Global insurance provider Lloyd’s expects to see more natural disasters in coming years as a result of global climate changes.
“You can’t afford to ignore it,” Lord Peter Levene, chairman of Lloyd’s, said Thursday during a visit to Denver.
Lloyd’s, for example, is forecasting that severe hurricanes such as Katrina, which hit the Gulf Coast last year, could become regular occurrences for another two decades.
“We need to get as close as we can to the bottom of how much impact the activities of corporations and individuals have on the climate,” Levene said.
A Lloyd’s report called “Climate Change Adapt or Bust” said the insurance industry has mispriced risk and must account for such factors as global warming.
Homeowners in Florida, where hurricanes are a constant threat, paid an average insurance premium of $810 in 2003, according to the National Association of Insurance Commissioners. Homeowners in Colorado, a state less prone to large-scale disasters, paid an average of $760.
Levene said he opposes a push by some larger insurers and groups like ProtectingAmerica .org to create a federally backed insurance fund to cover losses from large catastrophes.
“The industry has to go into a position that it can meet these claims and meet them confidently,” Levene said.
Having a federal safety net would not only invite deeper government involvement in the industry but could cause the market to misprice risk.
Taxpayers in lower-risk states, like Colorado, would end up bearing a disproportionate share of costs under such a system, Lloyd’s argues.
Katrina and other hurricanes that lashed the Gulf Coast last year generated a record $57.3 billion in wind-damage claims, according to the Insurance Information Institute.
Lloyd’s paid out $5.8 billion in claims but managed to keep its overall losses last year to $177 million.
In 2000 and 2001, there were no significant hurricane-related claims made.
Lloyd’s underwrote $90 million in insurance premiums in Colorado last year, including $58 million for “surplus lines,” meaning items that commercial insurers won’t cover, such as satellites and oil drilling rigs. Another $29 million was for reinsurance, which offers a backup to conventional insurance policies by covering large losses.
The last time Lloyd’s dominated headlines in Colorado was in the mid-1990s, when several individual investors, known as “names,” sued the syndicate over large losses they suffered because of asbestos and environmental-pollution claims.
The losses nearly sank the 300-year old insurer, but Lloyd’s has since rebounded with a different capital structure and tighter risk controls.
About 85 percent of the funds the firm uses now come from institutional and corporate sources, rather than wealthy individuals.
“We are much more disciplined,” Levene said.
But the syndicate remains an innovator, providing coverage for things such as space tourism, Internet attacks and new biotech products.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
Lloyd’s in Colorado
Lloyd’s of London will insure risks that others won’t touch. Some of its local operations:
Total insurance business: $90 million
Reinsurance premiums: $29 million
Surplus line premiums: $58 million, including:
Property damage: $24.4 million (42 percent market share)
General liability: $23.7 million (41 percent market share)
Goods in transit: $3.3 million (6 percent market share)
Ship damage: $2.9 million (5 percent market share)
Accident and health: $1.5 million (3 percent market share)
Source: Lloyd’s America
