Insurance veteran Michael Butt says that if there’s one thing he’s learned from nearly five decades in the industry, it’s the importance of knowing exactly “who owns the risk”.If that is in any way unclear, it leads to lack of discipline and potential disaster, Mr Butt told delegates at the Insurance Day Summit Bermuda at the Fairmont Hamilton Princess yesterday.“Capitalism breaks down and becomes self-destructive when the ownership of risk becomes opaque and unaccountable and when the only concern is distribution,” Mr Butt said. “If there’s no ownership of risks, discipline disappears.”The insurance industry had learned this lesson the hard way through the aftermath of the loss of the Piper Alpha, a North Sea oil rig which exploded in 1988 with the loss of 167 lives. Alarming deficiencies in exposure monitoring became clear as insurance claims were processed in London’s Lloyd’s insurance market.“I think if you look at what happened in the credit crisis of 2007/08, then you can see many similarities,” Mr Butt said. “So my main message to everybody here today is understand your risk, where it is and who owns it. If you don’t, take cover, get out of the way, because somebody’s going to screw up.”Mr Butt, a director and former chairman of Bermuda-based Axis Capital, said the insurance industry had to pay close attention to the potential impact of climate change and that it could also play a key part in alerting others to climate risk.“We do have efficient, risk-based pricing and this is a message we need to communicate to our market, our clients and particularly to some of the political processes that are looking at the issues related to climate risk,” he said.“Climate risk is something I’m spending a lot of time on now, and is, in my view, something the industry is going to be spending a lot of time on with extreme events. In the whole process of trying to increase mitigation and adaptation within the social markets in which we work, the insurance industry has a very important role to play.“And it can play it by cooperating with others, not acting on its own. The pricing mechanisms we use are a powerful mechanism for that.”Mr Butt referred to the potential for moves toward common standards for insurance regulation around the world. For many Bermuda international insurance groups, the expense of dealing with different regulatory standards in different countries impacts the bottom line.“I have some scepticism that the recession is reducing our chances of attaining true global regulation for some time,” Mr Butt said.“The costs of diverse regulation, as we know it, remain very high. Parochialism and protectionism remain on the agenda of many countries and certainly I’m concerned about the efficiency of our capital pooling arrangements and that they are going to be inhibited if more and more capital has to be diffused into atomised marketplaces.”With stock prices of many insurance companies trading at a significant discount to book value, Mr Butt said that investors were “extremely sceptical of our sector”.However, he rejected the notion that insurers should be lowering their expectations for returns in the current low interest-rate environment.“I don’t agree with the comment that we should be adjusting our expectations to a ten percent return on equity, I believe we should keep our expectations for 15 percent, because we’re in a risky business,” Mr Butt said.“However, we’re only able to do that by getting the pricing of our products up and not through increased investment income.“I do believe we need to re-prove to the investment market that we can be a mid-teens risk business return, and without that, we probably don’t deserve a better rating than we’re getting at the moment.”