Government proposals will have far-reaching consequences for London market
The Treasury has proposed ‘once in a generation’ changes to the way Lloyd’s is run, provoking a mixture of anger, approval and confusion in reaction from the market this week, writes James Dean.
The raft of changes, out to public consultation until the end of May, would spell the end of the protected role of the Lloyd’s broker, allowing managing agents to deal with any intermediary, or even directly with insureds.
The Treasury claims that the radical changes would slash administrative costs by £1.7bn over 10 years, and that removing Lloyd’s brokers’ exclusive access to the market would alone save up to £200m a year.
The changes also allow for Lord Levene to serve another term as chairman, as the Lloyd’s council has privately asked him to do.
Lloyd’s brokers were either unaware of the proposed changes or angry that their exclusive access to the market had been placed under threat.
The Treasury estimated that using a Lloyd’s broker adds 5% to the cost of a deal. One senior source at a Lloyd’s broker said: “The reason we charge 5% is because we add value to the supply chain. It’s fundamentally flawed to suggest that these sums would be saved.”
Another senior source said: “Does the market really want to be dealing with a lot of smaller brokers from the shires? I don’t think so.”
But non-Lloyd’s brokers were ready to seize the opportunity. Paul Turner, chief executive of James Hallam, said his company would be likely to save money by placing business directly in Lloyd’s, rather than going to a wholesale Lloyd’s broker.
Meanwhile, Lloyd’s market representative groups, all of which will reply to the consultation, have remained largely silent over the proposals.
Michael Wade, chairman of Bowood Holdings and previously a member of the Lloyd’s Council, said: “These reforms look broadly sensible but only have a limited scope when it comes to the competitiveness of the market as a whole.”
A Lloyd’s spokesman said: “This reform is entirely consistent with our work on developing our distribution model. We continue to appreciate the importance of high quality intermediation and the benefits to Lloyd’s of strong relationships with its brokers. We also fully expect that Lloyd’s brokers will continue to support non-Lloyd’s brokers bringing business to the Lloyd’s market.”
Changes to the workings of the Lloyd’s council were also proposed, including the removal of the requirement for the Governer of the Bank of England to approve new members. The proposals will form the basis of a legislative reform order, and will ultimately update the Lloyd’s Act.