Archive for Lloyd’s

Insurers Prepare For Global Doomsday Scenario

According to scientists the World as we know it is in imminent danger from a Doomsday scenario the likes of which would scare the science fiction writers and not even Dr Who could avert.

No we are not talking about global warming, plate tectonics, mega tsunamis, giant asteroids, disclosure and alien invasion or the Satanic manoeuvrings of the New World Order, but something much more likely to occur first.

The Insurance companies are starting to prepare for the event for the simple reason – it has happened before!

In late August 1859 a very strange phenomena was experienced all across the World which had never been reported before. It was only a short period prior to this date that man had started using electricity for technology.
The first electronic telegraph dates from 1832 when it was invented by Schilling.
As the event occurred, all across the globe telegraph systems failed, in some cases burning out and shocking the users and in others, continuing to transmit code even when disconnected from the electricity supply.

The phenomenon became known as the Carrington Event, was named after a British scientist who first identified the cause – simultaneous coronal mass ejections or CME’s. The CME’s of August to September of 1859 were the largest ‘solar flares’ ever recorded to date.

Threats to the Earth from the Sun include coronal mass ejections and solar radio bursts which create solar winds, solar radiation storms of cosmic rays and magnetic storms.

Coronal Mass Ejection

Coronal Mass Ejection

All of these have in the past since the Carrington Event occured on smaller scales and disrupted power stations, power grids, telephone and television systems.
Since the advent of the digital age, all inter-connected systems, computers and the Internet and homes and businesses are now at major risk.

Solar activity occurs in known 11 year cycles and we are now entering a phase where a large CME or worse is expected anytime between 2012 and 2015.

This fact has not gone unnoticed by Insurers and Governments and Lloyds of London have issued numerous warnings and produced white papers on the global risk potential to business and society.

The largest risks are to power supplies and communications which if destroyed or shut down globally for large periods of time, will be the the proximate cause of the rapid mass breakdown of society as we know it. The scenario is truly frightening and it doesn’t take too much of an imagination to visualise the consequence.

Doomsday!

The Doomsday Vision of the Prophet Ezekiel

The Doomsday Vision of the Prophet Ezekiel

When a large CME occurs the size of the Carrington Event the World will have in the region of 12 to 17 hours of warning to prepare itself before we are hit by the ‘storm’. The normal rate at which solar flares take to reach the earth is two to three days.
Governments will not be able to supress that the event is about to occur due to the numerous individuals and agencies around the globe who are constantly watching and recording solar activity.
However short of sitting on your own personal Faraday cage with electronic equipment, batteries and generators, there is little that a business of individual can do to protect themselves from the electro-magnetic pulse and nothing much can protect from the cosmic radiation.

In a worse case scenario all power stations will be knocked out, transmission cables and electronic equipment – fried.

Satellites, television, radio, landlines, Internet and mobile phones will cease to function and there will be a Global communications blackout that could last for years!
Transportation will be massively affected. Trains, trucks and cars will stop working and planes will literally drop from the sky.

Electronic money will become worthless as ATMs and the systems that control them will be fried globally. Businesses will not be able to carry out any transactions and food supplies will rapidly diminish leading to massive civil unrest and riot.
Water systems which rely on pumps will fail to function and sewage and waste build-up will lead to large scale disease and death.
More frightening will be the secondary damage caused by the failure of the initial systems, such as was witnessed recently after the Fukushima Tsunami incident. When backup diesel generators for water cooling pumps failed due to a lack of supply,  it led to a nuclear core meltdown and radiation emissions not witnessed since Chernobyl. There are approximately 450 nuclear reactors worldwide!

No part of society will escape the consequences of such an event. Business interruption insurance and failure of service supply cover will either reach maximum levels of indemnity which are insufficient or be declared a fundamental risk.  The only action that individuals and businesses can take to mitigate the damage is in the words of Baden-Powell, to be prepared!

