On Iran, MV Alead, The Flame Virus, Nano Technology, Rio+20

Iranian President Ahmadinejad defiantly opposed to EU Sanctions

As the West steps up its pressure on miscreant nations, insurance finds itself as the economic weapon of choice. In a matter of days now the EU sanctions against Iran, and specifically a ban on oil imports, come into force. However the ramifications extend beyond Europe because the EU is also preventing its cargo insurers covering tankers shipping Iranian oil. For so long the Arab control of oil supplies has been a source of potential and real leverage with the rest of the world. Ironically it is the control of insurance capacity by Europe, London basically, that is providing the muscle behind the EU attempts to isolate Iran. Without insurance Japan, who relies more than most on Iranian crude, has had to offer sovereign guarantees and other countries, such as India, are scrambling around for an alternative to insurance.

The international community is yet to evolve a strong consensus on what to do about close regional friend to Iran and global pariah Syria and last week insurance, or rather its withdrawal, grabbed headlines in this controversy. There were some suggestions that the decision of a P&I club to cancel coverage mid voyage preventing a shipment of munitions from Russia on MV Alead was the result of a tip-off from the authorities. A nod and a wink would have been sufficient as the cargo and destination were a breach of club rules so additional government pressure on insurers was hardly needed but the incident demonstrates the perils potentially when our industry enters the sensitive high stakes world of geopolitics. If underwriting was not hard enough, our managements need to tread especially carefully, as the consequences of getting it wrong can be severe. Just ask ING Bank who this month was fined a truly staggering $619 million by the US Treasury for alleged sanctions violations.

International pressure on Iran is taking many forms but none more exciting than the Stuxnet worm which attacked their nuclear programme IT infrastructure last year. Who will ever know but probably the creation of the Western intelligence community, it is nevertheless alarming to hear that a similar super virus called Flame has been discovered by researchers much further afield than the Iranian desert. Viewed by those in the know to be the most complex ever developed the Flame malware has flipped a “kill switch” and all traces have since disappeared. Both viruses bypassed conventional security systems with some ease. Cyber insurance is one of fastest growing product lines but the means to assess the systemic risk of multiple losses from one event, like a Flame, remain relatively undeveloped. As the exposure to cyber risk becomes more financially material to insurers, better modeling capability will be required if exorbitant capital charges are to be avoided.

Along with cyber crime, nanotechnology is heralded by many to be the big emerging risk of the current millennium. Lloyd’s reported back in 2007 on its impact on health and the environment, mostly unknown as it happens, and there is still much to learn. Meanwhile nano-applications are now found in engineering, electronics, medicine, power generation and environmental protection amongst many other areas. Curiously at the heart of this development is the Czech Republic who reportedly has nearly 70 academies and university faculties conducting basic nano-science research. Until now not especially regarded as leading-edge, Eastern Europe might just be a cradle for developing a business opportunity for insurers in this rapidly growing industry.

The Rio+20 second earth summit closed on Friday, predictably with a long and vapid declaration with less meat than most of the interested parties wanted. However, unlike the political leaders who gave the conference a pretty wide berth this time; insurers were falling over themselves to join the fight on poverty and social inequity. In unveiling their Principles of Sustainable Insurance, 27 of the largest companies have pledged to embed environmental, social and governance issues into their decision making which interestingly includes underwriting and risk management. A commitment to annually report progress should provide a means to check how these fine words are turned into action. We shall see in due course whether this is just an exercise in the industry leaders making them feel better about themselves or a concerted attempt to address the challenges of commercially operating for a profit without depleting natural resources or aggravating sustainable social development.

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