The Insurer TV’s Year in Review Part 3: Industry scandals, geopolitical fallout and a cultural review

The third and final instalment of our annual review plucks some of the most high-profile stories out of the whirlwind of the past year.

Through the Vesttoo fraud scandal, the impacts of geopolitical turmoil, and the growing number of misconduct probes, our reporters and editors have kept pace with a steady stream of (re)insurance news and analysis.

One of the most troubling events of the year was undoubtedly the scandal detected after an internal investigation at Tel Aviv-based collateralised reinsurance distribution platform Vesttoo.

The company uncovered “inconsistencies” in some of its transactions that were ultimately revealed to be an intricate $4bn+ fraud involving fake letters of credit (LOCs).

James Thaler, The Insurer’s head of Americas news content, vividly remembers his phone “blowing up” with news of the impropriety while he was on summer holiday, as various parts of the industry realised just how widespread the fallout would be.

“Everybody was impacted,” said Thaler.

“There were [the] downstream MGAs, there were fronting carriers, there were wholesale intermediaries [that] had to move business or stop placing business with Vesttoo. I mean, it was just cataclysmic.”

Although the affair’s tentacles extended far, Thaler reported that few were ultimately surprised by the impropriety.

“There was sort of the sentiment around the company before this came to light, that corners were being cut, that some of it was too good to be true. The deal terms that were being offered by Vesttoo on deals were below market pricing,” said Thaler.

The litigation process will continue in the new year as Vesttoo’s bankruptcy case snakes its way through the Delaware court system. Meanwhile in New York, fronting carrier Clear Blue has filed legal actions against Aon and White Rock over their alleged involvement in the scheme – and there’s a chance that more charges may be forthcoming.

“I think there were some assumptions that there was somebody cooperating on the inside of one of the banks,” said Thaler.

“I know there's a lot of finger pointing going on right now, in terms of who's to blame,” he added.

Meanwhile, many counterparties have since stepped up their 'know your customer' procedures in response.

Geopolitical turmoil

Another hallmark of 2023 has to be the geopolitical instability that has ensued since Russia’s invasion of Ukraine, and Hamas’s devastating October attack on Israel.

In the Black Sea, vessels are on notice for potential mine strikes after some strikes and near-hits this past year. And in November, armed Houthi rebels seized a cargo ship in the Red Sea, with sources placing the ship’s insured value at $65mn.

“Rates have gone up tenfold and, in many cases, a number of shipping lines have chosen to go all the way around the Cape of Good Hope, rather than going through the Red Sea,” said Michael Jones, reporter at The Insurer.

The South China Sea is another area of political instability that will be closely watched in the coming year, with the potential for conflict between China and Taiwan.

“People are uncomfortable with China, or there's a growing sense of uncomfortability with it and the potential for further retrenchment,” said Jones.

Despite the hotspots, marine hull and machinery underwriters appear to be ‘maintaining discipline’ overall as the calendar closes ahead of renewals that some are expecting will be “fairly flat.”

Cultural pivot

The year was also marked by a number of Lloyd’s investigations that yielded a high profile exit due to “non-financial misconduct”. While much of the details remain unknown, the outcome raised awareness about lingering cultural issues in the industry overall.

“I think we're starting to see now that companies are having a lot of focus on their internal reporting mechanisms, and making sure… that employees that potentially witness inappropriate behaviour have the confidence to speak up,” said Rebecca Delaney, reporter at The Insurer.

Additionally, a report released in December from law firm GQ Littler found that less than 7 percent of firms in the UK insurance industry are led by women. But Delaney said some new initiatives are attempting to address that disparity.

“You've got the Women in Finance Charter, and some companies have their own internal targets, to increase representation of women and ethnically diverse people at that high level,” Delaney commented.

Watch this 12-minute video to learn more about:

  • How the Vesttoo scandal changed the industry
  • Why the fronting space remains frothy
  • Where geopolitical unrest will likely surface in 2024
  • Why 2023 might be remembered as a cultural turning point in the industry