Before coming to London three years ago, I was responsible for the overseas placement of Tokio Marine Global Re's various outwards cessions for 14 years. I often compare it with other markets, like continental professional reinsurers in Bermuda and the US.

In the 1980s and early 1990s, many companies in London went into liquidation. Lloyd's also suffered from the frequency of catastrophe losses and from the long-tail asbestos and pollution problems.

One unique factor for the Company Market was the use of underwriting pools that brought together several different capital providers. These were often unstable, since they ceased to be viable if just one of the partners got into difficulty.

As a result of its losses, the London Market reacted harshly, increasing the rates and tightening the terms and conditions. From an underwriter's point of view, this action was necessary to improve the results but not much attention was given to the client's budget. This instability compounded London's bad image to overseas clients.

Much business was shifted to the continental reinsurers, who had not reacted as drastically. Then Bermuda emerged, particularly in the catastrophe field – thanks to the low frequency of losses in the first few years, they built up sufficient funds to supply continuity with good capacity.

Alternative Risk Transfer (ART) is another problem for the London Market. Many companies are working hard to be innovative but, in general, the London Market is not at the forefront in this field.

How about catastrophe models? The use is now widespread throughout the reinsurance market, but all major models are US companies and the models were used by Bermudan companies many years before the London Market.

Strengths and weaknesses
There is no doubt that London remains a key market for international insurers and reinsurers. It is where information travels freely, and expertise is readily available.

A key characteristic of the London Market is the leading role of the brokers. They are the business producers, so that companies can concentrate on underwriting activities by relying on the brokers' ability to produce business. Such a division of labour, however, is a double-edged sword to insurance and reinsurance companies, as it means that the brokers are the ones who have the client grip.

In a down cycle, underwriters receive tough pressure from brokers to reduce rate levels and to relax the terms or lose the business to someone else. This is particularly true in the age of mega brokers. The underwriters have the skills to analyse specific offers from the brokers, but there can be a risk of lack of understanding of the client's philosophy and their needs, as the underwriters often do not talk to the clients directly.

Solving the problems
Overseas clients view the London Market as a whole first and foremost. Only then do they divide it into Lloyd's and the Company Market. It is, therefore, important for the London Market as a whole to be professional and efficient and to raise the service standards in all areas.

This includes the brokers, and would mean raising technical underwriting standards for policy and wordings and claims payment – thereby improving market performance and producing a better quality product in order to pursue for clients.

Improved transparency in all areas is important to let people see for themselves how their service levels compare with others. It is vital to change the overall perception of the London Market. We need to respond to change in order to survive, but the speed of the response is also important.

The key to this issue is how to break the established conventions as quickly as possible, but it may also involve a cultural issue. The London Market is a mixture of international companies with various interests and size, and it is by nature not easy to reach agreements. It will, therefore, take time and it is important for all market participants to understand how the actual business processes would change. The speed of change is, however, very important to prevent the London Market from missing opportunities.

One particular comment I have is that I hope the small to medium-sized companies and following underwriters will make themselves heard. They play an important part in the market, and changes will not be successful without their support.

All in all, it is not an easy way forward but Walt Disney was right: “All our dreams can come true – if we have the courage to pursue them.”

  • Takashi Oka is director and general manager of The Tokio Marine & Fire Insurance Co (UK) and chief executive officer of Tokio Marine Global Re (Dublin). Last month he was the first person to be elected to the International Underwriting Association's board from outside the European Union or North America., warns Roger Foord