An anonymous memo from insurance leaders, and why it worries me

When the insurance industry's own senior people start sounding the alarm on itself, everyone else should listen.

A memo got sent to me by WhatsApp this week called "Sounding the Alarm." The article has been written by an anonymous group of current and recently departed senior executives across the UK and European insurance and reinsurance markets, people who between them have held leadership roles at some of the biggest names in this business.

They're writing anonymously, because they are worried about what could happen to their careers if they're identified. Senior people from inside this industry, that don't feel safe saying this on the record. That suggests it's time we all woke up a little.

Their core claim is very blunt.

Climate risk such as flood, wildfire, subsidence and extreme weather, is escalating faster than most boardrooms have grasped. And their claim is that the industry's actual strategy for dealing with it, as opposed to the strategy it talks about publicly, is a three-step playbook:

Reprice aggressively, strip out the riskiest cover from policies, then withdraw entirely from whole sectors, geographies and communities once the numbers stop working.

One line from the memo has stuck with me: their own voluntary industry initiatives, in their own words:

"will not deliver the protection society needs."

That's not a campaigner's accusation. That's the industry's own senior people telling government and investors, in writing, that self-regulation on this isn't working.

We've seen this sort of thing play out before and typically the Government steps in to rescue things, however my fear on this occasion is that the size of the problem is so large it's going to be difficult to rescue our way out of.

The anonymous group are clear that this it isn't malice. It's just what happens when an industry is only ever planning for next year's renewal, not the next ten years. But they also draw a comparison that should stop anyone in their tracks: a quiet build-up of uninsured, mis-priced risk in the system, the same underlying mechanic that helped trigger the 2008 financial crisis through the mortgage market.

The communities named coastal, flood and wildfire-exposed areas, households already priced out of cover, farming and agricultural supply chains are the ones who'll be left holding risk nobody wanted to price honestly. Pension funds investing for members 10, 20, 30 years out are told directly to interrogate what their exposure to this sector actually means, if the sector's own planning barely extends past this year's numbers.

Here's the bit from the memo that actually gets to me. The conversation happening inside this industry right now isn't "how do we fix this." It's "how do we manage our way out of it without anyone noticing." Actuaries and catastrophe modellers are being leaned on to "manage down the numbers" so the projections don't scare anyone off or slow a deal down.

Climate risk barely makes the top three things discussed in board meetings, because the industry's already decided its answer, reprice, restrict, withdraw, and reckons it can quietly out-time the problem before it lands on anyone's balance sheet. That's the conversation that's happening, behind closed doors, right now.

I run a small UK SME insurance brokerage, and I've spent a good part of this year doing my own digging into how this industry handles risk it would rather not look at too closely including, in my case, how little welfare or environmental scrutiny makes it into underwriting for industrial-scale agriculture.

I didn't publish this piece to make that case again; the pattern is the same one this memo describes, and that's as far as I'll draw the line. What I will say plainly: an industry that has the data, the modelling and the market power to actually reduce the risks it's pricing and is choosing instead to just time its exit before the bill lands isn't managing risk. It's exporting it, to whoever has the least power to object.

This memo suggests that nobody in the boardroom (at the top level at least) is prepared to have the difficult conversation.

Regulators, institutional investors and boards need to start having this conversation in the open. If the people closest to this risk are telling us, even anonymously, that the industry's current plan won't deliver what society needs, the burden is now on the industry to prove them wrong in public, not quietly manage the fallout in private.

If you work in this market, does this match what you're seeing from the inside?

If anyone would like a link to the memo I received, the comments and my DM's are open.