February 8, 2005 by Canadian Underwriter
The London market needs to bring about a change in behavior if it is to meet the expectations of clients and regulators in a shifting insurance world, Lloyd’s CEO Nick Prettejohhn told the Insurance Institute of London this week.
Given the intense spotlight being placed on insurer and broker activities both in the U.S. and U.K., he says, “success means investing in people, in focussed management attention, and in changing behavior”.
“The need for improvement is urgent. Urgent for commercial reasons, urgent for regulatory reasons, urgent for that most basic of reasons self preservation,” Prettejohn says.
There is a commercial need to reduce the cost and difficulty in dealing with the London market. There is the need to respond to regulatory expectations both the new broker disclosure rules coming out of the U.S. and the increasing expectations for contract certainty in the U.K.
And, Prettejohn adds, there is also a basic business need to reduce the risk which comes from a process that is lees than transparent and not fully rationalized. “Our inability to create a secure audit trail for risk disclosure means that brokers are exposed to errors and omissions risk, and underwriters are unclear what exposure they have truly assumed or reinsurance protection they have. The absence of proper and/or timely documentation detailing the substance of the transaction at the time the transaction is concluded exposes brokers, underwriters and policyholders to uncertainty and cost.”
On the subject of distribution, Prettejohn advocates for full disclosure being mandatory, although the U.K. Financial Services Authority (FSA) at this point has been content to maintain the “disclosure upon request” standard. Prettejohn says there is not only a regulatory incentive to fully disclose commissions, but also such disclosure is key to measuring the costs of distribution and thus being able to rationalize those costs.
He adds that better claims management, further action in ensuring the accuracy of Lloyd’s “slips” (which he says may necessitate “public naming and shaming, fining or some other sanctions” against those who are failing to meet accuracy expectations), and investment in technology are all needed.
These kinds of changes in behavior will be needed to preserve Lloyd’s as a source of expertise, “a genuine market place rather than a theme park, the streets peopled by the human capital of the future rather than actors impersonating the protagonists of the past”, Prettejohn says.