Ladies and gentlemen,
Currently in our seas and oceans, small speedboats can sidle up to big ships, who, despite highly evolved marine technology, are vulnerable to a sub machine gun in the hands of a Somali pirate. In our forests, colonies of tiny beetles are able to survive the warmer winters and spend the summers destroying 35 million acres of trees. In our cities, a hacker, armed with a computer can infiltrate the website of the Central Intelligence Agency.
Our sophisticated, industrialised and complex world is under attack from a myriad of determined and deadly threats. If we do not take action soon, we will find ourselves, like Gulliver, pinned to the ground and helpless, because we failed to stop a series of incremental changes while we still could.
I often hear that the risks we face today are unimaginable, off the scale, unprecedented, but risk is nothing new. One can only imagine how my predecessors at Lloyd’s dealt with the emerging risks of 1909. In July of that year, Louis Bleriot flew across the Channel. In Persia, a company which would become BP, struck oil in the Middle East. In Belfast, construction began on a super-liner, called Titanic. Lloyd’s, always a pioneer, insured the earliest flights and, famously, the Titanic too.
The three issues we will discuss today – piracy, climate security and digital risks - have clear historical precedents. And the good news is that we have a stronger scientific, technological and political grasp of risk than our predecessors enjoyed. This means that we do not need to labour too long or too hard on the nature of the risks we face, but can concentrate instead on the solutions. I hope we will do this today.
The even better news is that, in the modern era, we are able to form new alliances to fight our common threats. We are co-hosting this event with NATO. A joint Lloyd’s–NATO enterprise simply would not have happened twenty, even ten years ago. Now, forming new coalitions is an essential part of risk management.
The bad news is that the threats we face today are moving faster than we are, and they are gaining a complexity that we find difficult to understand. Putting the good and the bad news together, today’s three risks share three features that previous generations did not have to consider; these are the three Cs - Celerity, Complexity and Coalitions.
Celerity
Let me take the first C – celerity. The speed with which today’s risks spread is a major problem. With a very modest outlay, bands of Somalis are able to take on multi million dollar corporations. If Piracy were an industry, we would all have to admire its growth rate. Cyber crime is also growing fast, quite literally, an attack now takes place every ten seconds. But it is Climate Change which provides the most frightening example of the new pace of risk. Over the last few summers, satellite images have shown, in terrible clarity, how polar ice is melting much faster than predicted.
If these risks won’t slow down, we have to catch them up. And this calls for a combination of visionary policies – thinking the unthinkable – and pragmatism, finding ways to mitigate and adjust to new reality.
On the visionary side of the coin, we need greater investment in research by both business and government, who should share the models they develop. At Lloyd’s, we are working with a number of academic institutions, to produce better catastrophe models and we have supported the Catlin Arctic survey.
A policy of pragmatism means we have to accept the inevitable. That climate change is with us. And it is not going away. So we need to focus more on adapting our businesses and homes to reduce our vulnerability. Adaptation might involve grand schemes – the Thames Flood barrier, just along the river, was built to withstand a 1 in 1000 year flood. But it can be more simple, householders moving valuables upstairs away from flood water.
Complexity
The second feature we need to tackle is the complexity of these risks. The first knot to untangle is the globalisation of the supply chain, which means that businesses may not realise all the threats they face. Our report on digital threats is published today – and is in your packs – it provides several examples. Now if your business stores its IT files in Asia or the Gulf of Mexico, and flood or storms strike, your systems could fail in London. Suddenly, the wet and windy South of England is exposed, through a computer connection, to natural catastrophe.
Another feature of many of today’s risks is that they are viewed primarily as scientific or technological, so they are left to the backroom boys in R&D. Do leaders understand the risks, especially digital risks, well enough to control them? A clear solution is to bring risk management into the boardroom.
Many would argue that the Somali pirates are not a complex threat. Their business plan seems so simple: a small boat, a sub machine gun and a nothing to lose attitude. But this is changing. The pirates are becoming more sophisticated, more violent, and more ambitious in their plans. Earlier this year, in the Seychelles, there was an attempt to capture an Italian cruise ship. I am glad to report that around a thousand passengers helped to see off the threat by throwing deckchairs at the pirates. But whilst this particular defence was beautifully simple, the causes of piracy are complex and political. We need co-ordinated political action to tackle failing states and create the rule of law that will bring pirates to swift justice as well as the necessary military support for merchant vessels.
Climate change is the ultimate symbol of interdependence. Melting ice in the north connects to raging fires in the south. When a tree falls in the Amazon, we listen out for crashing glaciers in the Arctic. Although many people believe this as a concept, it is not yet causing them to change their own behaviour. This is a major barrier in reducing emissions, but it is also a problem for insurers. I suspect that some people don’t adapt their properties to extreme weather or flood, because they think it doesn’t matter, that is what insurance is for. This short term thinking is wrong.
I have a property in the Southern US and have been amazed to see my insurance premiums fall. Good news for me as a householder but bad news for me as Chairman of Lloyd’s. The solution here is really very simple. If people want to build a home or factory on a fault line, or a flood plain, insurance should cost them more. If they adapt their property to mitigate the danger, it should cost them less.
Coalitions
The third new feature of today’s risks is the need to build coalitions. Lloyd’s alone can’t bring the rule of law to Somalia. We can’t cut global emissions. But these things are not beyond the limits of collective action.
There are so many different actors, and victims, of these risks that we seem to be looking through a kaleidoscope, where our understanding constantly shifts, depending on who we are talking to.
Our aim today is to bring a range of very different voices to the table, in the hope that this will give us perspective. We understand that each group has different pressures. Today, you will hear the sharp commercial perspective of an underwriter’s experience of piracy, the eyewitness account of melting ice from a polar explorer and the Estonian Defence Minister’s despatches from the front line of a cyber war.
We will only get the full picture – and sustainable solutions - if we share these very different insights.
In 2009, we have no excuse not to do this. If the 19th century was the era of the nation state, and the 20th century the era of multilateralism, the 21st century will be more pluralistic. Glossy magazines and Sunday supplements regularly publish lists of the world’s most powerful and these show politicians jockeying with bankers, entrepreneurs and digital goliaths for a place in the top ten. Governments have lost their monopoly on power, so we need to develop new networks to craft joined up, pluralistic policies to face today’s risks.
Welcomes
So I am particularly glad to welcome a variety of speakers from different walks of life. I wish we could bring back the ghosts of 1909 to join us, what would Ernest Shackleton, who was then making his way to the South Pole, have made of Pen Hadow’s recent experiences of Polar expedition? How would Marconi, winner of a 1908 Nobel Prize, have reacted to the digital threats faced by British Telecom? I expect we would all like to witness an encounter between Andrew Marr, one the BBC’s most acute political journalists and our MC today, and Asquith who, in 1909, recorded an early political broadcast to promote his tax and spend policies.
Ladies and Gentlemen, I am also delighted to welcome my co-host, Anders Fogh Rasmussen as he takes up the reins as Secretary General of NATO.
This distinguished appointment follows a career of notable success as Prime Minister of Denmark, where he managed to win three successive elections, serving from 2001 until April this year when he stepped down to take up the NATO post. Mr Rasmussen, as well as being a staunch trans-atlanticist has strong European credentials which provides a solid basis to take on the difficult challenges faced by an enlarged NATO. Mr Rasmussen has promised to be a reformer and a review of its strategic concept is already underway.
Secretary-General, I am delighted to share this stage with you, welcome to Lloyd’s!
