Young Market Minds is a networking and educational platform using word of mouth to gather together the brightest and most ambitious minds in the insurance industry. Founded by Sebastian de Zulueta, International Professional Risks Ltd and Edward Cutting, Marine Underwriting Assistant at DUAL International Limited, its goal is to engender an entrepreneurial spirit among its members and provide them with the tools to become leaders of the next generation in insurance.
In a speech entitled “Innovation in the Terrorism Risk Space – the Pool Re journey”, Julian began by providing a snapshot of today’s risk landscape and the evolution of the terrorist threat since the establishment of Pool Re in 1993. He outlined the broader spectrum of attack modes employed by today’s terrorists and the shift from the tactics employed by the IRA, with its focus on causing large scale property damage, to the 9/11 attacks, to today’s environment and the methods employed by Daesh, to the future and the increasing potential that cyber may be employed as means of attack in the future.
Julian then discussed the development over the past two decades in the terrorism insurance market beginning with the market failure 23 years ago, when following the losses incurred from the IRA bombing campaign, (re)insurers decided they could no longer provide terrorism cover which prompted the establishment of Pool Re as a joint industry and government solution. As a private company, owned by its members, which represent around 95% of the of terrorism insurance market in the UK, Pool Re’s remit engenders it with a public policy objective. He then detailed some of the occasions on which Pool Re has been called upon, paying 14 losses, including the Manchester, South Quay and St Mary’s Axe bombings, over 23 years. Despite these losses, the scheme has accumulated reserves in excess of £5.5bn, which rises to around £8bn when the reinsurance layers are taken into account. However as Julian pointed out, the property damage from the 9/11 attacks exceeded $14bn and the potential for damage from a “dirty bomb” is even greater than that.
Julian then discussed the negotiations with HMT in 2014 which culminated in an EGM at which the Pool Re membership unanimously accepted the changes to the retrocession agreement. The terms of the agreement struck with Treasury ceded a greater level of premium in return for the continuance of the government guarantee. But it also paved the way for the Pool Re team to implement a series of initiatives to modernise the scheme. These included the purchase of a £1.8bn, three year reinsurance programme as well as the introduction of various modernisations to the scheme including:
- SME Proposition
In recognition of the changes in SME insurance products over the past decade and how these products are sold, Pool Re developed a bespoke SME proposition which will offer a 40% discount for insureds with less than £2m Material Damage sum insured.
- Enhancements to the customer experience
In collaboration with a number of its stakeholders, Pool Re will implement a series of measures which will reflect the requirements of certain buyer groups and their willingness to retain risk. These include:
- Increased deductibles
Pool Re now allows discounts for deductibles between £500k and £1m.
- Loss Limits
For loss limits in excess of £500m, Pool Re will consider discounts on locations where insured values are at least 20% more than the limit.
- Risk Reflective Pricing
Pool Re also introduced revised rates that are more reflective of the underlying risk and are based on modern modelling techniques. The terrorism landscape has changed enormously in the 12 years since the rating was last reviewed, as have the exposures under the scheme. These changes start to reflect that.
Julian then outlined further measures which Pool Re has implemented such as the launch of an initiative, which Julian regarded as one of which he was most proud, which allows for a Loss Mitigation Credit, providing a reduction in premium, to be considered by Pool Re Members for site owners and operators engaging with National Counter Terrorism Police through the Crowded Places Programme.
Julian then discussed the potential systemic risk posed by cyber and the parallels which could be drawn with terrorism insurance and how the industry is currently divided on whether there is a need for some form of government support. He then outlined some potential emerging issues for the insurance market such as climate change and pandemic before discussing Pool Re’s goal of returning the UK terrorism market to a “free” market.
Drawing on his own career experiences, Julian discussed the market cycle and the impact which timing can have on whether a business succeeds or falters. He gave the example of the 2006 class of insurance start-ups and how their experiences and successes differed dramatically from those businesses which followed them only one year later in 2007. He highlighted the discussions around regulation and the debate as to whether this stifles innovation, suggesting that measures such as Solvency II should have represented more of an opportunity for insurers rather than something to which the industry feels that it simply has to adhere to. He finished his discussion of his own experiences by emphasising the increasing importance of scale in today’s marketplace.
Julian concluded his talk by looking at possible market disruptors, the industry’s continued integration, the adoption of technology and how the market practitioners of the future will need to be able to adapt and innovate in order to succeed.