Re/insurers are facing a race against time to assess their potential exposures to the so-called Panama Papers, a legal adviser to the industry has warned.
The high profile data breach at Panama law firm Mossack Fonseca has resulted in numerous high profile individuals being accused of tax avoidance.
Paul Bergmann, a former corporate counsel in the broking sector and now legal consultant at Adsensa, a developer of document intelligence solutions for more than 100 insurance, legal, banking and regulatory organisations, has warned that re/insurers need to urgently assess their potential exposures.
“The implications for connected industries in financial services are only now beginning to be considered,” said Bergmann.
“In the UK, the Financial Conduct Authority issued a deadline on its banking sector to report back within a week with any information connecting their businesses with the Panama-based law firm, while Wall Street Journal reports on April 4 suggest hundreds of companies and individuals in the US could be implicated in the leaks.
“For insurance purposes the immediate fall out should be limited as the data was leaked from one entity only (the law firm).”
Bergmann added: “However, with potentially dishonest tax structuring at the heart of the confidential information, this situation, much like the Madoff scandal before it, could draw in other institutions such as banks and investment houses via civil or regulatory actions.
“These will no doubt cost a lot of money to defend and investigate and some of those costs may be insured,” he said.
Bergmann said that claims are unlikely to be aggregateable for reinsurance purposes, however. “The law firm leak was the common cause of the information coming to light but was not the cause of the wrong doing. Many separate acts of wrongdoing were therefore involved,” he added.
At the same time as the Mossack Fonseca story unfolded, insurance market Lloyd’s had called on its members to provide a trio of catastrophic cyber loss scenarios and assess their own exposures.
On 1 April, the Performance Management Directorate at Lloyd’s was expecting details of exposure management principles for cyber-attack from the entire market, following a request it made last November.
“You can bet that none of them would have imagined the Mossack Fonseca scenario as being the worst case,” said Bergmann. “We will have to see how expensive the fallout is.”
For insurers looking at their potential exposures in relation to the Panama Papers or another catastrophic cyber breach, attention should now turn to the practical steps required, said Adsensa. Laurie Davison, chief executive officer at Adsensa, said this will be a considerable challenge without a means to automate checks on re/insurance contracts.
“An average re/insurance contract is up to 90 pages long, with dozens of potentially risky clauses and exclusions which must be analysed carefully if underwriters want to quantify their exposure,” said Davison.
“The truth is, it could be time to dust off the filing cabinet and start going through those contracts with a fine toothed comb.”
Mossack Fonseca, Adsensa, Insurance, Reinsurance claims, Panama Papers, Mossack Fonseca, Paul Bergmann, Global