Open doors

In recent years, Lloyd's of London has been pushing hard to create the modern, professional and dynamic sort of internal business processes that can live up to the striking modernity of the building in which it is housed.

Any market must embrace an inclusive rather than exclusive philosophy if it is to succeed in today's commercial environment. Lloyd's is no different and has made a concerted effort to open its doors to brokers across the UK, and throughout the world more generally.

Since 2001, it has actively promoted its accreditation programme, seeking to make it easier for players that had previously accessed the market only through a third party to be able to do so directly.

This approach offers clients the widest possible choice, while forcing older and existing members to be at the top of their game as they vie with new entrants for business. There may not have been a glut of brokers seeking to take up accreditation but enough have done so to keep things interesting.

Indeed, since September last year, Corrie and Partners, Price Forbes and Partners and Lucas Fettes and Partners (London) have all been either approved or provisionally approved.

Changing rules

In recent weeks, there has also been a change to the rules surrounding broker accreditation, and Lloyd's believes it has made the whole process more straightforward for everyone involved.

Sean McGovern, director and general counsel at Lloyd's explained the changes in a letter to the market: "With the support of the market associations, we are simplifying our broker registration process and making a number of changes to remove duplication with the Financial Services Authority's regulatory framework for intermediaries." (See box).

Lloyd's is clearly keen to bring new blood through its doors, and establishing a greater presence in the broker market will doubtless bring in new clients and help push volume. It will also generate competition and help drive best practice and broker modernisation, all of which are core to the future of Lloyd's.

However, what has the experience been like for brokers themselves? Has it been easy to join the Lloyd's club and what are the benefits of being able to deal directly in the world's oldest insurance market?

Lucas Fettes went through the process last year and claims it was a relatively painless experience. For a growing firm, the decision to seek direct access to Lloyd's was driven by a need to grow the firm's capabilities, to improve the service that could be offered to clients, and cut back the reliance on third parties and partners.

David Lee, a director at Lucas Fettes explains: "Our commercial strategy is to stay independent and grow the business organically. We are a top 50 broker and, as such, we should be able to broke our own business into Lloyd's."

Lee accepts there are a number of lines written in the market that are not of interest to Lucas Fettes at the moment but does not see why this should stop it operating directly for itself.

"We are not into international and we do not do much aviation business," he says, "but accreditation does mean we can give a better service to our clients because we are going in directly and speaking to underwriters directly, rather than going through a third party."

Like any institution with a long and well-documented past, Lloyd's has in the past been hit with slurs of elitism. However, by the same token, the longevity of the market gives it a standing, which is instantly recognisable and respected throughout the world.

By being directly accredited, brokers are able to bask in the Lloyd's brand and from a commercial point of view there are certainly advantages. While it may be difficult to quantify the benefits this brings, Lee is in no doubt that it makes a difference and says: "Being accredited to Lloyds gives you a standing both with clients and with the market."

Bringing value

In seeking accreditation, Lee says Lucas Fettes had few problems to speak of, although he believes much of that was down to the consultancy firm it hired to help smooth the process. The firm was recommended by Lloyd's, and Lee says the market could not have been more helpful in making information available and explaining its requirements.

However, he also feels that new brokers bring real value to Lloyd's and by coming to it new, have no bad habits or outdated systems when it comes to integrating with the market's own processes and IT.

He also believes that brokers coming from outside the market offer a fresh approach, and is not alone in thinking this. Jeff Herdman, managing director of insurance broking at Oval Insurance, comments: "I think there is a sudden realisation with wholesale or sub brokers that they are slightly behind the game."

In turn, he feels existing Lloyd's brokers are having to be more creative in terms of the things they do and the value they add, although he says he has yet to see any significant change in their operations.

Oval took a different route to Lloyd's and, rather than go through the accreditation process itself, took over existing member broker Lochain Patrick. Herdman explains the rationale behind the decision: "It gives our clients more direct access to the markets they may need and particularly some of our corporate and international clients. We also feel we can, over a period of time, put in specialist placement brokers into that Lloyd's vehicle for things like PI, corporate liability and construction."

There is no doubt that Oval sees Lloyd's as a channel through which it can grow its current offering to clients and attract new clients into the fold as the years progress. Herdman is in no doubt of the benefits access to Lloyd's will bring and he adds: "Access to the kind of expertise that a Lloyd's underwriter can offer is important, and we need to have that breadth and depth for our clients. It will also help us access new clients that we might not have been able to help in the past. I think it is a far stronger story that we can tell our clients."

Indeed, Herdman seems stunned that other brokers do not see things the same way, and he says: "Lloyd's is an essential part of our armoury and if brokers say they can do without Lloyd's then they are kidding themselves."

Using third parties

There are, however, a number of brokers that feel they can derive everything they need from using third parties or having delegated authority arrangements in place with certain underwriters. Why go to the extra expense and effort to directly access Lloyd's if everything is available through third parties?

Certainly, this is one way of looking at it, although it is not a point of view held by many, if any, of the larger brokers in the UK. In the first instance, the fee to become accredited of £5000 is hardly extortionate for most firms and if it is then perhaps there are other issues outside trading within Lloyd's that they should be concentrating on. There is no doubt that many of the third parties through which brokers can access Lloyd's do an excellent job but the bottom line is that they add an extra link to the chain and do not hold the same corporate values and culture as each of the brokers they work for.

As Herdman says: "Some of the third parties do a first class job but it is an extra layer in the chain and if we can access the box directly, which is easier than it was, with our own employees who understand our philosophy and exactly how we operate then that is what we will do."

However, the issue runs deeper than pure cost and culture and Lee feels that the direct access Lucas Fettes has secured means it is able to provide a much more bespoke level of cover to its clients.

He says: "It is fine to have binding authorities but these tend to be scheme driven rather than generally driven. This means you can have an authority that is very narrow in its binding and it would not allow you to deliver what you wanted to your clients."

Both Herdman and Lee agree that having a direct route to market gives them more control and, when conditions harden, will allow them to access capacity and cover that may not have been so easily available to them. From a client's point of view this will be welcome news.

There is no doubt that for many of the larger commercial brokers who have not yet looked at securing a direct route to Lloyd's, the broker accreditation programme and the revised processes, which have been recently announced, will be of huge interest.

Such a move clearly offers benefits to existing operations and if managed correctly carries the potential to grow client numbers, the lines of business offered and the complexity of the cover that can be arranged.

Indeed, those firms that best avail themselves of the opportunities that using Lloyd's direct presents are likely to be the firms that outshine their peers in the months and years to come.

KEY TRANSITIONAL ARRANGEMENTS

Since the new broker arrangements involve the streamlining of current activities and requirements, rather than the addition of new obligations, it is expected that they will cause minimum disruption. The key transitional arrangements are set out below:

- Streamlined broker registration process: the simplified application process and criteria for new broker applications and changes to the oversight of existing Lloyd's brokers are now in force.

- Grandfathering of provisionally accredited brokers: existing provisionally accredited brokers and accredited brokers have been grandfathered in as "registered Lloyd's brokers" with effect from 2 April 2007.

- Sponsorship arrangements: it is expected that current 'sponsored brokers' will apply for registered broker status during 2007 and that current sponsorship arrangements will be phased out by 31 December 2007.

- Group access arrangements: the simplified group access application process will be phased in over 2007, subject to market interest, in order to ensure that implementation is undertaken in an orderly manner.