Tragedy in Haiti; XL Moves to Ireland; NYC Exchange Doesn’t Worry London; WEF Prepares for Davos

The tragedy in Haiti is a reminder of how fragile life can be in developing countries.Despite the massive loss of life and widespread destruction in and around the capital Port-au-Prince, vital rescue efforts have been hampered by a lack of coordination and damage to infrastructure that has held up aid to quake victims, despite an outpouring of international actions and donations.

Despite being the second oldest democracy in the western hemisphere (after the U.S.), the country is also the poorest and one of the least developed. It has suffered decades of ecological destruction, brutal dictatorship, corruption and destructive hurricanes. Its infrastructure, fragile at best, is now in ruins, and the prospects for rebuilding it are still obscure.

Haiti’s plight evinces the gulf between developed and developing countries in real terms. Earthquakes in countries like the United States, Japan or Italy may kill a few hundred people, and can cause a great deal of destruction, but they don’t kill thousands or wipe out entire cities. In addition developed countries have the means in place to rush rescue teams to the stricken areas almost immediately after a natural disaster strikes

Haiti had none of this. Most buildings, constructed with concrete, weren’t reinforced. Houses were piled on top of one another and collapsed like a house of cards. There were very few, if any, local disaster teams to come to the aid of victims trapped in the rubble. And there is very little insurance coverage to draw on to clean up and rebuild.

“Haiti is the poorest country in the Western Hemisphere and poor countries tend to purchase very little property insurance coverage,” stated Dr. Robert P. Hartwig, president and economist for the Insurance Information Institute, in a bulletin. “The fact that there is very little information about Haiti’s private insurance market suggests that the market is very small — likely not more than a few tens of millions of dollars.”

As a result he concluded that “private insurer losses from the 7.0 temblor on Tuesday, Jan. 12, will be modest and will not have a material impact on global insurance and reinsurance markets.” Hartwig said that some multinational firms with facilities in Haiti may be insured for losses under blank policies that respond to losses wherever in the world they occur.

A December 2009 report by Axco Insurance Information Services on Haiti’s non-life (property/casualty) market, said, “Some 90 percent or more of Haiti’s insured risks are situated in Port-au-Prince, but no information is available about aggregate sums insured.” In the absence of official data, Axco estimated the total non-life premium income written in Haiti at $19 million in 2008, with the non-life category consisting primarily of P/C policies for auto, homeowners and commercial insurance.

About the only bright spot on this front, and one that the world should be aware of, is the coverage provided by the Caribbean Catastrophe Risk Insurance Facility (CCRIF – www.ccrif.org). Less than 24 hours after the quake hit the CCRIF issued a bulletin noting that “Haiti has an earthquake policy with CCRIF as part of the country’s disaster risk management strategy. The recent earthquake was of sufficient magnitude to trigger the full policy limit for the earthquake coverage, effecting payment after a 14-day waiting period.

“Based on calculations from the preliminary earthquake location and magnitude data, Haiti will receive just under $8 million — approximately 20 times their premium for earthquake coverage of $385,500.”

True, $8 million for a disaster this size isn’t a great deal, but the fact that there are cooperative organizations, ready to extend risk management services as part of this type of coverage is an important step in pre-planning for disasters in countries where private insurance is minimal.

The struggling Irish economy heard some good news when XL announced that it is moving its place of incorporation to the Emerald Isle from the Cayman Islands, and will rename the company XL Group plc.

XL’s CEO Michael S. McGavick explained that the move was “in the best interests of XL and our shareholders. Among other benefits, we believe the proposed move will reduce certain risks that may impact us and offer us the opportunity to reinforce our reputation, which is one of our key assets, and to better support our global business platforms.”

He added that the new “XL Group” name “is desirable to reflect our exclusive focus on providing property, casualty and specialty insurance and reinsurance products for our customers’ complex risks.”

Insurance continues to be a bright spot for Ireland’s troubled economy. Willis recently completed its “redomestication” there.

“XL’s recent announcement that it is planning to move its holding company to Ireland is a further example of a growing trend for international re/insurers to look to well-regulated, well-developed and stable locations for their operations,” said Sarah Goddard, CEO of the Dublin International Insurance & Management Association (DIMA).

“XL set up its first European operations in Dublin about 20 years ago, and more recently chose Ireland as the location for its European reinsurance business, so the group has had plenty of experience of the Irish international re/insurance sector in the years preceding its decision to move its holding company,” she said.

The recent proposal to establish a Lloyd’s style insurance exchange in New York hasn’t exactly triggered a wave of anxiety in London. The general reaction, from conversations with a number of people in the City’s insurance community, can be summed up as “so what.”

While the exact nature of the proposed exchange hasn’t been established, it would operate more or less as a mutual organization, which is essentially how Lloyd’s is now structured. As a subscription market with both large and small players, Lloyd’s must balance the interests of all its members, a complicated process.

Tom Bolt, Lloyd’s new Franchise Performance Director, addressed this point in an interview with the Financial Times, which was also reprised in the Insurance Insider. He pointed out that getting individual companies to work together in a mutual context requires them to observe certain rules, and in some cases to eschew or compromise the interests of their respective companies.

Bolt, who has replaced Rolfe Tolle as Lloyd’s franchise performance director, is on the front line of these types of confrontations. In his opinion failure to balance competing interests was one of the primary reasons earlier attempts in the U.S. to establish a Lloyd’s type market were unsuccessful.

He also pointed out that in the current relatively soft market, such an exchange would have a hard time getting off the ground. Although given the time to set it up, that could change.

A number of people in London were also pessimistic about the ability of such an enterprise to attract the experienced underwriters and brokers in the numbers that it would need to write the complex types of risks handled by Lloyd’s.

The World Economic Forum released Global Risks 2010, its annual report on the most significant global risks facing the global economy, in a presentation held at Marsh’s London office.

The report, which has been prepared in each of the last five years, lays out topics for discussion at the WEF’s Davos summit, which begins Jan. 27. It’s available at: www.weforum.org.

The WEF highlighted the interdependence of the global community in facing both catastrophe risks, such as the Haitian earthquake, and systemic risks, which may constitute seriously under analyzed threats to the world.

“Events of the past year have revealed a fundamental need to change thinking on global risks and how they are managed,” said the WEF’s bulletin. “With unprecedented levels of interconnectedness between all areas of risk, the report stresses that the need to combat governance gaps globally is greater than ever. It argues that this can only be addressed by an overhaul of current values and behaviours by decision-makers to improve coordination and supervision.”