On Singapore, Bird Flu, Pollution, Innovation and Competition

Singapore, the unofficial capital of Asia

Grabbing all the headlines for the wrong reasons, the Facebook IPO looks set to be a source of controversy and litigation for some time to come. Meanwhile, the company’s co-founder Eduardo Saverin who Mark Zuckerberg elbowed out of the social network has also made the news not for his billions but mainly for where he has chosen to live; Singapore. Viewed by Bloomberg as the unofficial capital of Asia and ranked first by Mercer for its quality of life, the city state is on a high and judging by the migration of insurance talent from London, Australia and Hong Kong our industry has also adopted Singapore as its preferred platform in the region. The numbers are starting to impress. The Lloyd’s Asia market, comprising 18 businesses and 250+ staff, is on course to generate premiums close to $500m and just as importantly is building global credibility after a very nervy beginning.

Often regarded as close cousins of the Swiss in nature, the Singaporeans have typically adopted a belt and braces approach to the risk of pandemic. The Tan Tock Seng hospital has just developed a test for 10 rather than the standard 3 strains of bird flu virus recommended by the WHO. So far only 600 people have contracted the lethal H5N1 virus and all of those were in close contact to infected flocks. Nevertheless earlier this year a Biosecurity advisory board to the US Health Department clumsily failed to suppress two reports that suggested the possibility of human to human transmission of a few genetic mutations of H5N1. The risk of pandemic may still be quite small but Singapore may not be alone in now taking the threat just a little more seriously.

The environmental insurance market has come a long way since its evolution in the 1980s. Borne out of a time when pollution risks were truly unknown and scary, specialist underwriters have been a credit to the industry, developing strong responsive products out of what were originally very limited coverage endorsements. Technology has also contributed to a more robust basis on which to craft policy wordings and settle claims. No better example than the recent breakthrough at the University of Pittsburg, where scientists are fingerprinting NOx emissions to reveal accurately the source of pollution. The air particles can now be tracked back to individual stacks. The next step is to look beyond coal power plants, and see how much NOx come from other sources, such as cars, off-road vehicles, animal feed lots, and fertilizer.

Not quite as famous yet as the music festival, but broker JLT’s Global Communications Technology and Media forum in Salzburg, now in its ninth year, once again attracted a select and influential group of senior risk managers and one or two underwriters to boot. Those from this fast changing sector of the economy view insurers as laggards when it comes to innovation citing resistance to change as being our biggest failing. In particular patent infringement and supply chain disruptions were seen to be risks where the market was not responding adequately to buyer requirements. Taking the lead from environmental insurers, this is a clear wake-up call for underwriters to be as equally innovative now in their approach to covering intangible risks

There lies an irony somewhere in the provisional decision of UK’s Office of Fair Trading to take the private motor insurance market to the Competition Commission. The clear implication is that the regulators see insurers as indulging in restrictive and collusive practices harmful to the consumer. To the extent that insurers are complicit in a referral fee system for credit hire vehicles adding unnecessary cost to claims; they may have a point. This however is only part of the story. The fact that motor insurers have been tempted into this somewhat murky world is precisely because there is cut throat competition on premiums. Buyers in UK enjoy an extraordinary choice of carrier and product and a distribution system offering unhindered access to the best deal. To suggest that premiums are rising due to a lack of competition is far-fetched in the extreme. Insurers are increasing prices to restore profit margins due to the coincidence of claims inflation and low investment returns coupled with negative societal trending, whiplash being the obvious example.

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