The global insurance industry faces three major challenges, says Lloyd’s Chairman Lord Levene – financial stability, service standards and the “culture of compensation”.

Speaking to a meeting of insurance leaders in Milan, Italy, he said the insurance market is “still paying dearly for the mistakes of the past – and most of these relate either directly or indirectly to inadequate pricing of risk”.

He says the US insurance industry has collectively lost almost $US500 billion on its underwriting since 1980. “Would the shareholders of any other industry settle for that? While I believe that there is a genuine desire to learn from our past mistakes, history proves that insurance executives and underwriters have short memories.”

On service standards, Lord Levene said insurance is “inefficient in terms of its processing and service delivery.”

Describing the “compensation culture” as “a cancer on our industry”, he said there is now strong evidence that the culture “is starting to plunder the European economy, too”.

Liability claims are rising in Britain at the rate of 15% a year, he said. “There is concern now that this blight is spreading to the rest of Europe, where until recently the idea of suing a company’s directors and officers was unheard of.

“It’s a problem we need to wake up to, and we need to wake up to it now. Ignoring it and hoping it will go away is not an option. If you need any proof, just look across the Atlantic.”