For this year's annual review, Lloyd's has turned its focus outwards to "engage with the market"
This time it will be different, claims Sean McGovern, general counsel of Lloyd’s of London.
Historically, the Lloyd’s annual review, which is part of a rolling three-year plan, has been an internally focused one, but the 2009/10 review is going beyond that to look at external opportunities for Lloyd’s.
“It’s very much an external review. We have gone out and engaged with the market both on the managing agent and broker side. We have talked to the market to see what the opportunities are for their businesses and see where Lloyd’s fits in their strategic plan. In a nutshell, previous reviews were more internally focused,” says McGovern.
Another difference is that Lloyd’s, which reported its annual results this week, will be engaging with the market both in the UK and abroad on how Lloyd’s should position itself. “We’re getting hold of as many people as we can within limits to understand the dynamics affecting people’s decision-making and where Lloyd’s fits in,” McGovern adds.
New entrants to the Lloyd’s market are also being consulted. “We have done a survey of all the new entrants over the past three years, either through start-up or investment, to give us a real picture of why people have started up with Lloyd’s. We have also consulted US managing general agents to understand why they place business with Lloyd’s, what the drivers are, what factors are in Lloyd’s favour and what issues weigh against us,” McGovern explains.
Insurers’ profits have been hit by the financial meltdown as investment returns have been slashed, but even though the external environment has changed significantly in the past 18 months, McGovern believes there are opportunities that need to be explored.
Earlier this year, Lloyd’s opened an office in Brazil, appointing Marco Antonio de Simas Castro as managing director of the region. But McGovern wants to improve the geographic presence of Lloyd’s even further.
“In the eastern economies and other emerging markets, we need to make sure Lloyd’s is positioned to take advantage of opportunities in these countries,” he says.
At the same time, he is quick to acknowledge that Lloyd’s cannot afford to take its eye of core markets such as the USA, where 40% of business comes from.
Regulation will be another big aspect of the review. McGovern says that one of the reasons Lloyd’s decided on this expansive review was because there was a lot of concern about protectionist measures taken by the UK government.
He feels these measures have reduced somewhat, so the core regulatory focus is Solvency II. But McGovern remains vague as to how Lloyd’s is preparing for it.
“Solvency II is the single biggest regulatory change to affect the European market. Work is well in hand on our preparations of Solvency II,” he says.
Although Lloyd’s is keen to push ahead with a predominantly external focus, it’s clear there are still internal issues that need its attention. At the end of last year, the Lloyd’s Act was approved by parliament, making Lloyd’s accessible to non-Lloyd’s brokers.
But although the doors are open, no one has stepped through them yet. Some industry commentators feel Lloyd’s hasn’t done enough to facilitate that access.
Bluefin Insurance chief executive Stuart Reid says that 4,000 brokers in the UK only have access through wholesale brokers, and that model needs to change.
McGovern admits there is a question mark over the accessibility of the market, but points out that it is the syndicates that ultimately decide who they do business with.
“It has to be weighed up with the fact that business is written by syndicates and they have to evaluate it both from a risk and pricing perspective.
“There is a lot going on in the UK brokers market in terms of consolidation. And that potentially does offer opportunities for Lloyd’s because it makes it easier for underwriters to access business. We can facilitate that from a technology and regulatory position, but ultimately the business is driven by pricing and the UK market is pretty competitive at the moment.”
But there are further rumblings. One industry source criticised Lloyd’s for not doing enough to protect the Lloyd’s brokers. The source said there was a growing problem of insurers seeking business directly through the syndicate instead of going through a broker.
“If Lloyd’s wants to support the broker, it has to be careful to maintain that trust. If it doesn’t, brokers will use other markets.
“Brokers are losing business to syndicates that are cutting out Lloyd’s brokers. It’s a growing, dangerous trend. Lloyd’s may be powerless to stop this but they can say it’s not a good idea.” IT
Lloyd’s: the industry's views
Industry commentators offer their thoughts about what Lloyd’s should address in its annual review:
Bronek Masojada, chief executive of Hiscox
I think Lloyd’s is very good at higher risk and the difficult things to insure, and over the past five years that has focused on catastrophe risk. But it needs to put more effort into reminding the world that Lloyd’s can do difficult things that aren’t related to catastrophe, including global cancellation policies for big events such as the Olympics, or professional indemnity exposures around the world. It’s got to promote the specialist areas rather than just the big catastrophe areas.
In terms of service levels, Sue Langley, the chief operating officer, has worked at improving efficiency in the market and I hope that will be an ongoing theme going forward. Lloyd’s led the way in terms of contract certainty but that still needs to be pushed forward. Sue has led the way with the Lloyd’s insurance gateway, and driving take-up and adoption of the gateway by brokers and underwriters is important.
Barbara Merry, chief executive of Hardy Underwriting
I am pleased everyone will have their say and that what comes out will give us confidence. I hope there won’t be change for change’s sake.
If things are working well, there is no point in changing them just because it’s good to have a change. If things are working well, then let’s say so. But if there are some areas of the world where the market at large believes that it would be helpful to have a Lloyd’s presence, then hopefully that will emerge from the consultation.
Roddy Caxton-Spencer, managing director, international division, Lloyd’s broker Besso
Lloyd’s is in a very strong position globally and it has an excellent reputation. It has massive reserves and the current management has done an excellent job. Lord Levene is a good ambassador.
Lloyd’s has historically attracted lots of business because of its expertise, but domestic markets are growing in strength, developing good ratings and good capacity, and they are drifting out of their comfort zones. Lloyd’s has to have some value added as the insured is now prone to accepting the local market.
On the big risks, Lloyd’s does take longer to make decisions. But it is still head and shoulders above the rest. For new innovative products, people come to London.
Stuart Reid, chief executive of Bluefin
Any decision made in Lloyd’s is by committee. I hope it will look at streamlining and making more efficient the decision-making process, which is often slow, laborious and old fashioned.
Rakshit Ranjan, insurance analyst at Noble
On the positive side, Lloyd’s has a solid capital structure and the presence of the Central Fund is an immense support to the market as a whole.
Beyond that, expense efficiencies and tax rates have been a couple of areas where a few insurers have expressed disappointment over the past few years.
In terms of upcoming issues, there is the impact of Solvency II. Lloyd’s has the capital requirement under ICAS but Solvency II would increase that requirement.