With the Treasury about to overhaul the way Lloyd’s is run, regional brokers will have more access to the market than ever before. But how likely are they to take advantage of it?
Traditionally the Lloyd’s market has been streets apart from regional brokers, with different types of clients, risks and attitudes. But all that’s about to change: regional brokers will be able to place business directly into Lloyd’s if government proposals are given the green light.
But will they choose to do so? How interested in regional business is the Lloyd’s market, and how much do regional brokers need Lloyd’s? How much business do these two very different ends of the same industry actually do together at the moment?
A set of changes to the Lloyd’s Act, contained in a government document called a Regulatory Reform Order, is now out to public consultation. If they pass in their current form, which they are largely expected to, they will shake up the governance of Lloyd’s allowing regional brokers to place business directly with Lloyd’s underwriters, among other things.
According to Lloyd’s, 24% of its business already comes from the UK, making domestic business the second largest market, trailing behind the 39% of business in the US. But beyond that figure, a precise ‘ ‘ geographical breakdown of where in the UK that business comes from is extremely difficult to find.
“It’s an important market to Lloyd’s,” says London Market Insurance Brokers’ Committee (LMBC) executive director David Hough. “That 24% equates to somewhere north of £3bn in business every year. It’s clearly significant.”
Many regional brokers already have a route into Lloyd’s, thanks to increased consolidation in the market and the growth of networks. Broker Network, Giles, Oval and Oxygen all have their own broker presence in the Lloyd’s market. The changes, if they go through, will have little impact on the ground for these brokers.
“A lot of the bigger regionals will have a Lloyd’s broker within their group and others have good relationships with a London organisation,” says Hough. “There are plenty of routes available into the market for regional brokers. But the appetite of the market for these types of risks, the state of the market, and what the competition is doing that are more important than the proposed changes to the Lloyd’s Act.”
In the opposite direction, a number of insurers which built their reputation in the Lloyd’s market have moved into the company market, with Hiscox, Brit and Catlin among them. Some of these insurers see themselves as having two separate businesses; one in Lloyd’s, and one operating within the wider insurance market. And that, says PricewaterhouseCoopers (PWC) UK insurance leader Andrew Kail, is an indication that the market itself sees these two areas as quite different.
What has prompted traditional Lloyd’s insurers to move outside Lime Street to write business, and what does it mean for regional business within the market? Kail says the changing market conditions are having an impact, with insurers having to work harder to write business in a softening market and therefore looking elsewhere for business. But it’s also about diversifying their businesses, and moving away from an over-reliance on the Lloyd’s market.
“Itâ€™s going to be really fascinating over the next few years as to whether the Lloydâ€™s companies have the appetite to go head to head with the composites.â€
Andrew Kail, PricewaterhouseCoopers
He says: “If you go back 20 years, it was Lloyd’s that had the brand, and the syndicate name was less relevant. But if you look at it now, it is managing agents like Amlin that are FTSE 250 companies, with their own brand. This puts pressure on Lloyd’s to work much harder to prove that it’s a good place to do business. It’s no longer the only game in town.”
Ault Insurance Brokers chairman Richard Ault says: “Lloyd’s always used to say that it has never not paid any legitimate claims, but you can also say that about Norwich Union or Zurich, for example. I don’t think the Lloyd’s name still has much significance from where I am sitting [in the regions].”
Very few insureds, if any, are now insisting that their policies have the Lloyd’s name stamped on them. This has changed the company market landscape to a more level playing field.
Steve Bashford, Beazley’s head of non-US professional indemnity business, says: “Over the past few years Lloyd’s has been aware of just how much business is being placed outside of it. There are hundreds of thousands of businesses that would never even contemplate coming to Lloyd’s.”
Steve Redgwell, head of broking, corporate at Aon, says: “If you look at the market where it sits traditionally, there’s still a lot of business that goes into the regional market or the composite insurers. When you move from a hard market to a soft market, a lot of business tends to go back to the regions.”
Increased capacity means underwriting authority is often extended, and insurers tend to go out more and look for business ‘ ‘ in the regions, actively cultivating relationships with regional brokers.
