Access Lloyd's

As choice diminishes and rates harden, taking your business overseas may seem a drastic measure. But an increasing number of Irish brokers are doing just that, and they are recognising Lloyd's of London as a potential marketplace for striking insurance deals.

In the past the possibilities of working in Lloyd's have been severely restricted. This was because - from 1996 to earlier this year - only London-based intermediaries were allowed to place risks directly with the 300-year-old insurance market.

An onslaught of mainly asbestos-related claims and a cycle of lawsuits with Lloyd's Names during the eighties and nineties led to debts of £8.1bn and to a market on the brink of collapse. In desperation, Lloyd's drew up Reconstruction & Renewal - a deal which ensured existing brokers sole access in return for a levy. But now that the five year exclusivity pact has ended, Lloyd's has opened up its doors, welcoming brokers throughout the UK and from the rest of the world to apply for membership.

The need for change
Lloyd's spokesman Adrian Beeby says: "We recognised in the early nineties that there was a need to broaden Lloyd's distribution networking, particularly with changes going on within global insurance generally.

"Lloyd's grew up with London insurance brokers because 100 years ago there were no faxes and emails so people had to be based locally. Now there is no longer a need to restrict access to brokers who happen to live within walking distance and they can be based throughout the UK and even globally."

Since Lloyd's announced its "open access" policy, more than 200 companies have expressed an interest in working directly with the Lloyd's insurance market. The first batch of successful brokers was revealed last month and Lloyd's intends to announce waves of new members on a quarterly basis.

Benefits for Irish brokers
Membership at Lloyd's comes at a cost - a £5,000 fee at the start and more later. But you can also access Lloyd's through another broker who already has Lloyd's accreditation. So what benefits could there be for Irish brokers from operating in a foreign market?

Stephen Patterson, manager of broker services and development at the Irish Brokers Association, says: "Over the last 18 months an awful lot of Irish brokers are vigorously contracting there and roughly a fifth of general commercial insurance is placed in the UK. Brokers are facing hardening rates driven by reinsurers - they are looking for alternatives and are now doing business in London. We welcome the fact that people are now showing the initiative to go elsewhere. It provides more options and gives the consumer a better choice. Open access at Lloyd's will make it easier to do business in the City."

At the moment, the Irish market is dominated by five key players: CGNU, Axa, Allianz, Royal & SunAlliance and Eagle Star. But the major brokers have clearly realised the potential of forming bases in both London and Ireland. Aon, with offices in over 120 different countries, has nine offices in Ireland. Patterson adds that geographically London is just a short plane trip away so working in Lloyd's is a feasible option. "Proximity and the fact we speak the same language makes it that much easier," he says.

The disadvantages
Although operating in the Lloyd's market has its advantages, brokers should be wary of jumping ship too quickly. "While we do welcome the alternatives and the competition that Lloyd's offers, the experience of brokers over the years has been to choose business partners cautiously and prudently," says Patterson. "Lloyd's organisations have often dipped their toes in and then run away, whereas the domestic market has stayed through thick and thin."

Over the decades Lloyd's has insured many risksin Ireland, but has then withdrawn after facing heavy claims. The attraction of closer co-operation is clearly evident, but caution also has a say.

So although Lloyd's is now openly welcoming Irish brokers to apply to do business in London, some may be reluctant to take up the offer. Jim O'Mahoney, managing director of corporate broking in Coyle Hamilton, believes that access to Lloyd's is very important for the Irish market. But from his experience, he believes smaller companies may prefer to use a middleman, rather than spend a large amount of money on gaining membership for a project that is not guaranteed to be a success.

"Most of the other Irish brokers tend to deal with someone based in the City, rather than deal in Lloyd's directly themselves," he says. "And I suspect that the majority of the smaller ones will continue to do so, despite open access. It may well be down to the size of the firm's accounts or the relationship they have with the market. There is a perception that the London Market brokers have an expertise that they themselves do not possess."

There is also another daunting factor. Despite efforts to modernise the insurance market using technology, Lloyd's is still very much a face to face operation where brokers work closely with underwriters they know.

The difficulty for the Irish broker is weighing up whether they can operate successfully in such a marketplace. But if they decide they can accept that challenge, the potential business deals are tremendous.

Applying online
Irish brokers interested in doing business in the City can apply online by logging on to Lloyds.com, the new broker website. Candidates will need to meet requirements set by the General Insurance Standards Council (GISC) and its auditors, Ernst & Young.

Conditions include keeping segregated accounts for insurance monies, meeting solvency levels and complying with reporting, training and complaints handling requirements.

New brokers will be subject to codes of practice and must have professional indemnity cover in the range of £1m to £10m. They pay a £5,000 fee to be "provisionally accredited", and a further £5,000 three years later when they gain full "Lloyd's broker" status.

Lloyd's also requires professional indemnity for commercial business in the range of £3m to £30m and brokers must be able to use the market's electronic systems to implement the London Market Principles 2001 and modernise the insurance centre.

In addition, the broker's business plans, knowledge and experience of the market, training and staff development strategies and the amount of paid-up capital will be taken into consideration.

Personal experience of Lloyd's
Jim O'Mahoney is managing director of the Lloyd's company, Coyle Hamilton Insurance Brokers. He is also the managing director of corporate broking in Coyle Hamilton, based in Ireland, which employs about 80 staff.

"About 10% to 20% of our business is done through Lloyd's. I travel every two or three weeks to the UK and spend a couple of days there as we have two offices in London. Being able to work in Lloyd's brings more choice. We tend to have access to the underwriters and they make fairly quick decisions.

They also tend to consider risks which are unusual, like public entertainment and concerts. These tend to revolve around underwriters that build up a niche.

In addition, they are more flexible and write deductibles and variations more than the conventional market. Lloyd's also offers cover for areas like Kidnap and Ransom, Professional Indemnity and bankers bonds, which they are quite good at."