Forging links

Historically, Lloyd's has had a reputation for being notoriously difficult to access. This has been compounded by the fact that the culture at Lloyd's is very different to that of the company market and, of course, those brokers who have not gained Lloyd's accreditation cannot deal directly with underwriters. Things are, however, beginning to change - and modernise. There is a view that as the broker consolidators in the regions become increasingly influential and control more and more premium, Lloyd's underwriters and syndicates must be proactive in attracting business from them. So, what bearing is the current consolidation in the regional broker market having on Lloyd's?

In recent years, it has undoubtedly become easier for brokers to gain access to Lloyd's. Some have forged links by acquiring existing Lloyd's brokers, while others have taken advantage of the fact that Lloyd's itself has made efforts to make the accreditation process more straightforward. In addition, there are the tried and tested routes into Lloyd's through wholesale brokers and service companies. Lloyd's as a whole does appear to be increasingly keen to open its doors to a wider range of brokers.

Getting easier

However, while it is good news that becoming an accredited Lloyd's broker is getting easier, John Needham, services audit manager for CLB Littlejohn Frazer observes that brokers need to be aware that each syndicate will have its own criteria for dealing with brokers. Needham explains: "Some syndicates will scrutinise brokers more closely and impose much higher thresholds for meeting their own criteria for doing business than set out in the basic Lloyd's accreditation process."

According to a Lloyd's spokesperson: "As a market of independent businesses, individual syndicates develop their own regional broker relationships supported by Lloyd's central marketing activity. At Lloyd's, work is underway to make the process to access the market more straightforward for all appropriate brokers, whether London or region-based."

Needham suggests that where syndicates have the underwriting knowledge and the capacity, the business is profitable and "they will definitely be considering how they can get more business from the regions." Needham goes on to explain that some syndicates have already demonstrated their desire to get directly into the regions, through routes such as acquisition of brokers. Another common mechanism is to deal with the regional broker through a syndicate services company which is effectively an "in-house" broker or coverholders, explains Needham.

John Dutton, a director with Holmans, points out that Lloyd's has proved it's appetite for working with large brokers, in its long-standing relationships with national brokers, and observes that underwriters are keen to listen to "a good story with underwriting profit in it".

In general, those brokers that have been dealing with Lloyd's are enthusiastic about the level of interest shown by underwriters and syndicates. Jeff Herdman, Oval group managing director, believes that those in the Lloyd's market are interested in expanding their retail offering. Equally, Phil Barton, group commercial director at the Jelf Group, asserts: "I have been really impressed with the appetite of the Lloyd's syndicates for building a much more strategic partnership with us. They do seem to have recognised that if they are in contact with a retail insurance broker that's grown from a portfolio of £20m to £150m in two years, it would be good to get involved."

For their part, many of the growing regional brokers are very keen to do business with Lloyd's. "We think Lloyd's is a valuable additional market to us - there is no question about that," asserts Barton. Herdman agrees: "From our perspective as a consolidator, we feel Lloyd's is an essential part of our armoury and in what we are offering to the client. We are always interested in talking to syndicates within the Lloyd's market."

Certainly, Lloyd's has much to offer the regional brokers. Herdman points in particular to Lloyd's experience and capacity for writing business such as energy risks, large complex liability risks and marine hull risks. "Lloyd's has huge experience in writing risks in the marine and energy markets and Lloyd's of London is worldwide, so it benefits from that global experience too," explains Herdman.

Other brokers point to the fact that when dealing with Lloyd's, you are speaking directly to the underwriters. At a time when brokers still find some composite insurers falling short when it comes to providing access to decision makers, the way in which Lloyd's operates means that you do deal directly with the underwriter when placing risk. This means greater speed of delivery and faster decision making. Barton comments: "If you want a quick decision, Lloyd's can deliver a fantastic service. At its very best, you are speaking direct to an underwriter who can pretty much instantly make a decision on a risk."

Needham also points to the access provided to the underwriter as a clear advantage provided by Lloyd's: "For bigger business producers, they could expect a close relationship with the underwriter which they may not get with larger insurance companies," comments Needham, adding: "The Lloyd's market may be more receptive to new ideas and product changes and, to a degree, the regional broker would be closer to the "pen holder".

