Lloyd’s avoiding ‘race to the bottom on pricing’

Using the over supply of capital entering the insurance market to cover new and emerging risks, including in developed markets, will be key to staying competitive in the current challenging pricing environment, according to Lloyd’s of London executives.

Relationships remain crucial for the Lloyd’s market, but its coverholders, brokers and underwriters must continue to innovate as low interest rates and more capital put pressure on pricing, argues Inga Beale, CEO of Lloyd’s.

“I don’t want Lloyd’s to get drawn into a race to the bottom on pricing,” she said during a presentation at the Lloyd’s Meet the Market event in Toronto Thursday.

While tackling underinsurance in high growth, developing regions is important, there are also opportunities for growth even in core products in developed areas, she said.

She noted that even among the most well-covered countries, including Canada, more than half of the economic damages from natural catastrophes are uninsured. Additionally, uptake of earthquake coverage in Canada is still relatively low, she noted.

“We have to re-sell the benefits of why businesses and people need insurance,” she said.

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Beale also encouraged brokers to bring forth new risks to Lloyd’s that will have underwriters “scratching their heads” and developing new products in traditional markets. “I think the industry genuinely needs more innovation,” she said.

She pointed to one example of a broker and underwriter team in Latin America who, following the rescue in 2010 of 33 trapped miner workers in Chile, developed a product to cover the expense of a future such rescue, as well as the associated public relations costs.

Prominent cyber breaches may help encourage insurance uptake

Sean Murphy, president of Lloyd’s in Canada, agreed with Beale’s premise that brokers should be looking for new opportunities around “intangible” risks such as data loss from cyber breaches and reputational damage.

“I think (soft pricing) is just the new norm and we just have to learn to cope with it,” and one major event is unlikely to turn the market, he said.

Cyber insurance is one area with potential for more growth but more work needs to be done to help businesses know their risks, Murphy noted.

While more customer education has to be done (in large part by brokers), news of major breaches, such as the recent data breach at bank JPMorgan & Chase Co., will help to raise awareness about the impact of an attack, he said.

“I think if there are more examples to that degree that come out publicly, then I think it will (encourage) people to start looking at their own risk, see where their weaknesses are and to seek out a way to transfer that risk or look for a way to mitigate that risk through insurance,” he said.

“I don’t think they (businesses) really fully comprehend the domino effect or the distribution chain and what impact one of those dominoes may have on their own business or how they might affect a third party’s business,” he also noted.

It’s critical for the broker to understand his client and understand their distribution chain so they can provide proper guidance on potential risks, and then bring a product to the table that addresses them, Murphy added.

Title insurance from Lloyd’s coming soon in Canada

Going forward over the next several months, Murphy said Lloyd’s would like to see an increase in its commercial property writings in Ontario, particularly in the heavy-equipment manufacturing sector.

That area will benefit from recent trade deals by the Canadian federal government, as well as by the low Canadian dollar, he noted.

Right now, Lloyd’s is making brokers aware of its appetite in this area and hopes to have more focus on growth there.

Beyond 2015, Lloyd’s is also hoping to launch title insurance in Canada, he noted. There is roughly $265 million worth of current title insurance being sold in Canada, and the loss ratios are fairly profitable, Murphy said.

Lloyd’s has approached the Office of the Superintendent of Financial Institutions, the federal regulator, about its intention to become licensed to offer title insurance and plans to move into that area in 2016.