Redgwell says: “Other insurers do it better than the Lloyd’s vehicles, because it is at the heart of what they do. They go and develop relationships and build a plan, whereas the Lloyd’s environment is much more of a niche offering and specialised, so the business comes to it.”
The danger in a soft market, says Redgwell, is that regional business might not even get as far as being offered to Lloyd’s if the larger company insurers have already done their groundwork.
The end result, say some, is that traditional Lloyd’s insurers are looking for more business from the regions, or less specialised business.
“More personal contact and access to the market will encourage
us to use Lloydâ€™s more.
Richard Ault, Ault Insurance Brokers
Of course, the proposed changes to the rules will make this an easier option to take. By offering both a Lloyd’s policy and a non-Lloyd’s policy, insurers can take a flexible approach and offer clients what they are looking for.
In previous years, Lloyd’s would not have seen the opportunity in regional business, says Redgwell. But that has changed, and Lloyd’s is now ready to work with the regional market: “It is now hugely competitive and is winning business.”
The increased threat Lloyd’s has faced over recent years with the rise of other insurance markets, such as Bermuda, may also have had an impact on its willingness to look to the regions.
PWC’s Kail says: “Over recent years Lloyd’s has been positioning itself as the core speciality market of the insurance world, in response to Bermuda and other European markets. That may work against the traditional regional markets.”
With a softening market, an increasing appetite for commercial risks from the large composite insurers, and Lloyd’s insurers themselves moving beyond their traditional market, will regional brokers even want to go to Lloyd’s to place cover if the new rules allow it?
The answer lies for many in the expertise within Lloyd’s, the flexibility and wide choice of underwriting.
What makes Lloyd’s attractive to many brokers for all kinds of business is the range of expertise within it, and that applies irrespective of whether the business comes from the UK regions or the City. While Lloyd’s has been seen by some as an expensive place to do business, others argue that its specialised knowledge means that its underwriters can more accurately rate a risk, resulting in a cheaper quote than might be found elsewhere.
“It’s going to be really fascinating over the next few years as to whether the Lloyd’s companies have the appetite to go head to head with the composites, but if they want to grow to be fully fledged companies and to move onto the FTSE 250 they need to take on the high volume low value market and go head to head,” says Kail.
Once the new rules allowing regional brokers to deal directly with Lloyd’s underwriters come into force, they will be ideally placed to take advantage of the fight.
Steve Bashford, head of non-US professional indemnity business, Beazley
Lloyds is a fantastically flexible marketplace with access to some unusual areas from around the world that we can bring in to the UK and offer to write cover. Maybe some other areas of the insurance market have a more vanilla approach to risks, says Bashford.
Companies within Lloyds have been reaching out and becoming more approachable, he says, and setting up local offices is one way of doing that. Beazley, however, has quite a
centralised approach to underwriting, says Bashford, meaning the Beazley team is willing to travel to meet clients.
Some regional brokers can find the idea of working within the Lloyds market a bit overwhelming, or even superfluous to their requirements. But if they do not understand the flexibility of the cover we can provide, they are perhaps not giving their clients the best service. It is a matter of making them aware of what Lloyds can do for them. We as Lloyds underwriters try to do a better job of going out and explaining what the differentiators are [between Lloyds and the composites]. The challenge for us is to get that innovation and flexibility of the old Lloyds market out to the regions.
One measure Beazley is taking is the launch next month of Beazley Access, an online platform that will allow brokers to place relatively straightforward risks with Beazley. That should free up more time for them to talk to us more about the more complex risks. There is a recognition that Lloyds needs to reach out to regional brokers, and that is what we are trying to do with the online platform, he says.
Bashford does not think the proposed changes to the Lloyds Act will have a huge impact on the SME end of business placed within Lloyds, but for bigger pieces of business, brokers may seize on it as an opportunity to speak directly to an underwriter, retaining more control over their clients business.
Lloyds brokers can put together packages of cover. Where they are adding value they will be fine, but where they are just adding the Lloyds name, they may need to be concerned, he says.