Further Reading

Coronal Mass Ejection – http://en.wikipedia.org/wiki/Coronal_mass_ejection
Carrington Event – http://en.wikipedia.org/wiki/Carrington_Event
Lloyds Global Risks White Paper – http://www.lloyds.com/~/media/Lloyds/Reports/360/360 Space Weather/7311_Lloyds_360_Space Weather_03.pdf
Lloyds of London Space Weather Report – http://www.lloyds.com/news-and-insight/news-and-features/market-news/industry-news-2010/be-prepared-stormy-space-weather-ahead
CME Nuclear Risks – http://beforeitsnews.com/space/2011/09/1089880-1089880.html

A Brief History of Insurance: Part 8 Lloyds and World Insurance

A Brief History of Insurance:

Part Eight: The emergence of Lloyd’s as the worlds major insurance organisation:

In the previous article in this series we learnt about the humble beginnings of Lloyd’s as a relatively small coffee shop on Tower street. Whether it was an incredible piece of foresight or simple luck Lloyd developed a very specific clientèle of sailors, ship owners and merchants for boat insurance and marine cargo insurance risks.

Lloyds wasn’t the only coffee shop to do insurance business but it set the standards. In 1748 nearly one hundred houses including the famous coffef houses of Jonathan’s, Garraways and others were destroyed by a fire that ravaged Cornhill and in which scores of people perished and damage to the exent of £200,000 (nearly 200million in todays money) was caused. This event and another in the Cornhill when it was again destroyed by fire in 1765, left Lloyds in a prominent trading position.

It is evident however, that Lloyd cultivated this customer base by providing reliable and regular updates on the shipping news to those that visited his coffee house and soon Lloyd’s had established itself as a focal point within the very heart of the Shipping industry.

It was therefore inevitable that the coffee shop also quickly became a second home to a number of early insurers seeking to business with the Lloyd’s clientèle. Similarly it soon became accepted that if you were a merchant seeking insurance, then Lloyd’s was always a recommended first port of call. In fact within just three years Lloyd’s had grown to a level of importance and popularity that a new location was required and Lloyd moved his coffee shop to Lombard St – where it would remain for the next 83, years long after Lloyd himself had passed away.

As Britain established itself as a leading economic power through the exploitation of the slave trade, the shipping industry was at the heart of this economic boom. As slave trading was a high risk trade (1053 slave vessels are recorded as having been lost between 1689 and 1807) the insurers of Lloyd’s also found themselves in high demand.

Lloyd himself died in 1713 however his legacy remained strong.

Lloyds Fire at the Royal Exchange

In 1774 when the participating members of the insurance arrangement formed a committee and moved to the Royal Exchange in London, they became The Society of Lloyd’s. The Society’s objectives included the promotion of its members’ interests and the collection and dissemination of information amongst members helping them to further dominate the marine insurance industry which indeed they had created.

The first Lloyd’s act was passed in parliament in 1871 and it was this act that gave the Society a firm footing both  commercially and legally and it continued to remain at the heart of the insurance industry, growing in tandem with the industry to eventually become one of the most powerful and well respected organisations in the world today.

In fact in many ways very little of Lloyd’s of London then changed for almost a century and this is even true of their motor insurance risks department. The membership of the society, which was made up in the main of market participants, became the market specialists. Lloyd’s continued to grow, and it’s members continued to flourish, mostly due to the force of economics. Insurance moved from being desirable to essential across just a few centuries. If you were in shipping you needed marine insurance. If you needed marine insurance you got it from Lloyd’s. It was as simple as that.

marine insurance

However, eventually the bubble had to burst. Just under a hundred years after the first Lloyd’s Act had been passed, the membership of Lloyd’s was realised to be too small for the risks that it was underwriting. The Cromer report commissioned in 1968 advocated opening membership options to both non-market participants and crucially to non-British subjects for the first time.

The insurance industry had become a global industry and Lloyd’s had to adapt to survive. In the next article in this series we shall explore the rise of insurance in the US and how they too had to adapt to the globalisation of the industry within the twentieth century.

A Brief History of Insurance: Part 7 Lloyds and the London Market

A Brief History of Insurance:

Part seven: A small coffee shop called Lloyd’s

Welcome back to this series which aims to briefly plot the key times and places in the historical journey of insurance, from the earliest Chinese civilisations some seven thousand years ago right through to the modern day. As we discovered in the last article in this series, the seventeenth century was of major importance to the development of insurance.

The tragedy of the Great Fire of London saw the first insurance company The Fire Office appear and soon after a number of competing fire insurers had arrived including Sun Fire Office, which we now know today as RSA – one of the largest insurers in the word.

We also discovered that the era was one of great advancement in the field of mathematics, which led to the emergence of first true development of actuarial systems and relatively sophisticated risk management models.

Of course no history of insurance would be complete without reference to Lloyd’s of London and it was during this same period of innovation within insurance, that Mr. Edward Lloyd opened his first coffee shop in Tower Street, London.

Lloyd's 1743

It needs to be mentioned that the coffee shop of the seventeenth century was a far more important venue within a society than your local Starbucks or Costa Coffee is today. In fact at this time the coffee shop was a relatively new phenomenon in Europe.
Whilst they has been in existence in the Muslim world for much longer, they had only recently appeared within the West.

Originally thought to have been introduced to Europe via the Kingdom of Hungary, the first documented coffee house to open in Europe was in Venice in  1645.

The first English coffee house, The Grande Café, opened in 1650.
Less than a century later there  were 551 coffee houses in London alone.

A fundamental reason for the success and popularity of these coffee shops was that they were great social levellers. They welcomed men from all levels of society and as a result they became synonymous with equality, republicanism and the ideals of a free market.
As such it was almost inevitable that the coffee houses of the late seventeenth century were to become vital hubs in which to discuss politics, the current affairs of the day and of course business.

It was 1688 when Edward Lloyd first opened his own coffee house in Tower Street, London.
Capitalising on the current growth in popularity for coffee houses across the city, Lloyd was able to carve a strong niche  in the city by providing regular and reliable news from the shipping industry.
Soon Lloyd’s of London had a vibrant and faithful community of sailors, merchants and ship owners visiting the coffee house on a daily basis.

It was not long before  Lloyd’s of London had become synonymous with the shipping industry and establishing itself as the key meeting place to discuss business in the shipping world.

In the next article within this series we shall look at how boat insurance and the shipping industry became intrinsically linked and how Lloyd’s of London developed from a humble coffee shop to one of the major organisations in modern insurance.

A Brief History of Insurance: Part Six- The First Insurance Company

The World’s First Insurance company -The Fire Office and a man called Halley

In the last article in this series we had arrived at the seventeenth century after a whistle-stop tour of the continuous evolution of insurance across the last 7,000 years or so!

We had just discovered that what is generally regarded as the worlds first ever Insurance company – The Fire Office, was created from the ashes of the Great Fire of London and it is with the Fire Office that we shall continue our journey through the history of insurance….

‘The Fire Office’ was opened by Nicholas Barbon not long after the Great Fire had ravaged some 13,000 homes across the English capital. Barbon himself is acknowledged as being one of the first proponents of the free market and a leading economist and financial speculator of the time – he also had a ruthless eye for a business opportunity.

Predictably as the Fire Office flourished so other companies soon mirrored his business model and a precedent had now been created for insurance to evolve once more. Providing insurance was no longer limited to wealthy private individuals, but instead a developing industry, with dedicated companies establishing specialist commercial insurance and personal insurance products.

This period thus introduced a legacy of professionals who would ultimately establish an insurance industry which would impact upon the lives of almost everyone within the modern world. It is interesting to note that one of The Fire Office’s earliest major competitors was the Sun Fire Office, who, after numerous mergers and acquisitions across the centuries we now know as RSA – one of the worlds largest insurers.

