Steven Gladstone is the senior vice president of XL Professional, a Hamilton, Bermuda-based subsidiary of XL Capital Ltd. XL Professional provides various professional liability insurance solutions to domestic and multinational businesses worldwide.
Uncertainty in the marketplace is one of the greatest risks facing executives. This uncertainty is a result of several things:
1) Adverse business developments (oil price spikes, stock market fluctuations and general global instability)
2) Adverse government or legal developments (legislation, regulation or judicial rulings)
3) Environmental catastrophes, both natural and man-made
A risk that executives should watch carefully is continued government instability worldwide, including in Russia, oil-producing countries (in the Middle East and Venezuela), Israel, Europe and China, which can result in stock market bubbles, oil price declines and overall impact on the marketplace. And environmental risks including natural catastrophes–global warming, earthquakes, hurricanes, flooding and man-made catastrophes that result from cyber hacking, pollution, and overpopulation–will pose risks to executives.
Business demands predictability. Whenever there is a risk via new regulation, legislation and/or litigation that forces change on how a business operates, business can react by slowing down and/or withdrawing from the market in order to avoid and/or limit adverse consequences. At the same time, a lack of predictability can create opportunity for those willing to take on the risk. Businesses (including insurers) willing to operate in an unpredictable environment have an opportunity to reap profits where others may shy away.
This is an area we can always improve upon. Whenever the insurance industry is exceptionally proficient at identifying and quantifying risks, it can then create, improve upon or modify insurance products to meet the needs of the market. In addition, limiting and/or precluding unfavorable outcomes results in greater profitability for the insurance industry.
If one could consistently and accurately identify and predict future risks and their potential impact, there would be a lot less sleepless nights. My current areas of focus and interest are:
1) Future government regulation, legislation, litigation in the US and Europe that may materially change the current landscape we operate in. I am especially interested in (and worry) about how courts react to new and novel legal theories and arguments pursued by insurance claimants seeking to expand coverage under the insurance policy, beyond what the coverage was originally designed and intended to cover.
2) Increased competition among insurers via new products, expanded coverage and pressure on rates. The entry into the insurance market of alternative new capital also is having a negative impact on rates. In addition, some of these new insurance markets lack claims-handling experience and expertise in connection with professional liability claims. Within the past year, we have encountered more than one instance where inexperienced insurers lacking claims expertise on the program materially mishandled a complex claim situation, which adversely impacted the insured and the other insurers on the insurance tower.
3) Political instability around the globe
4) Economic and environmental events, both natural and man-made, and the potential impact on insureds and insurers