Put two insurance brokers into a room together and it's not long before the subject of Lloyd's plans to widen broker access to the market come up. And as most of the insurance industry already knows, those plans become reality from January next year.
The impact of this change is potentially far-reaching. For Lloyd's managing agents and underwriters, it provides an opportunity to examine their trading relationships with brokers and make what improvements they can with both existing Lloyd's brokers and future entrants. But clearly there are implications for the entire broking community, particularly those choosing to go down the route of becoming a Lloyd's accredited broker.
Background
In July this year, Lloyd's delegated its responsibility for the regulation of Lloyd's brokers to the General Insurance Standards Council (GISC). Prior to this, Lloyd's announced its intention to replace central broker regulation with a process of commercial accreditation. The development of this process is nearing completion and will be announced in detail very shortly.
In simple terms, all future Lloyd's brokers will need to meet certain regulatory standards (achieved primarily through compliance with their own domestic arrangements) and certain commercial standards. These commercial standards will include criteria in relation to the processing of business with Lloyd's.
Accreditation process
The responsibility for managing the broker accreditation process has fallen to Lloyd's newly created Broker Services Department. In short, this means the department will have the ultimate decision as to whether or not a broker becomes a “Lloyd's broker”. A key factor of accreditation will be an assessment of the broker's processing ability. As custodian of Lloyd's central processing systems, with the additional responsibility of checking, signing and sealing all Lloyd's policies, Lloyd's Policy Sign-ing Office (LPSO) will carry out this assessment and help brokers reach the required standards wherever possible. LPSO has played a key role in the effective operation of the Lloyd's market for more than 80 years now, acting on behalf of the Lloyd's underwriting market and providing Lloyd's brokers with a single business processing interface. Business processes have been geared to the co-subscription market and while this is still at the heart of what makes London a unique centre of underwriting and broking talent, there is a recognition that times are changing and that a number of different processing models will co-exist in the future.
Managing director of LPSO, Michael Collins, explains: “LPSO's role in the accreditation process is to provide the Broker Services Department with an assessment of the prospective broker's potential ability to interface with central Lloyd's systems, and meet the essential regulatory and legislative requirements in relation to upholding Lloyd's licences.
“This exercise will form a small, but nevertheless critical part, of the overall accreditation process. We expect this initial contact with the prospective broker to form the basis of a lasting business relationship, in which we can also provide them with on-going support and ancillary services.”
The processing assessment will be geared to the nature of the broker's intended relationship with the Lloyd's market. If the broker's intention is to deal with Lloyd's on a 100% or co-insurance basis (risk shares offered indi-
vidually to underwriters), then accounting processes will follow what happens in the outside world – the insurer invoices the broker, has prime responsibility for the policy and drives the accounting process. In this scenario, the processing assessment will focus on the standard of the broker's documentation to ensure that it meets Lloyd's requirements.
Prospective brokers wanting access to the co-subscription market will need to demonstrate their ability to do largely what the existing Lloyd's brokers do: co-ordinating the placement on behalf of all subscribers, preparing the policy and accounting using the market's standard documentation. For some brokers, gaining the benefit of direct access to the Lloyd's market will be tarnished by the need to adopt specific Lloyd's administrative processes. This is an area where LPSO and other third parties, including existing Lloyd's brokers, will be able to offer their assistance to ensure that once the business is placed, the administrative work is as pain-free as possible.
The LPSO Service Centre
Two months ago, it was announced that LPSO would launch a new venture in January 2001. This venture is a central service company set up by LPSO itself which will offer a range of services (see box), mainly to managing agents and underwriters in three key areas: first, administrative services to support Lloyd's underwriters in their dealings with newly accredited Lloyd's brokers; second, services and technology for the efficient and cost-effective processing of small to mid-market commercial business; and third, remote information management to provide underwriters with detailed risk information on business written by overseas Lloyd's cover holders.
The service centre will deliver its services using newly acquired third-party technology and will offer the benefits of LPSO's position as a trusted third party (with staff with extensive Lloyd's market experience) combined with low start up costs for any size of operation.
New horizons
The changes on the horizon offer significant opportunities. Widening distribution channels is as much about freeing up trading relationships and access to a diverse and innovative source of underwriting experience, as it is about increasing the number of brokers and the amount of business that may consequently flow to London. There is an increasing recognition that the parties involved in the servicing chain need to demonstrate added value or face the inevitable consequences. The net result should be a reduction in servicing costs for all market participants.
LPSO is ready to support both brokers and underwriters in the new environment. The aim is to bridge the gap between the traditional way in which Lloyd's has handled business and the evolution of new business practices.
Without doubt, the opportunities are clear. Changes in distribution will force changes in servicing arrangements for new brokers and encourage a re-appraisal of servicing options. In addition, wider changes in London market procedures will pave the way to a more open negotiation of servicing arrangements, with a much greater focus on real added value.
For organisations wishing to grasp the opportunity, the changes happening in the market-place today should lead to improved service delivery and, ultimately, increased business.
LPSO Service Centre – menu of services:
