Lloyd's Act review could spell dramatic change

Lloyd's has been the refuge of the traditional wholesale broker for years, yet its future seems increasingly uncertain following the publication of proposals last month by HM Treasury that are set to alter the broking landscape at Lime Street fundamentally.

The consultation paper, released last month, seeks changes to the Lloyd's Act, which was last amended in 1982. Among the most radical of the proposals are the abolition of the need to do business at Lloyd's through an accredited Lloyd's broker and the relaxation of ownership links between managing agents and brokers (see box). Initial feedback from those most set to benefit from the proposed changes, the managing agents themselves, has been fairly upbeat. "We regard the proposed changes as positive for the market and are taking steps to seek market comment before responding to the consultation paper formally," said David Gittings, chief executive of the Lloyd's Market Association.

Reaction from the brokers has been markedly different in tone. "No, this is not going down terribly well at all," said David Stirling, a director at Lloyd's broker Crispin Speers. "I don't think it will revolutionise the market just because clients choose to access it in the way they do and there is already quite a variety of ways to gain access to the market, such as through a coverholder or through the internet.

"Where it may benefit some is through avoiding duplication of effort, but should Lloyd's brokers fear that? No. There will always be victims of change and I'm sure we will be victims in some form. The market will find its level, however."

"Can people prevent it?" Stirling asked. "They can dig their heels in but it's not going to change things, besides, there's the added value of security that Lloyd's brokers bring, the ability to manage the business, which is important to many people. There's a cost, but someone will always bear it, either at the insurance or the broker end."

Stirling predicted that the relaxation of ownership links between managing agents and brokers will have a definite effect: "Managing agents have been buying up intermediaries in the US and they will be interested in buying intermediaries at Lloyd's."

As far as the government is concerned, these changes are justified because of the cost savings. Widening access to Lloyd's could, it claims, result in an annual saving of £100m. This figure, it said, comes from the market's own survey data relating to property and casualty reinsurance business placed at Lloyd's, which indicated that, compared with the US and Bermuda, there is an approximate 5% additional cost attached to the need to use a London broker.

TREASURY PROPOSALS AFFECTING LLOYD'S BROKERS

The first change would allow managing agents to deal with any intermediary, whether a 'Lloyd's broker' under the new definition or another intermediary, or a direct dealing with insureds; however, existing Lloyd's brokers that want to retain the title will be allowed to do so. The title would carry with it all the existing rights and obligations that are attached to the title of Lloyd's broker currently, though it would no longer entail the right to exclusive access to the Lloyd's market.

The government also proposes to repeal the current detailed rules prohibiting associations between Lloyd's brokers and managing agents. At the same time, a disclosure mechanism will be introduced that would allow the Society to monitor associations between managing agents and brokers actively and also make those associations transparent to members. In particular, managing agents will have to set out in each syndicate business plan submitted to the Franchise Board the parameters under which they would conduct business with any associated broker. Managing agents will also have to identify any associations they have with brokers as well as report regularly to the Society and to the members of their syndicates the proportion of business done with associated brokers. The consultation period ends 30 May.