A former business journalist, David Fox now spends his days highlighting the insurance, reinsurance and captive insurance benefits of a small island as Director, Information Services for the Bermuda Insurance Development Council. ILSTV caught up with David to ask him Five Questions.
What does an average day look like for you?
Buyers of corporate insurance soon realise there are alternatives to commercial insurance. We introduce them to global leaders in insurance, reinsurance and captive insurance. I am involved in an effort that opens their eyes to demonstrated excellence in global risk financing. My day is not just spent corresponding with company executives from around the world, who seek specific information on insurance buying opportunities. Many of them are aware that Bermuda is a reinsurance giant, providing half of the world’s catastrophe reinsurance capacity. I help them also understand that the Fortune 500 helped build an insurance island that solves insurance and risk management problems for companies around the world.
How did you get involved in the risk management industry?
For years I had been intrigued by the world class and innovative insurance and reinsurance capacity provided by such a tiny island. But I became involved with the industry in a round-about way. The captive insurance concept was first attractive to Fortune 500 companies in the 1960s in Bermuda. Nearly a half century later, it is being used by far more types of organisations because of its financial and insurance benefits over the traditional commercial insurance market.
And while the number of captive domiciles has grown to about 50 jurisdictions, Bermuda is the only one that also has a commercial insurance industry and a global reinsurance community, deriving income from more than 100 countries. I researched this amazing Bermuda phenomenon as a business journalist, before being invited to participate. It was hard to resist the lure to markets that have attracted many of the best insurance industry minds from Canada, Bermuda, the US, the UK and many other countries.
How is the level of public awareness when it comes to risk these days? Is it better/worse than before? If it’s better, what’s spurred the awareness?
It appears as if the world has become a riskier place. There was an unprecedented level of natural peril losses in 2010 and 2011. You can’t pick up a newspaper or turn on radio and television without learning of yet another catastrophe. Bermuda market companies will end up shouldering at least 40 percent of the total reinsurance losses sustained as a result of the series of mega-catastrophes that occurred in 2011. The level of public awareness of risk is quite naturally higher than it has ever been, also reflecting the higher dollar value of insured risks and the global spreading of risk financing. The network of reinsurance protection, with the Bermuda market at its center, includes Lloyd’s and other world markets. But there is no doubt that the uptick in economic and/or insured losses as a result of natural catastrophes, means more people are affected and more organizations will seek better protections in the future. It is a natural development that the sum of all insurance risk rises, with more awareness and more development of property and products that inherently face a risk potential.
We live in an increasingly connected world. How important is risk management in this world?
The connectedness of our world is seen in how the global insurance/reinsurance world spreads the financing of large scale catastrophes. That’s how some $22 Billion flowed from Bermuda (re)insurers to rebuild the US Gulf and Florida coasts following the hurricanes of 2004 and 2005. That’s also why Bermuda insurers and reinsurers paid nearly 30% of the insured losses from Hurricanes Katrina, Rita and Wilma; paid 51% of reported liabilities from the 2010 New Zealand earthquake; paid 29% of the international reinsured share of the 2011 Japanese earthquake; and paid 37% of Chile’s 2010 earthquake.
But this is also seen in how companies from some 100 countries derive substantial insurance and financial benefits by using the ultimate in self insurance – their own Bermuda captive insurer. These same companies then find out about other Bermuda insurance opportunities. But Bermuda insurance groups have been built so solidly that many have expanded operations into many other countries.
What’s keeping you awake at night?
The ability to spread risk globally is imperiled by protectionist measures. There is a reinsurance tax bill introduced into the US Congress that would make it prohibitively expensive for international reinsurers to provide protection to US coastal areas. And in Brazil, there are regulatory restrictions on affiliated reinsurance. In Argentina, there are mandated restrictions to use local reinsurers. If you ring-fence capital so that risk can’t be spread globally, you make it more difficult for consumers to get the insurance they need. Florida is now a classic example where most home insurance will be provided by a government corporation, subsidized by taxpayers who don’t own homes on the coast and paid for with debt that will be paid off by the next generation.