No one is more aware of the speed of change that technological advances and increased competition have brought to the business world than those working in the financial services sector. Today, it is a fair bet that those companies who stand still will be left far behind in the race.
By the same premise, a 300-year-old organisation built up on reputation and steeped in tradition might find it difficult to maintain the same pace of change as its more modern counterparts. However, Lloyd's in recent years has been undergoing a series of developments and has listed extensively its priorities for growth in an effort to make it more attractive to its customers.
Streamlining the means by which the market can be accessed is just one way it intends to strengthen its competitive position. Yet this development is not one that has come about as a result of current market changes.
The market has been examining its distribution channel for several years and as early 1992 it commissioned a one-off task force report on possible modifications.
Andrew Duguid, director of development at Lloyd's, says: "We have been keen to extend access into the market for several years but we made an agreement with our existing brokers during the Reconstruction and Renewal period in 1996 to keep exclusive access for a five-year period. This period runs out next year."
Last week a four-month consultation period came to an end and Lloyd's announced that from 2001, UK and overseas brokers will be able to access the insurance market provided they are externally regulated and meet tough new technical and customer service standards. One of the standards will be that during a transitional period beginning July 3 2000 all existing Lloyd's brokers will be required to become members of the General Insurance Standards Council. In addition, non-Lloyd's brokers who have a contractual relationship with a Lloyd's broker will be given the chance to become full Lloyd's brokers from this date if they join the GISC.
GISC fits in well
Duguid says: "The GISC was a fortunate development. The Government made a decision not to bring intermediary regulation into the Financial Services Authority and support has been with the GISC since. It has fitted in well as we wanted to put distribution on a commercial basis not on a regulatory basis and David Gittings, our director of regulation, is on the board of the GISC.
"We are also confident that the GISC will receive critical mass and will not just be joined by Lloyd's brokers."
He does not see this stipulation as a restraint on trade for those brokers that do not wish to be part of the GISC and Lloyd's also plans to consult the Office of Fair Trading on this matter.
"We are confident that it will not be a problem as we already have restrictions on who can access the market," he says. "We are simply using a fresh definition and we don't think it is likely to be criticised. We have an ability and an obligation to make certain requirements and a broker becoming a GISC member, we feel, should be one of them."
Among the reasons for this, he says, is because GISC members have to keep the client's money separate from their own and are required to have some errors and omissions cover – two current requirements of Lloyd's.
The document also reveals that brokers based in Europe and other countries where Lloyd's approved regulation exists will be able to access the market directly if they meet the requirements equivalent to those being asked of UK brokers. By opening it up to overseas brokers, the aim is to bring more business into the UK market.
Duguid says: "We do not want to restrict ourselves and would hope to work with brokers bringing all sorts of risks, from reinsurance to the other end of the scale. Reinsurance is well catered for by our existing brokers and tends to find its way to London anyway – so it will be mostly medium commercial business that we hope to increase.
"Working with overseas brokers does not mean that we will be excluding one UK broker for an overseas brokers, we are just looking for more business. In this electronic age, geography matters less and less anyway."
In terms of the requirements overseas brokers can expect, he adds: "There will be a similar system of regulation and as we are less familiar with the regulation abroad we are likely to have even more requirements than for our UK brokers. What these are will be discussed in the transitional period running up to 2001."
Over 80 brokers, including top broking groups of which the top three now account for over 40% of Lloyd's premium income, took part in the consultation following the publication of the document Developing Broker Relationships in October 1999.
One reaction to this feedback has been the withdrawal of the category of sponsored intermediary – a broker who was allowed limited access to one or more managing agents.
"The reason we decided to withdraw the category of sponsored intermediary," says Duguid, "was because it was felt, from broker feedback, that it would be difficult to police and having just one category of brokers would be simpler.
"There was also concern from brokers that accreditation would not be consistent if it was delegated to the managing agent for this category."
He adds that feedback from the managing agents for the broad changes has been supportive but brokers had mixed views.
"Some were concerned about the sponsored intermediary and they made some good points about the policing of separate categories and we made a change based on this. In addition, to that there were general concerns about maintaining high accreditation standards overall. But we knew that the brokers would be cautious and concerned about this opening up of access.
"The distribution changes are not intended as an hostile act against our existing brokers but as a means of extending the market to keep up with the changing world.
"We want to get rid of the restriction that inhibits the flow of small to medium risks into the market."
Central issues
The new accreditation standards relate to key areas seen as being central to the future of the London market, such as customer service and systems compatibility. These issues were raised in another recent document form Lloyd's called London Market Principles 2000.
In this, recommendations are made for insurers, reinsurers and brokers to commit to certain London standards, which include the promotion and early adoption of ecommerce and electronic trading.
This will aid in Lloyd's plans to allow overseas branches of networks, such as Marsh and Aon, to access the market without going through the London office.
"We are happy to make whatever arrangements with these companies and it will be their own internal decision on how they want to do business with us. We want to respond to the world and do business in a variety of multi-distribution ways."
The internet is also likely to play a role in Lloyd's development, according to Duguid. "We already have 14 insurance products available though the internet and we expect that number to grow in the future.
"Lloyd's is always changing and the pace of change has been fast. It is a long standing institution and the secret to this and why it is still here is down to its ability to adopt change.
"Any broker that wants to access the market is welcome as long as they have a commitment to service standards and will join the GISC. There has been a shift in thinking at Lloyd's and it is no longer about what broker do we wish to work with but rather who wants to come to us."
