Insurance and reinsurance: an overview by Clyde & Co

Top insurance firm Clyde & Co explains how real life insurance work is far more engaging than its unfairly dreary image purports.

What are insurance and reinsurance? 

Put to one side everything you think you know about insurance – car, home, travel - all, frankly, a little uninspiring albeit hugely important. Think instead of one of the largest sectors of the global financial services market and unarguably the sector that has best navigated the financial crisis.

Lloyds building

Insurance is about risk – and specifically the pooling of risk. The development of insurance has been a crucial component of economic development. From the earliest days of underwriting trading voyages to India and China from Lloyd's coffee shop in Georgian London, to the underwriting of multi-billion dollar construction projects; it is difficult to identify an area of economic activity that has not been underpinned by the risk transfer provided by insurance.

Insurance is an extremely broad market but broadly consists of two main types of cover: a) property insurance (which covers damage to an insured's own property of whatever type) and may include loss of revenue insurance (which covers a financial loss accruing to an insured); and (b) liability insurance (which covers an insured in the event of claims made against it by a third party).

You may also have heard of 'reinsurance' and specifically by reference to Lloyd's of London – the insurance market based within the iconic Richard Rogers building in the City of London. 'Reinsurance' is the structure by which insurers can pass some or all of their risk to other insurance counterparties - hence “re”-insurance.


(Re)insurance law and practice
 

The practice of re/insurance law is extremely wide and encompasses both contentious and non-contentious matters.

Non-contentious work includes the negotiation and drafting of insurance/reinsurance contracts (policies) and structures; M&A work; regulatory issues; and general commercial/corporate work. Whilst in practice it is very similar to the same work types for non-insurer industries, because of the way insurance companies are regulated, financed and operated such work requires specialist industry knowledge. With insurers and reinsurers forming some of the world's largest companies, such deals are often huge in scale and complexity.

It is perhaps on the contentious side, however, that the scope of the practice of re/insurance law is at its most diverse. Indeed the majority of commercial disputes before the English courts and main arbitral bodies are funded in some way or another by insurers.

Global practice 

The insurance and reinsurance sector demands specialism on a global scale.

Clyde & Co offers the broadest international coverage of any insurance law firm with an impressive footprint which covers the Middle East, Asia, South America, Europe and the US. We represent domestic and international clients on matters of both regional and international scale. We are a truly global law firm, constantly aiming to match our insurance client's global presence in locations where they require us to be.

In practice, for example, businesses which are based overseas will often be insured with a London firm and the largest insurance disputes will often have an international angle to them.

Key issues in today's economy 

Re/insurance is a largely stable market and this stability is one of its strengths. It has a long history, and in England a long-developed body of law the principles of which have recently been reformulated in statute by the Insurance Act 2015, the biggest legislative change in insurance law for over 100 years.

As business becomes more global, a key issue continues to be the opportunities presented by new markets and the challenges of underwriting exposures in an increasingly interconnected world. In 2016 key issues for re/insurers include developing solutions to handle the increasing cyber risk, developing new products to stay relevant in the face of challenges faced by global clients such as exposures created by reputational damage, the impact of Brexit and the challenges and opportunities presented by new technologies such as blockchain.

Growing industry 

The London re/insurance market has always had an international focus and this tradition has only expanded in line with the wider effects of globalisation so as to allow London to have retained its market leading position.

A strong recent trend is the development of so-called Global Programmes pursuant to which a large multi-national corporate will seek to wrap-up as many of its exposures in one combined global policy rather than relying on disparate policies in each jurisdiction. Such covers raise complex regulatory and legal difficulties.

Secondly, the re/insurance market has weathered the financial crisis better than other financial service sectors and because of this it has seen an influx of new capital – from the traditional banking sources, private equity and latterly hedge funds. This influx of capacity increases the competitiveness of the market leading to more call for innovative and risk bearing products. That said, the downturn in investment income following the financial crisis has also been a driver for insurers to improve underwriting and claims performance, as risk spreading through diversification and achieving economies of scale through merger. The insurance industry has always prided itself on its ability to innovate and offer new products and solutions to meet changes in demand.

Day-to-day work 

It is difficult to generalise as to the day to day work of a lawyer in a re/insurance practice. A solicitor focusing on insurance and reinsurance coverage disputes concerning the most complex and international placements may have only one or two large matters at any one time and have to swiftly become a mini-expert on the underlying subject matter. Conversely, a specialist professional indemnity solicitor may spend most of his or her time working on the defence of a larger number of claims against solicitors, or accountants. However, the underlying subject matter for even this specialism will vary greatly.

Therefore, a Monday can be spent drafting a pleading in defence of a claim against a fellow solicitor. Tuesday, there can be a conference call with lawyers in Chile discussing the scope of cover of a property insurance policy. Wednesday can bring an interview with a coffee trader suspected on aiding the mysterious disappearance of a shipment, with Thursday engaged in considering a 'bloodstock' claim following an injury to a racehorse, and the week culminating on Friday drafting a mediation agreement for a banking liability claim.

Key skills required 

In order to succeed in the insurance industry you must have a real understanding of the client's business needs. Commercial awareness is key to understanding and solving the issues and challenges that the clients are facing. As well as a sound understanding of the law good communication and people skills are vital as you will be working with a broad range of clients. Of course, as with any litigation the review and collation of evidence is crucial and this requires hard work and attention to detail. Preparing complex and detailed submissions in often tight deadlines means that you will have to be well organised and remain calm under pressure.

Looking forward 

Insurance is a growing industry. Emerging markets need insurance to get investment and so as consumption continues to grow, the insurance market will grow, resulting in opportunities for emerging market insurers. This will cause a shift in power from the developed market towards emerging economies and emerging market insurers. 

Click here to read more about Clyde & Co