Climate premiums rising at Lloyd’s, but hurricane gap persists: Carnegie-Brown

The Lloyd’s of London market for insurance and reinsurance is underwriting increasing premium values related to climate risks, but there are clear opportunities to continue narrowing climate-linked protection gaps, even in emerging economies.

That’s clear from comments made by Bruce Carnegie-Brown, Chairman of Lloyd’s during a recent interview with Bloomberg television.

Carnegie-Brown explained that Lloyd’s is very focused on both protection and resilience and is trying to bring the two together both in the products it offers to underwrite, as well as in how it works to make the overall Lloyd’s market portfolio more resilient and less linked to climate change.

When asked whether Lloyd’s is underwriting more climate related exposures, Carnegie-Brown replied, “We are. We think the total premium value for climate related events is increasing year-over-year. We’re doing a lot of that at Lloyd’s today.”

Further explaining, “It’s important that there is resilience alongside climate change. So our mantra is really, trying to support our customers as they transition to more sustainable business models.”

Part of this is achieved through Lloyd’s commitments to climate related initiatives and measurements, as well as excluding certain fossil fuel related categories.

Another side to this is in making sure that Lloyd’s remains a relevant player when it comes to narrowing global climate risk related protection gaps.

Those gaps persist even in the most advanced economies in the world.

Providing an example of this, Carnegie-Brown explained, “If you look at windstorms in the United States, hurricanes blow pretty regularly every year in the southeast of the US, but only one-third of the economic value that hurricanes destroy is actually insured today, despite the regularity of these events.”

But, as well as insurance and reinsurance capital to underpin the world’s climate, weather and catastrophe risks, Carnegie-Brown also feels the Lloyd’s market has a responsibility to help enhance resilience.

Part of this is related to the provision of risk financing, of course. But beyond that it comes down to baking resilience into the world’s markets and economies.

“What we know is that the most expensive real estate in the world is all located on waterfronts and waterfronts are most exposed to hurricanes,” he explained.

Adding that, “There’s some behavioural issues that need to change here, to build resilience into our economic models.”

The significant gaps in coverage, between economic damages from climate-linked weather events, such as hurricanes, and insurance coverage, presents a significant opportunity to the Lloyd’s market, but one that also required new capital to extend the market’s ability to write more business.

Hence the opportunity for investors to back Lloyd’s syndicates and underwriters has to increase, with vehicles like the London Bridge Risk PCC insurance-linked securities (ILS) structure a step in the right direction to enabling more capital to assist as markets like Lloyd’s try to close climate related protection gaps.

Lloyd’s new Central Fund reinsurance cover is also notable here, as a form of capital and leverage that will allow the market to do more, particularly when it comes to the growing need for climate risk transfer.