Lloyd’s Chairman Warns on “New Era of Risk”

Speaking to business leaders in San Francisco at the World Affairs Council, Lloyd’s Chairman Peter Levene warned that new global risks increasingly threaten corporations, and need to be addressed at the boardroom level.

Calling the situation a “New Era of Risk,” Levene pointed to changes in the makeup of the global economy and the growth in technology as posing new risks for business. As examples he cited business interruption costs, corporate fraud and increased liability claims. He said that at a time when America is still managing the impact of major corporate collapses and terrorist attacks, it is critical that business leaders understand that we have entered a new era of risk.

Levene called for business leaders to:
— Raise risk awareness to the boardroom; and
— Respond actively to the changing risk environment, including risks associated with business interruption and intellectual property.

He also told insurance leaders that the insurance industry must return to stability for the benefit of insurance buyers. “Looking ahead ten years, I firmly believe that the most successful, least crisis-prone businesses will be those whose boards have shown firm resolve and taken decisive action,” Levene stated. “Effective, integrated strategies for dealing with tomorrow’s risks require a change in culture at board level now.”

Companies must be prepared for business interruptions, Levene warned, noting that such claims constituted about 25 percent of the $40 billion lost as a result of the September 11 terrorist attacks. Referring to recent studies, he cited figures, which estimated that 90 percent of medium to large companies that can’t resume near-normal operations within 5 days of an emergency will go out of business. The increasing reality of the global economy means that in today’s global economy, the impact of an emergency can be felt like a tidal wave across the world.

Lord Levene also noted that recent studies of U.S. businesses found that 40 percent of companies hit by a disaster will go under within 5 years, but that more than half of U.S. corporations have no crisis-management plans in place.

He also encouraged business leaders to broaden their focus to prepare for risks associated with an increasingly global and technologically advanced economy. He said it was important for businesses to ensure their intangible assets, including intellectual property and corporate reputation, are protected. It is estimated that $59 billion of intellectual property is stolen each year, and the average litigation is $2.5 million per case, he said. Traditional insurance policies may not adequately cover these risks, he noted.

The full text of Lord Levene’s remarks and the pertinent citations may be found on the Lloyd’s Web site, at: www.lloyds.com.