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Speaker 1: Well, Bruce Carnegie Brown is chairman of Lloyd's of London

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Speaker 1: and he joins us here on set. Bruce, you have

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Speaker 1: a really big business in the US too. I know

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Speaker 1: you're Lloyds of London, but you're also like Lloyds of

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Speaker 1: London in the US, right, I.

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Speaker 2: Mean, so fifty percent of our business coaps from the US.

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Speaker 1: So how do you manage climate change? What do you

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Speaker 1: do when the storms are unpredictable, they come at different times,

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Speaker 1: and they are catastrophic.

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Speaker 2: Well, so, as a basic premise, insurance has a chance

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Speaker 2: to reprice and restructure annually because people buy one year

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Speaker 2: policies and we take in a new set of data

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Speaker 2: each year and we add it to a long data set.

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Speaker 2: And so if risks are linear, it's really reasonably easy

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Speaker 2: for us to adjust our models and continue to provide

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Speaker 2: the insurance. If something exponential is happening, then the risk

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Speaker 2: is that we're behind behind the curve all of the time,

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Speaker 2: and that is potentially what is happening with climate change.

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Speaker 2: So twenty five percent of our capital is tied up

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Speaker 2: in supporting natural catastrophe risks around the world. A big

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Speaker 2: part of that in the United States, where the values

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Speaker 2: are clearly very high, and so we worry a lot

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Speaker 2: about these issues because it's not just a question of

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Speaker 2: whether insurance is available. It's got to be affordable otherwise

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Speaker 2: people don't buy it. So there needs to be a

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Speaker 2: partnership between government essentially and regulators to make sure there's

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Speaker 2: enough resilience in the economy that the losses we're protecting

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Speaker 2: against are unexpected, because the model breaks down if the

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Speaker 2: loss is expected.

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Speaker 3: But I am curious, I mean, when you talk to

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Speaker 3: your members. I mean, we've already seen insurance companies themselves

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Speaker 3: pull back in certain markets. We've seen the reinsurers pull back.

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Speaker 3: I mean to a certain degree. There are certain parts

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Speaker 3: of this country now that are completely dependent on the

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Speaker 3: government or regulators to either provide their insurance or at

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Speaker 3: least to subsidize it pretty heavily. Here, is that actually

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Speaker 3: something that works in your business model or is that

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Speaker 3: something that's going to be completely separate?

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Speaker 2: No, well, governments, we do need to partner with governments

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Speaker 2: in many cases, particularly around systemic kinds of risks, which

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Speaker 2: I think climate would be one, cyber would be another.

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Speaker 2: The risks are just too big for the insurance industry

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Speaker 2: alone to support. But The real issue we need is

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Speaker 2: behavioral change. You know, people need to build in different places,

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Speaker 2: and they need to build with greater resiliency. Most building

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Speaker 2: regulations are pretty tough in the United States, particularly in

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Speaker 2: hurricane affected areas for instance, of natural catastrophe affected areas.

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Speaker 2: But what's happening is places that didn't used to be

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Speaker 2: in natural catastrophe affected areas are now experiencing these things.

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Speaker 2: Germany is quite a good example of this. Nobody thought

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Speaker 2: of Germany as a as a natural catastrophe environment, but

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Speaker 2: they now regularly have extraordinary flooding and hailstorms through a

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Speaker 2: given season.

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Speaker 3: I am curious. I mean outside of whether and climate

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Speaker 3: change issues, there are a lot of other issues swirling

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Speaker 3: around here. I think we were just talking of both

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Speaker 3: during the commercial break here about the advent of AI.

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Speaker 3: Some of these new technologies here, this in and of

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Speaker 3: itself has become an assurance risk.

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Speaker 2: Yes, so we're on both sides of the ledger. We

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Speaker 2: can use AI to be smarter about the risks that

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Speaker 2: we underwrite, but equally, AI is going to be used

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Speaker 2: by bad actors to break down the security defenses of

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Speaker 2: our customers, and that will result in great claims and

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Speaker 2: so we need to begin to understand this and how

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Speaker 2: we can support our customers going through that. But interestingly

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Speaker 2: so the first ever cyber insurance policy was under it

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Speaker 2: in A Lloyd's in nineteen ninety nine, so the industry

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Speaker 2: for insurance is only twenty five years old, and in

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Speaker 2: the beginning people described it as a bit like a

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Speaker 2: homeowners policy where you could leave the front door open

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Speaker 2: and you still had to pay the claim, and a

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Speaker 2: bit like you wouldn't expect to get homeowners cover today

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Speaker 2: if you don't have a burglar alarm or mortis locks

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Speaker 2: on your windows. So we're beginning to have conversations with

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Speaker 2: our customers about how they mitigate against these cyber threats,

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Speaker 2: and of course the value of doing that is to

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Speaker 2: build resilience in the overall economy against the risk of

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Speaker 2: cyber attack.

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Speaker 1: What's your relationship like with your reinsurance and then help

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Speaker 1: your customers in terms of these threats.

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Speaker 2: Well, so you know, we lay off some of our risk,

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Speaker 2: which is where the reinsurance comes in. We actually do

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Speaker 2: reinsurance ourselves for other insurance companies too, So this is

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Speaker 2: about sharing risk in order to be able to provide

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Speaker 2: meaningful amounts of cover when asked to happens.

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Speaker 1: Where in that process do you feel is the biggest

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Speaker 1: gap between the pricing that you need to mitigate your

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Speaker 1: risk versus the pricing that customers, whether it be homeowners

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Speaker 1: or a company, can afford to pay. Where's that gap

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Speaker 1: the largest?

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Speaker 2: Well, it develops in different ways around different risks. So

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Speaker 2: you know, it was challenged yesterday by somebody who said

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Speaker 2: their home owners policy had gone up forty percent and

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Speaker 2: why was that? And you know, it's four things or

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Speaker 2: three things really that are key there. The first is

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Speaker 2: the value of their property has gone up, so the

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Speaker 2: cover is greater. The second thing is with persistent inflation,

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Speaker 2: we've had replacement costs going up, both materials and building contractors.

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Speaker 2: And then of course the overlay of natural catastrophe risk

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Speaker 2: has increased as well. Now, if it goes up too high,

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Speaker 2: of course the owner stops buying the cover. That's not

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Speaker 2: good for us, and it's definitely not good for them.

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Speaker 3: When you look at some of the bigger sort of

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Speaker 3: structural changes out there, the ones that will have an

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Speaker 3: impact either on your members' businesses or just really insurance

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Speaker 3: industry writ large here what is most important to you

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Speaker 3: right now? Most important to watch.

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Speaker 2: Well, we've got to respond to changing risks that our

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Speaker 2: customer's face. So one of the things if you've been

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Speaker 2: ensuring bricks and mortar for two hundred years, you've got

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Speaker 2: to wake up and recognize that in an enterprise value

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Speaker 2: of most of the businesses we look after, bricks and

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Speaker 2: mortar are a smaller and smaller part of it, and

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Speaker 2: they're increasingly valued on intangible risks. So you know, we

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Speaker 2: now develop products to support outages on platforms in the

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Speaker 2: cloud because these are bigger risks for many companies than

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Speaker 2: whether their inventory burns or their buildings are knocked down.

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Speaker 2: So what we've got to do is innovate around the

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Speaker 2: changing risk landscape.

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Speaker 3: All right, are fascinating SOFIA, and really appreciate you stopping

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Speaker 3: by today. Bruce Carnegie bround their, chairman of Lloyd's of London,