Focus on certainty

Andrew Kendrick has only recently taken over as chairman of the Lloyd's Market Association (LMA) and just attended his first board meeting, but he has a clear vision about where the association and the Lloyd's market should be going. "The number one target is on contract certainty," he says leaning back in his chair in the impressive Ace offices opposite Lloyd's.

"There is enormous FSA pressure. They will ensure we meet all deadlines. If we don't, they will stick to their word and we will suffer."

Kendrick is determined the LMA and market not only meet the FSA's deadlines but surpass them. "We have to demonstrate we can. For us it is not to meet deadlines but exceed them."

The market has indeed exceeded FSA demands on contract certainty - so far.

The FSA wanted 35% contract certainty to be achieved last year, and has reached 60%, throwing doubt over the argument that Lloyd's dealt with cover that is frequently too complex for contracts.

That said, the big challenge is to come. By the end of the year, 85% has to be achieved. Further on the horizon, the FSA wants an ultimate target of 100%.

Is this really achievable? "Is 100% ever achievable in anything?" Kendrick wonders, before adding: "I think we can get very close to it."

Kendrick is clear: those who are cynical about complete contract certainty will be left behind in the market. "Let them be on their own. Contract certainty can be achieved in the most complex of cases," he says. "We have left contract certainty for way too long. We should have addressed it prior to 2001."

There are suggestions in the market that some Lloyd's brokers are failing to move forward on contract certainty in the way that underwriters are.

Is this accurate? "It would be unfair to lay this at any one entity's door," says Kendrick. "Some brokers are taking it more seriously than others, attaching more effort to it, especially the larger brokers in the London market."

His vision on where the market must go emanates from an acceptance that it has failed on a number of issues in the past. "Name me a number of other things we could have done better, especially electronic trading - which we have failed at spectacularly.

"Kinnect is deeply unfortunate, a lot of money was spent on it. I was involved in the early stages and to see it five years on to fail is a great shame."

Cost-stripping

Kendrick's 'to do' list also includes stripping costs out of the market.

"In the past London underwriters have probably been too anxious to pay too much commission to brokers to attract business and I am not convinced we need to do that," he says.

Then there is the situation of greater broker transparency in remuneration.

Kendrick has made it an ambition to campaign for transparency of broker remuneration while strengthening relationships with the broking community. But isn't there a contradiction here that the former will impact negatively on the latter?

"The greater transparency injected into a relationship or negotiation brings a greater degree of honesty and openness and therefore trust," he says. "If I know the intermediary with whom I am trading and exactly what he gets out of the deal from the clients, I will want to do business with that gentleman.

"If someone wants to hide what their commissions are, I do not want to do business with someone who is not open and upfront with me."

So what has the broker reaction been like to this approach? "The broker response has been mixed," Kendrick says.

"I am not going to name names, but the brokers that have come under more pressure from (New York Attorney General Eliot Spitzer) are more likely to understand the concept of transparency than those who have not."

Kendrick will have regular monthly meetings with the Lloyd's franchise board and discussions with Lord Levene twice a year to assess progress. "We have to work together. It is safe to say everyone wants to move forward," he says with passionate zeal.

But at the same time his role will sometimes pit him against the Lloyd's great and the good. "I do have to stand up for our members and we have a wide diversity of members. That is one of the most challenging aspects of this role," he says.

"The aim is that I am articulating for the market as a whole, not one of the bigger agencies or segments, but the market."

There is no doubt that his extensive experience with Ace has proved invaluable and helped him to pit the strengths of Lloyd's as a market against the challenge of Bermuda.

"Lloyd's is the biggest hub in insurance. Bermuda is a small island with not that many companies, it cannot have 100 underwriters - in London you can. So in Lloyd's you have capacity, expertise, flexibility, and you have a subscription market for very large risks."

Regulation

He also is focused on compliance and regulation, with a new e-learning course on EU competition law introduced by the LMA.

"One thing that is going to increase within the financial arena is regulation, whether it is from the EU or FSA. I think it is a good thing. I don't believe it should hamper business, but it is there to protect the consumer and ensure that people operate in a professional fashion. If you can be ahead of the regulatory curve then that is a very good thing. Nobody should be scared of regulation, just embrace it and move on. It is there for a reason."

And the argument that with increased regulation comes an excessive increased administrative burden does not wash with Kendrick. "Banking is more regulated that we are, but HSBC produces a £20bn profit, so it proves it can be done."

Kendrick concludes by talking about the tough environment the market - and he - is facing. "This year is going to be tougher year than 2005, notwithstanding the losses from the hurricanes. The market is still declining other than in a few certain areas. There is increased competition, brokers are under pressure to reduce costs as we are, and contract certainty is looming.

There are plenty of things going on in 2006 that will keep us busy."