Australian re/insurers should look to the US to prepare themselves for emerging risks.
The Australian market must heed the “broadly similar” US market to identify emerging trends, says Peter Nickerson, GE Insurance Solutions (GEIS), Australia & New Zealand CEO. While they differ in size, other aspects of the US and Australian markets are similar, and current and emerging US risks are relevant to Australia. They included nanotechnology, regulation, climate change, mobile phones, silicosis, toxic mould, obesity, infectious diseases, lead, genetically modified food, and “e-risks”.
“These are risks in the US and they are pretty much applicable globally,” Nickerson said. He warned that the “next asbestos” could be pharmaceutical liability. Three global drug manufacturers were now facing class actions.
Several current risks, including asbestos and silicosis, have already affected Australian insurers. “Australia has a pretty sophisticated market; we are not really behind anyone, including the US. One thing we don't want is the US tort system,” Nickerson added. “We're lucky we don't really have class actions and massive damages; they could learn from us in that regard.”
Australian legislative changes and damages caps have reduced liability claims in quantity and quantum, offsetting Australian insurers' exposure to natural disasters, but Nickerson expected the industry's good times to slow as the market softens.
The challenge is also to get exposure modelling right. “Before the World Trade Center [terrorist attack], modelling of exposures in major cities was pretty poor. Companies thought they had got it right, but they really hadn't. [GEIS] looked at exposures and decided to exit workers' compensation [in the US]. That has reduced our exposure from $635m to [an estimated 2008 figure of] $74m.”Nickerson said insurers needed to balance exposures, while still performing their vital role in society.