The voice of Lloyd’s brokers is seldom heard, but Jonathan Palmer-Brown, the new chairman of their trade body, the LMBC, is going to change that
A mysterious organisation referred to by its initials, a list of its members can only be obtained after several fruitless internet searches and finally a number of increasingly frustrated phone calls. Few people are aware of its existence, and those who are could not say exactly what it does.
This is the LMBC, or London Market Brokers’ Committee, and while it may be shadowy, it is anything but sinister. Insurance Times met its new chairman, Jonathan Palmer-Brown, one month into his tenure to find out just what the LMBC is, and what it is fighting for.
According to a brief mission statement on its website: “The LMBC is a trade body, representing the interests of Lloyd’s brokers operating in the London and worldwide insurance and reinsurance markets.”
Apparently, the brokers generate some £2bn of invisible earnings to the UK economy each year.
Palmer-Brown, who is deputy chairman of mega broker Aon by day, has a rather more prosaic explanation. Seated behind an impressively large desk in his spacious office at the top of No 8 Devonshire Square, he explains: “It’s really internal market stuff – chaps working on new policy wording for helicopters – who would want to read that? It’s not going to reach the headlines, but there’s an awful lot of work done by an awful lot of people.”
Palmer-Brown is being modest, because seldom can an LMBC chairman have had so much to tackle in his short term of office. As well as the long running, but vital, issue of electronic reform of the market (something Aon itself is keen to spearhead), he has to co-ordinate the LMBC’s response to the changes in the Lloyd’s Act now out to consultation, the FSA’s paper on mandatory commission disclosure and conflicts of interest, and the EU’s investigation into competition in the commercial insurance market. Phew.
“We will make some more noise. You will see some changes. I have only been here for a month.
Luckily, Palmer-Brown seems a safe pair of hands for a very big job. He is also keen for the committee to take on a higher profile, promising: “We will make some more noise. You’ll see some changes – I’ve only been there for a month.” With a remarkable memory for detail and a calm but persuasive oratory, he sets out his stall on all four very technical subjects.
First up is the European Commission’s investigation into competition. It is concerned that clients are not getting a fair deal because lead underwriters dictate the price of a risk, meaning the secondary underwriters follow the lead underwriter’s price, rather than offering their own in a competitive marketplace. The EC wants what it calls verticalisation of the market, meaning competition at every level. While insurers may balk at changing this rather cosy way of doing things, Palmer-Brown, on behalf of brokers, is sanguine. “The LMBC has drawn together some guidance principles, which we have been discussing in London and Europe and I think we’re all pretty well coming to a landing,” he says. “There will be verticalisation in more markets on more risks, and that will be better for the consumer.”
He admits that insurers could refuse to compete against one another for terms as secondary underwriters – but says this could rank as a cartel, and the European Commission would want to investigate.
Next up is the FSA’s consultation on whether to make full commission disclosure mandatory for all brokers. As a senior member of one of the world’s biggest brokers, Palmer-Brown is all for it. Following attorney general Eliot Spitzer’s investigation into the big brokers’ remuneration arrangements in the US in 2006, they were forced to clean up their act and introduce full transparency. With no choice in the US, they are now all for other brokers to follow suit, to create a level playing field. Or so the theory goes.
Palmer-Brown dismisses that as a rather defensive line, arguing that Aon and the other major brokers do not have to disclose in the UK, but do so out of choice, and questions why any honest broker would be reluctant to follow suit.
“Why should we be frightened of charging what we believe to be right?” he asks. “The only basis [to oppose full disclosure] is if you overcharge. No client’s going to be annoyed if you’re undercharging. And if you are charging a fair amount of money for the work you’re doing, that’s reasonable.”
“The only basis [to oppose full disclosure] is if you overcharge.
There are a couple of elements of the FSA’s paper which worry him – for example, the question of whether commission should be disclosed to the end client, or just to the next link in the chain (the latter, he believes) – but these are being talked through with the regulator now. Doubtless, the influence of the LMBC is strong, and Palmer-Brown seems confident that the FSA is ready to listen.
He is equally composed about the proposals for the reform of the corporate governance of Lloyd’s, which the Treasury has outlined. He says that the changes, which cover the requirements for members of the governing council and internal regulation, are just “getting the act to reflect the real world”.
Of the most controversial reform that will allow Lloyd’s underwriters to deal directly with non-Lloyd’s brokers, he says: “If you take away the history and emotion, they are already doing that. The reality is, if I wanted a non-Lloyd’s broker in America to deal with a Lloyd’s underwriter, I could get it dealing directly with a service agency that belongs to a Lloyd’s underwriter. Corporate capital owns substantial chunks of Lloyd’s managing agencies. Independent companies have vehicles wherein they can do business directly with Lloyd’s underwriters. Schemes and covers can do that. All this is really doing is stating the obvious.”
But he does get quietly riled when speaking of the cost-benefit analysis included in the proposals, which suggests that Lloyd’s underwriters could save £200m a year by cutting out Lloyd’s brokers. “I guess that’s a wonderful way to talk to your 7,000 business clients,” he retorts, in a reference to the brokers that bring their clients’ business into Lloyd’s. Palmer-Brown argues that there is no cost saving involved, and that the analysis fails to take into account the extra work Lloyd’s brokers do, and the business they bring into the market. He generously believes that the offensive clause may have been added in an attempt to convince ministers scrutinising the reforms that there was a cost saving. He seems confident that it will be removed in the final draft.
Finally, Palmer-Brown turns his attention to market reform, which he says is fundamental to the future of the London market. His own company, Aon, has clearly led the way on this, but he believes that everyone must share the same objective. “Electronic placing and everything that flows from that is a given, it’s just how quickly can we get there?” he says.
With so many burning issues in hand, Palmer-Brown could be forgiven for being a little flustered. In reality, he is anything but. Quietly collected, he smiles with a twinkle in his eye: “It’s a challenge. I’ve always liked a challenge.” For the public face of a very private organisation, it’s a promising start.