Knepshield noted that cyber insurance will have a particular connection for California consumers, where it will relate the legal specifics of wiretap claims along with the typical threats of ransomware, malware or viruses.
Other highlights of the day-long signature event included additional expert discussions about the impact of California wildfires, the challenges and opportunities posed by political and trade risks, insuring emerging fields such as drones, the threats and solutions involving terrorism and active shooters, the sharing economy as it relates to insurance, and city resiliency through partnership from the perspective of Los Angeles.
Marissa Aho, the first municipal resilience officer for the city of Los Angeles, discussed her role in citywide efforts in the largest urban area on the West Coast to ensure earthquake preparedness, fortification and response, as well as planning for climate change and other challenges facing the city. Aho highlighted the importance of resilience as an essential function in local government, a format adopted by 100 cities globally.
For More on Risk Management and Insurance
The Cal State Fullerton Mihaylo College risk management and insurance program is recognized by the International Insurance Society (IIS) as a Global Center of Insurance Excellence (GCIE), one of only 20 academic programs worldwide to have this designation.
In addition to offering creditable continuing education initiatives for professionals, such as the annual Insurance Forum, the center also supports undergraduate and graduate academic programs in actuarial science, risk management, insurance and related fields, ensuring a steady stream of young professionals into the industry, which is being disrupted with the retirement of older generations.
For more information on the program, visit the CIS online or at SGMH 4280.