Insurers will go bust if they are forced to cover the cost of Vladimir Putin’s war in Ukraine, the founder of one of the world’s biggest brokers has warned.
David Howden, who has built an £11bn eponymous insurance empire, said his industry cannot be expected to cover the cost of war, amid a row over Mr Putin’s seizure of hundreds of commercial aircraft.
Mr Howden said: “The insurance market cannot be a systemic backstop for a war between the UK and Russia. And it’s not designed to be. No policies cover it.
“Otherwise, if we covered it all, it would actually end up with the Government anyway – we’d all go bankrupt.”
Russian authorities seized 500 commercial aircraft owned by overseas leasing companies shortly after the outbreak of war against Ukraine.
The owners, mostly domiciled in Ireland, have tried to claim on insurance but have been rebuffed. They are now suing Lloyd’s of London insurers for their refusal to pay out up to $10bn (£8bn) in claims. A legal showdown in the High Court is scheduled for next year.
Mr Howden said insurers are legitimately refusing to pay under the terms of certain types of cover.
He said: “Ultimately, war has never been something that insurance has been there to cover.”
If insurance policies were broad enough to cover the impact of war, it would force the Government to bail out companies “because there is not enough capital in the insurance market to pay for it,” he said.
“The insurance industry – no-one quite knows – [but it’s] four or five trillion dollars of capital. It’s small. It’s a tenth of the derivative market, for example.”
David Howden – David Rose
David Howden – David Rose
Howden Group has not underwritten policies itself but has deep connections within the industry as Europe’s largest broker.
The row over the “stolen” planes in Russia comes with the UK insurance sector still reeling from a public backlash to its refusal to pay claims under business interruption policies during the Covid pandemic.
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Small businesses and the UK’s financial regulator challenged the industry in court, with the Supreme Court ultimately ordering insurers to pay out.
Mr Howden admitted that insurers had handled the crisis poorly.
He said: “Did we cover ourselves in glory over business interruption during the Covid pandemic? No, we didn’t. Should we respond differently? Yes, we should have.”
He said insurers were too focused on the technical detail of policies despite the extraordinary circumstances.
“When the claims come, the insurance company, rightly from a technical point of view but maybe wrongly from a PR point of view, say: ‘I’m very sorry, that’s not covered by our policy.’”
The insurance industry is currently facing a new headache over how to handle cyber insurance.
Members of Lloyd’s of London, the 335-year-old insurance market, have been angered by the institution’s insistence that all cyber policies exclude “state-backed” attacks.
Many hackers are based in countries such as Russia and North Korea. Clarifying which ones are and aren’t backed by the state can be more of an art than a science.
Lloyd’s members complain that the blanket policy is too broad and prevents them from offering coverage they would be happy to sell.
Mr Howden called the row over cyber insurance “ridiculous”. The straight-talking 59-year-old said: “The excitement over cyber is ridiculous.”
“We’re trying to be clear and we try to tell people it’s not covered, [but] suddenly – because we are bad at PR – people go: ‘Oh, my God, they are excluding war.’ It’s never been covered.”
Mr Howden suggested Lloyd’s should settle the argument by drawing up official guidance as to what constitutes a state-backed attack, which the marketplace worries would leave members open to “systematic risk.”
He said: “Most wars are easy to define. Cyber wars are more difficult to define.
“What we should have on cyber is one of the very smart GCHQ people define what is a war, and what is systemic attack. And then you could go out and separately buy from the insurance market your war coverage.”