Whilst these early insurance companies actually resembled something more akin to a private fire service (there was no state fire service until 1865), they were soon to develop into far more sophisticated organisations and a large part of this development was made possible by the scientific and more specifically mathematic progress of the time.

As the great fire had swept through London, so through Europe spread an appetite for understanding and a series of extraordinary advances in mathematics established themselves and flourished across Germany, France and England. With them the ability, need and desire to asses and place a valuation on personal risk through more refined, scientific systems also appeared. Economic concepts such as compound interest were re evaluated and revitalised for this modern era where innovative fledgling financial products were rapidly appearing. At the same time more complicated concepts such as probability theory emerged allowing for more sophisticated methods of evaluating risk to appear.

It was through the application of these newly developing mathematic disciplines that London draper John Graunt was able to establish predictable patterns of longevity and death within a defined group of people, regardless of any uncertainty about the future longevity and death of any one individual.

The work that Graunt completed was to become the foundations of an actuarial life table, which is absolutely fundamental to establishing costs for premiums in modern insurance.

However, it was a certain Edmond Halley (yes the same chap that discovered Halley’s comet) who further expanded upon Graunt’s work some thirty years later. Halley was able to demonstrate how to create an insurance scheme to provide life insurance for a group of people, and then calculate with a far greater degree of accuracy than had ever previously been possible, exactly how much each person in the group should contribute to a common fund assumed to earn a fixed rate of interest. Indeed Halley went on to create a life table to calculate the  premium a person of any given age should pay when purchase a life-annuity.

With a business model beginning to establish itself through the development of the Fire Insurers and a new attitude towards assessing risk and applying premiums accordingly being shaped for the first time by complex mathematical theory, insurance was primed to flourish and it soon did.

It was at this point, as the end of the seventeenth century approached, that we see one of the insurance world’s most famous names appear for the first time. In 1688, in Tower Street, London Edward Lloyd opened a coffee shop.

In the next  insurance history article in this series Insurance Blog will reveal how from these relatively humble beginnings his venture went on to become Lloyd’s of London, one of the most powerful organisations in insurance today.

Lloyds prepares for Solar Meltdown!

“Ground Control to Major Tom!”

“Check your policy wording and put your spacesuit on!”

Insurance Business have finally moved into the 21st Century with some truly space age of aquarius exposures to risk to deal with over the next year, according to a new report from Lloyds of London.

These new age risks include Space weather, cyber risk and critical infrastructure attacks that are predicted to cause big problems for consumers, businesses and their insurance companies in 2011.

The Lloyd’s 360 Risk Insight report states that ‘The phenomenon of space weather is one of the most difficult to quantify and yet potentially serious sources of loss and disruption for business.’

“Space weather and its impact on Earth: Implications for business”, says that businesses should be looking at ways to assess and mitigate space weather risks this year because the 11-year solar cycle is expected to peak in 2012/13.”

Turbulent space weather created by solar phenomena such as coronal mass ejections, solar flares, solar wind, solar radiation and magnetic storms could have wide ranging impacts around the globe in climatic responses, many scientists believe.

These phenomena are also predicted to affect aircraft communications, air traffic control and navigational systems which could malfunction or might stop working, satellite and GPS systems could also malfunction, and surprisingly. power grids could collapse.

Scientists know a lot about the possible causes and effects of solar weather from previous cycles. Established infrastructure that we take for granted, such as rail networks, telephone systems, pipelines and electric power grids have all been seriously disrupted by space weather in the past.

But the economic fall-out that could result from the increasingly active solar season is far less certain. That’s because our dependency on wi-fi and internet technology is so much greater than before.

“There is growing concern that the coming solar maximum will expose problems in the many wireless systems that have grown in popularity during the quiet solar conditions that have prevailed over recent years,” the Lloyd’s report warns.

Insurance Blog should have a lot to write about then over the coming year if these concerns are realised.

And then it’s 2012!

Don’t worry about the risks to the Olympic games! The Mayan Calendar stops here……….

And the earth is positioned in alignment with the centre of of the Universe!