London Market is ‘less competitive than it should be’ – Founder Shield

The London Market is “less competitive than it should be” and demonstrating “a lack of agility that is in direct contrast with its historic reputation as the place to win ‘hard to place’ accounts”, according to Jeff Hirsch, head of claims and senior product specialist at New York-based broker Founder Shield.

Hirsch has been involved with the London Market for the past 25 years; he joined Founder Shield in 2019 after founding boutique law firm Kissel Hirsch and Wilmer, where he represented insurance clients.

Speaking exclusively to Insurance Times, Hirsch depicts the London Market as a potentially dwindling landscape due to its lack of risk appetite – he feels this is quashing opportunities.

He says: “[A hard market] combined with the capital crunch and Lloyd’s requiring its trading members to prove their worth, with Lloyd’s letting the poorest performers go, the London Market is overcorrecting and is, at this moment, less competitive than it should be.

“Business is harder to place in London and prices are not lower than they are elsewhere, so why should a prospective policyholder bother trying to bind coverage in London?

“The combination of less appetite, forced price hikes and narrow coverage could protect the London Market generally from paying more large losses. But the opportunity to raise capital, in the form of premium, by making smart bets on where to relax coverage and where to restrict it seems to be overshadowed by the protective, conservative environment most brokers experience when trying to bind business in London.

“If the London Market doesn’t start taking more bets with slightly longer odds now, then fewer and fewer opportunities will come to London.

“The amount of new UK capital being committed to back insurance MGAs is being far outpaced by domestic US and Far East funded insurance ventures. The London Market is showing a lack of agility that is in direct contrast with its historic reputation as the place to win ‘hard to place’ accounts.”

Hard market

Hirsch adds that today’s hard market, which has been around for a year so far, is affecting the “property, casualty, specialty, direct, captive, reinsurance [and] retrocession” market sectors. He believes overall, the insurance market will remain in this state “well into 2022 at least”.

In terms of how this could affect the London Market in particular, Hirsch says: “Rising prices, however, is not only a response to demand outstripping supply.

“Insurers put prices up, when they can, to help recover from having to pay losses, and in the London Market, significant losses. Appetite in a hard market shrinks. Why take the riskier risks when you can get a better return year-on-year on the tame stuff?”

Cyber clarity

Despite thinking that additional clarity around whether cyber cover is included in non-cyber-centric insurance policies is “generally welcome and a noble thing to do”, Hirsch also questions whether this could become another layer of complexity that could steer firms away from trading in the London Market?

He explains: “One of the mandates coming from London, Lloyd’s in particular, is cyber certainty. It’s a welcome idea to make sure it’s clear to the policyholder whether a cyber-related event is or isn’t covered under a policy that isn’t titled ‘cyber liability’ or ‘first-party cyber’ insurance.

“A working group and draftspersons have been hard at work for over a year and in 2021, managing agents at Lloyd’s and following syndicates will be required to insure that policies they underwrite or participate on address cyber exposures by adding an endorsement to each and every policy, setting forth the extent to which a policy does or does not cover a cyber event.

“While the clarification is generally welcome and a noble thing to do, [when] an insurance buyer is comparing a London insurance product to a non-London one, will it lean towards the non-London one because it has fewer restrictions [or] endorsements?

“Will brokers do a good enough job of explaining what the Lloyd’s Market Association cyber endorsements are intended to do?”