Lloyd’s of London’s busy year in the Americas

April 02--Last year was enough to give those involved in the insurance industry in the Americas whiplash. There were three major hurricanes, three Mexican earthquakes and relentless wildfires in the western United States.

Lloyd's expects to pay out $4.8 billion in claims for Hurricanes Harvey, Irma and Maria alone.

All the catastrophes have added up to a busy year for Mexico City-based Daniel Revilla, regional president of Latin America for Lloyd's of London.

He was in Miami earlier this year for a Meet the Market Event that brought together representatives from the Miami insurance market, corporate risk managers, underwriters from around the world and Lloyd's, the venerable marketplace that got its start when people began underwriting marine insurance at Edward Lloyd's coffee house in the 1730s.

"We had the chairman here for the event, and we also met with clients in Florida who had been impacted by the hurricanes," Revilla said.

Through the years, the Lloyd's marketplace has insured everything from rock guitarists' hands to a $ 1.1-million, 69.42-carat diamond that Richard Burton purchased for Elizabeth Taylor. Under the insurance conditions, she could wear it only 30 days a year with armed guards present.

While he was in Miami, Revilla sat down with the Miami Herald to discuss Lloyd's, the impact of last year's natural disasters, and the steps needed to protect against another potentially busy hurricane season in 2018 in a region that traditionally is underinsured.

Q. Lloyd's isn't an insurer but rather an insurance marketplace. Can you explain how it functions and its structure?

A. A market such as Lloyd's has several components. First, you must have the capital. Capital, of course, is required for anyone who wants to offer insurance services. You need the capital to help people who have suffered losses get back on their feet. The capital is provided by both individuals and corporations that associate themselves in syndicates. There are about 80 of them in the Lloyd's market.

Those who make the decisions on underwriting -- who decide on reinsurance -- are the managing agents. We supervise these managing agents. On the other side of the equation are the brokers who bring in business from all over the world. They are the ones who have contact with clients.

The third part of the equation is the supervisory party and that's what we are. We make sure the processes are in place for processing claims and basically guarantee the market is working harmoniously.

Q. How does the Miami insurance market interact with Lloyd's?

A. A lot of the Miami-based market actually serves Latin America. They accept business in the name of the London managing agents, and that could be many types of risks from property and casualty to energy and many other lines.

Miami is a newer center for insurance. Until Hurricane Andrew struck, there was quite a large insurance presence, but then it diminished severely after Andrew. But it has come back in the last five years and capacity has increased. Being based in Miami allows you to connect with an entire region in the same time zone from a stable legal system.

Q. What are some of the unusual things that Lloyd's has insured in the Americas?

A. We insure very expensive horses, polo ponies usually. We insured the smile of America Ferrera when she played in "Ugly Betty." For soccer players, we've insured their legs. With rock stars, we're insured their voices, their hands if they play the guitar, or their fingers if they're pianists. We've insured the noses and tastebuds of sommeliers.

Because there are 80-plus syndicates in the Lloyd's market, you will find someone who will take on these highly specialized risks.

More traditionally, we insure big properties -- highways, airports, infrastructure investments.

Q. I would assume insuring some rock stars would be pretty risky considering some of their lifestyles.

A. You have to put in very specific clauses dealing with drugs and alcohol. Tell them these are the conditions and they have to behave if you want to be covered. You don't cover for people misbehaving; you cover for an accident that they couldn't control.

Q. How much has Lloyd's paid out in claims for Hurricanes Harvey, Irma and Maria?

A. For the hurricanes, we have already paid $2 billion. [That includes the Florida claims for the hurricanes.] We expect the full number to be $4.8 million net. Claims are still coming in from parts of the U.S. Virgin Islands and Puerto Rico.

Q. I would think that many buildings in Puerto Rico weren't up to code. Was that the case?

A. The ones that were insurable had good construction. But a very low percentage of losses were insured. Less than 8 percent of what was destroyed was insured. It is shocking. We can compare that with Chile in 2010 after the big earthquake. About 35 percent of what fell was insured. That tells you that in the Latin American region there is a very low penetration of insured and that these hurricanes will be costly for taxpayers and governments. Without insurance penetration, it is impossible to help.

Q. What is the insurance penetration rate in Latin America?

A. When we talk about penetration of insurance, we're talking about what percentage of the GDP is dedicated to pay insurance. In the United States that's 4.1 percent and in Latin America, it's about 1.8 percent for non-life insurance.

We believe the only way to increase market penetration in Latin America is by working with governments and insurance associations to try to make sure people take a more risk-adverse view.

Q. What will be the impact on premiums because of all the natural disasters we've seen in the past year?

A. We've seen a lot of natural disasters on this side of the world, but you have to remember we insure for risks all over the world. For some of the impacted regions, an uptick on premium rates is probably due and I think it is healthy to have those upticks. But rates don't have to go up through the roof.

It is a competitive market and there is always going to be someone willing to take a risk. Traditionally in the insurance world after an earthquake, hurricane or other catastrophe is when the best deals are done.

Q. What should people be doing at this point to prepare for other potential catastrophes in 2018?

A. Decide what risks you want to take. If you want to live in front of the ocean, which has the most beautiful view, that's where hurricanes are going to impact you the most. So you have to balance how you want to live your life. You can live with a lot of risk and have a beautiful view or you can live inland. If you want a sea view, property insurance will be high. You have to be prepared to accept the consequences of taking risky positions.

Businesses also need to make sure they have the proper risk management programs in place.

Follow Mimi Whitefield on Twitter: @HeraldMimi

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