Clear benefits

However, despite offering clear benefits to regional brokers, Lloyd's cannot afford to rest on its laurels if it wants to attract business from the growing consolidators out there. Lloyd's has traditionally become most attractive to regional brokers during a hard market, when the company market may lose appetite for some of the business it has covered during a soft market. However, as Dutton observes, the hard market these days lasts for a much shorter period of time than the soft market. Therefore, Lloyd's must continue to find ways to offer brokers advantages even in a soft market, if it wants to attract the increasingly large premiums commanded in the regions.

Paul Griffiths, a director with GB Underwriting, explains: "In the current soft market, everybody is looking for new sources of business, so if they are not currently doing business with certain brokers that are getting larger and larger, they need to be making efforts to be dealing with that because they need to be attracting business."

Barton points out that the composite insurers are becoming more flexible in their approach and believes that Lloyd's also needs to prove it can be flexible if it wants to compete. "Lloyd's has been slow to change but those that truly want to access the retail broking market need to think more about the use of technology to enable the presentation of risk," adds Barton.

Herdman is optimistic about the modernisation process at Lloyd's. He observes: "Lloyd's is a big market and some syndicates will move more quickly than others but eventually those that are reluctant will have to change too. It is about making it more efficient to trade because we are all trying to get more out of the business with less resource and we are all looking to become more efficient." That is not, to say, however, that brokers will expect to be able to place all risks via e-mail. "There has to be that human contact but basic back office administration has got to become more efficient," asserts Herdman.

It does seem, however, that changes are taking place. Barton finds that some of the syndicates are particularly switched on from a technology perspective and aware of what is required in terms of service delivery for a retail broker. "As a consequence, those syndicates are developing a very good relationship with us," he explains. "Those that insist you go via the box are the traditionalists, whereas some of the more innovative underwriting syndicates have proved a bit more creative and understanding in the way the distribution chain might work."

Griffiths observes that the service company arrangement works well and for the broker is similar to dealing with a composite - in that they can transact business via e-mail and there are no slips involved. "Those that want to deal with general UK regional brokers will tend to have a service company set up because that is a useful way to access that business," explains Griffiths.

Threat and opportunity

Needham points to one of the clear benefits to Lloyd's in establishing links with consolidators: "This potentially makes breaking into the regional market easier. If the syndicate can forge strong relationships with the consolidator then they themselves get access to a bigger client base through only one relationship."

Needham observes that: "Consolidators are both a threat and an opportunity as they are controlling more and more of the regional business." Clearly, if the Lloyd's market wants to view the growing regional brokers as an opportunity, then underwriters and syndicates must continue to modernise and ensure they are accessible. The message is that both sides - brokers and Lloyd's - have much to gain from doing business with each other.

PLACING RISKS AT LLOYD'S

Insurance intermediaries

Lloyd's underwriters do not generally deal directly with policyholders. Instead, business is normally accepted by Lloyd's underwriters through the following intermediaries:

Lloyd's brokers: insurance business is generally brought to Lloyd's by Lloyd's brokers that are insurance broking firms accredited by Lloyd's to broke insurance business at Lloyd's.

Coverholders: Lloyd's underwriters may delegate their authority to enter into contracts of insurance to an intermediary known as a 'coverholder'. In such circumstances the general principle is that the coverholder acts as agent of the Lloyd's underwriters - rather than as agent of the policyholder.

Registered Open Market Correspondents: certain brokers are registered as open market correspondents, which permits them to negotiate contracts of insurance with the Lloyd's market through intermediary of a Lloyd's broker.

Payments to intermediaries

Intermediaries receive payments in a variety of ways, which may include the payment of commissions. Lloyd's strongly supports the disclosure and transparency of these commission arrangements. A policyholder may ask the intermediary with whom the policyholder deals for details of how and by whom the intermediary is being paid.

Ownership and other financing links to intermediaries

Under the terms of the Lloyd's Act 1982, Lloyd's brokers are prevented from being Lloyd's managing agents or being associated with managing agents. Lloyd's underwriters accept business as members of syndicates each of which is managed by a 'managing agent'.

Lloyd's also has risk management procedures in place in respect of the relationship between Lloyd's managing agents and any related companies that act as intermediaries. This is to ensure that the managing agent makes proper disclosures of any such arrangements. A policyholder may ask the intermediary who he is dealing with to disclose if it is a related company to a Lloyd's managing agent.

Source: Lloyd's.