Underwritten Weekly

Last weekend, a few of my neighbours had a garden party.

I live on a very small road in a very small village outside Deal. There are ten houses on it, which you might reasonably assume means I know the people who live in ten houses. I don’t. Halfway down the road is a turning circle, and on our side of it there are five houses which, for reasons nobody has ever formally agreed, have become a sort of tiny residential commune. We have barbecues, drinks, take in each other’s parcels, know whose cat has gone missing and whose bin has mysteriously not been emptied.

On the other side of the turning circle are five more houses.

No idea.

They may be lovely. They may be running an international smuggling operation. Which, if they are, is handy, because I couldn’t confidently identify any of them in a police line-up. 

Anyway, on Sunday our half had a barbecue, and my next-door neighbours’ daughter came along. I had already heard about her because she is a terrorism underwriter for another syndicate, which had, obviously, come up in conversation. There are few circumstances in which somebody can tell me their daughter is a terrorism underwriter at Lloyd’s and I will simply say “that’s nice” and move on.

So when she arrived, we got talking about insurance, and she then made what turned out to be a fairly serious tactical error: she mentioned that she didn’t know much about the history of the market.

And so, on what had until then been a perfectly pleasant Sunday afternoon in the village, the residents of our little street were treated to an unsolicited history of Lloyd’s. There were burgers, there was wine, there was Cuthbert Heath. I was reassuring myself they must be finding this interesting because they hadn’t made a polite excuse and left.

Then I realised I was in their garden.

But afterwards I got thinking about her particular bit of the market, because terrorism insurance is a strange thing when you think about it.

Most of the risks we insure don’t actually want to happen. The wind isn’t trying to blow your roof off. The sea holds no real grudge against your container ship. Your house isn’t sitting on clay soil plotting its own subsidence.

Terrorism though is different, because the damage is deliberate, and really the damage isn’t even the point. The point is what happens afterwards: fear, empty buildings, closed businesses, people deciding not to travel and looking at places they felt safe yesterday wondering whether they still are today.

Terrorism is trying to make people stop.

On 11 September 2001, the world watched something unimaginable happen in New York. The World Trade Center was destroyed, and aircraft, property, businesses and lives were all caught up in the same event. For Lloyd’s, it became the largest single loss in the market’s history.

Then the claims arrived.

Billions of dollars were paid by syndicates. None of that could undo what had happened; insurance can’t do that, and there are some losses for which a cheque is an inadequate answer.

But that’s not really the promise insurance makes.

The promise isn’t that terrible things won’t happen. That’s a class of business we’ve never been able to offer. The promise is that, if they do, you don’t necessarily have to stop.

Buildings can be rebuilt. Businesses can reopen. Planes can fly again. People can go back to work. Capital arrives precisely when something has happened which might otherwise make carrying on impossible and, eventually, somewhere in Lloyd’s, somebody sits down at a desk and starts underwriting the risk again.

There’s something wonderfully defiant about that.

Terrorism tries to make the future too frightening to continue with. Insurance takes that same frightening future, looks at it, argues about it, models it, puts some numbers around it and eventually says: alright, we’ll take some of that.

Not all of it. We’re underwriters, not lunatics.

And that’s one of the things I love most about our market. Someone builds the building because they can insure it. Someone invests because the downside can be carried. Someone gets on with things because, although nobody knows what the future will do, somebody has agreed to stand behind a small part of it.

Terrorism says: stop.

And somewhere, very quietly, insurance says:

carry on anyway.

Which is quite a lot to discover about your next-door neighbour’s daughter while standing in a garden in Kingsdown holding a paper plate with a sausage on it.

Have a good week,
Rob

P.S. Still no idea who lives on the other side of the turning circle, but they should probably be warned not to invite me to a barbecue.