Regulation, the rise in popularity of Bermuda and electronic placing are just some of the issues which could jeopardise London’s position in the world insurance arena. Geraldine Pollock reports.

The six million dollar question was posed by SunGard iWORKS in a recent survey it undertook with Microsoft: can the London Market survive as it is? In a seminar which took place to accompany the findings, four industry players – Artur Niemczewski, managing director, market reform, Willis; Steven Haasz, director of change management and human resource at Lloyd’s; John Hobbs, director of market services at the IUA and Roy Laker, assistant VP, ACORD - were lined up to offer their views on the subjects covered in the research.

Bart Patrick, global reinsurance product manager at SunGard iWORKS, commenced proceedings by asking the panel the question du jour: can the London Market survive the apparent uprise of Bermuda? “I think there’s a sort of complimentary role between London and Bermuda,” claimed Hobbs. “London is much more diverse and the reason we haven’t suffered as much as Bermuda after particular events is that we have the resilience and experience to literally weather the storms. Yes, some capital has gone out of the London Market in favour of Bermuda, but it all eventually boils down to a question of sustainability – often big money goes into Bermuda, companies make big money and they move on. That’s the name of the game.”

Niemczewski at Willis took a pragmatic approach to the question, claiming that: “as brokers we look for the best place to seek coverage for clients – so some classes of risk are more suited to London and some are more suited to Bermuda.”

Laker from ACORD referred to the current woes of PXRE, asking if “its problems could be just the start for similar companies operating in the Bermuda market.”

“It may be a bit rash to say it’s a trend,” claimed Hobbs of the IUA, “but it’s certainly an indication of the effects events have on the market. But realistically, the players involved know that they take big risks which means big highs – and big lows.”

He continued: “Companies in the London Market are realistic to the fact that it has some inefficiencies, including high operating costs and acquisition costs are currently around 4-6 percent higher than in Bermuda. On the other hand, however, we’ve got major advantages that we should focus on including security, distribution - and perhaps most importantly – experience.”

On the issue of claims, the panel was agreed that it was an area in which vast improvements have been made – but there is clearly still some work to be done. “I think this market is very good when dealing with claims relating to big events on special payments, but most of the problems seem to lie with the run-ofthe- mill, day-in-day-out claims,” said Niemczewski.

Laker at ACORD agreed, “when I was working in claims we used to find that in the US the turnaround time for run-of-themill claims was 15 days – but in London it was more like 55 days. Admittedly these are quite old statistics, but although the timescales might be less, that fact is it’s still taking too long.”

Haasz at Lloyd’s commented: “claims is still one of the issues we realise is not good enough and is an area where we have to make big changes. We believe that this can be achieved through behavioural and process changes supported by technology.”

According to the survey, 76 percent of respondents believed that “regulation in the London Market was at the right level.” So did the panel agree? “One of the issues relating to Bermuda is that it takes much less time to establish a company and get it up and running than it does in the UK, so it lends itself much more to new players,” said Haasz at Lloyd’s. “Bearing this in mind, I believe it’s important that the Financial Services Authority (FSA) and the government should boost the city and should focus on regulation and controls.”

Hobbs was of the view that, “there are encouraging signs that the FSA is keen for the market to find its own solutions – and contract certainty is the best example of this. However, we need to continue to prove that we can do this and a mutual confidence will grow – resulting in the regulator knowing when to use a heavy hand and when to back off.”

When asked how the market can ensure that regulations are being adhered to, Hobbs claimed that: “the results will illustrate if this is the case. With contract certainty, for example, the figures on progress published have been extremely encouraging. However, as has been said many times, there’s definitely no room for complacency. The FSA has noted that as a market we’ve grabbed the ‘low-hanging fruit’ and that’s true to some extent, so we have to ensure that we bring into the contract certainty framework all the issues that we said we would.”

In response to the question as to whether the market would have eventually have got round to implementing certain initiatives without the regulator’s intervention, Hobbs replied, “the LMA slip was introduced and was used increasingly in the market – and some other initiatives, but it would be hard to deny that the regulator prompted us into action.”

Laker was more direct with his answer, claiming that, “without a shadow of a doubt it was the threat of the regulator that kicked the market into doing something. I saw some LMP slips and they were dreadful.”

Niemczewski of Willis amused the audience by relating a comment regularly made by the company chairman, Joe Plumeri: “he frequently wonders out loud how he’s never, ever seen an industry where people shake hands on a deal and then decide afterwards what they’ve actually shaken hands on.”

Technology: friend or foe?

Eighty five percent of respondents to the survey felt that “the adoption of electronic trading in the London Market will be achieved at some point within the next ten years.”

Not surprisingly, the panel agreed in principle with the statistic, but were keen to stress that implementation would not be without several challenges. “My one request is that those involved don’t start making it complicated – let the business people drive it forward and let the technology support it,” said Laker.

He continued, “the thing about this Market is that it’s always good at coming up with ideas, but then the ideas get analysed to death and then it’s hard to get companies to buy into them. So basically, we have to realise that it’s not ‘one size fits all’ and just do it.”

“I heard of one piece of information that was typed-in 233 times, so clearly there’s a great deal of inefficiency in the market, but the issues are being addressed,” says Haasz at Lloyd’s. “For example, I talked to one broker that is considering differential pricing which is an innovative and interesting proposition. At the end of the day, it’s down to changing behaviour and then applying technology to support the change.”

Hobbs at the IUA claims that, “we have to realise that it’s not a ‘big bang solution’, but an evolutionary process where pioneers can lead and others will follow.”

And finally….

...the panel was asked whether it considered the Market was under threat. Niemczewski at Willis claimed that: “if we don’t look at what our clients need and the threats that are out there – then we could be under threat.”

“We need to remember that the client comes first – and that we possess huge qualities which we must exploit and not become complacent. I’m glad there’s competition out there because ultimately it pushes improvements,” said Haasz at Lloyd’s.

Hobbs was confident that, “there is a collaborative effort taking place that we’ve never had before, so we’re in the best place to proceed with success.”

The last word was left to Laker, who claimed that: “all I’m willing to say is that ever since I joined this market some considerable time ago it’s been said to be under threat. I rest my case”.

This Special item appeared in issue 106 of JTW News - June 2006

Author: Geraldine Pollock - JTW News