The Treasury is set to radically overhaul the way Lloyd’s is run. How will the changes affect the many groups involved, asks James Dean?
The London market is about to enter another era of change. Should the Treasury’s proposals on reform be implemented in full, Lloyd’s brokers will lose their exclusive access to the market and worldwide broking channels will be opened up. Non-Lloyd’s brokers, other intermediaries and even policyholders will be able to talk directly to underwriters and place business with them.
But the ability to place business with underwriters has long been guarded by the Lloyd’s brokers, which will enter the new era with far greater experience and firm entrenchment in the market. But while many believe they will retain their current dominance, there is no doubt that some power will be eroded. With electronic trading now a day-to-day reality for some, the same technology can be used to place business from far outside of London – and outside of the Lloyd’s broking sphere.
Different groups have reported different feelings about potential opportunities and difficulties stemming from the proposed changes to the Lloyd’s Act, now out to public consultation.
While the Treasury envisages far-reaching change, there is some debate over whether that will actually be the case. The experience held by a Lloyd’s broker is clearly a strong pull on would-be policyholders, and especially, it seems, for large commercial customers.
New opportunities for non-Lloyd’s brokers will not come without teething troubles, and certainly not without competition. The underwriting experience of Lloyd’s brokers, as well as experience gained from successful and failed electronic reform initiatives is a bonus – as long as their current systems are up-to-date. In fact, this new, outside competitive threat to Lloyd’s brokers’ business could provide the final spur on to full electronic reform.
Lloyd’s brokers will not die out, but nor will they retain their current prominence. High-volume, low-complexity business – in other words, business that does not require a visit by a broker to an underwriter on Lloyd’s trading floor – will become the target for those outside the current circle of Lloyd’s brokers.
London market reform
Great steps have been made in deploying modern electronic systems, and the uptake of the new practices has improved dramatically in recent months. But questions exist as to whether the slow pace of moving to electronic systems can cope with the potential for a huge amount of new business.
There are also questions as to whether new entrants to the market – be they non-Lloyds brokers or policyholders – which want to trade electronically with Lloyds underwriters have the necessary systems in place to trade.
Brokers seeking access to underwriters without setting foot on the trading floor will fall under the watchful eyes of the Market Reform Group (MRG). The MRG requires observance of a wide range of electronic standards and compliance with ongoing initiatives – such as the placement of all original premiums through the accounting and settlement repository (A&S), and use of the electronic claims files (ECF) system for processing all in-scope claims.
Once systems are in place to cope with the MRG demands, the focus can be turned to electronic trading. Previously, brokers had been left mainly to their own devices to buy and use electronic trading platforms, but since the start of 2008 the MRG has been monitoring the number of trades placed electronically as part of its new e-placing initiative. It is also pushing for firms to adopt the Acord messaging standard.
The Lloyds Market Association (LMA) believes that if the proposals are implemented, it will provide a further stimulus for process reform. Rob Gillies, head of market processes at the LMA, says: Electronic trading is not subject to geographical or time constraints and this opens up strategic opportunities for both insurers and brokers and delivers benefit to policyholders.
