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New London market emerges under one roof.

The London Underwriting Centre is expected to house 100 insurers and reinsurers on opening day, 1992. The new insurance marketplace is just what London needs if it is to remain among the world's major insurance markets. The heart of London's insurance market today is still, of course, the Lloyd's marketplace, a collection of syndicates headed by innovative underwriters who compete against each other and other world insurance markets to underwrite all classes of risk. Lloyd's role in London's business environment is established by the unique Act of Parliament under which Lloyd's operates and derives its self-regulatory powers. Unfortunately, the world insurance scene has been changing so rapidly that even the traditionally flexible Lloyd's has been hard-pressed to respond to competition and structural changes in the marketplace. I admit I would be exaggerating to say that, like Britain herself, Lloyd's has lost an empire and is now searching for a role. But perhaps I'm not too far off. Meanwhile, as Lloyd's is soul searching, the rest of the London market has not been marking time respectfully. The Institute of London Underwriters (ILU), which specializes in marine, aviation and transport business, decided to house its underwriters under one roof and, like Lloyd's, thereby help brokers save shoe leather. The move was so successful that two years ago it inspired the idea of a non-marine marketplace for the company market. Why shouldn't the strategy that has worked for Lloyd's and the ILU also work for the London Undewriting Centre (LUC)? Indeed, the LUC is now recognized as an idea whose time has come. Conceived in 1988 as a limited company and formed by 24 founder companies as Market Building Ltd., the LUC leased from the Prudential Corp. for 25 years the city's largest new property development, a 295,000-square-foot building near Lloyd's and the ILU. The LUC will provide a central location for insurance and reinsurance underwriting and claims transactions. it will offer, according to its supporters, an ideal environment for London market slip business in the 1990s. It is anticipated that LUC will initially house up to 100 companies, all individually competing in worldwide markets. Already 90 percent of the available space within the LUC has been reserved. Among those who have shown interest are companies from London, Europe, the United States and the Far East that see their future trading pattern fitting the framework represented by the LUC. Some 70 companies, including the founder companies of Market Building Ltd., have signed tenacy agreements simultaneously with the signing of the head lease. Initially subleases within the LUC will be available on a 25-year basis, with five-year rent reviews and service charges to be administered by Market Building Ltd. Rentals are scheduled to start at a competitive basic price for letting units of 1,500 to 10,000 square feet, to which the specific requirements of the tenant concerned will be added. There will be no differentials depending on position in the building.

The LUC will have a larger underwriting area than either Lloyd's or the ILU, but as Victor Blake, chairman of Market Building Ltd., notes, "Both Lloyd's and the ILU have been supportive on the premise that what's good for London is good for them."

With estimated premium income in excess of E2 billion, the LUC could be one of the most significant developments on the London financial scene within the last hundred years.

The LUC will be administered by the board of Market Building Ltd., whose members are nominated by the founder companies. Responsible to the board is the executive committee, comprising an executive chairman and the chairmen of the five subcommittees, which will oversee and supervise the project. These subcommittees, covering finance, rules and regulations, property and marketing, will play a key role as work proceeds, and ensure that development of the LUC adheres to the original goals.

Mr. Blake says he has yet to find a broker who is not enthusiastic. "If brokers have a choice of going into one building or running around in the rain to 50 different locations, logically they must say, What a good idea,"' he says.

Mr. Blake disagrees with brokers who suggest that the LUC will suffer from the shift to screen trading. "We think that screen trading is inevitable and desirable, within limits. It will only be used for routine business and will not be a substitute for the very complex, very sophisticated business which comes to London, in which the skill of the broker and the entrepreneurial flair of the underwriter has to be applied.

"That is extremely hard to do if you have to use a screen rather than talking to someone who can debate and answer questions. We will apply modern technology to make the building work, the business flow, and to move people around efficiently. We are talking about thousands of brokers in the course of a week. You have to keep up that flow and keep them dry and content. That's what the building should do." Although the LUC will be a marketplace rather than a regulated market like Lloyd's and the ILU, the general feeling is that it will adopt a quasi-regulatory role within a few years, perhaps by way of "codes of conduct." So far the member companies of the LUC look as though they will be first-class security. Certainly the promoters are not setting out to establish a brand new Lloyd's, with the organization and regulation that have developed there over more than 300 years. They envisage the LUC in its first phase as simply a physical marketplace. However, they do not deny that a wider organization could develop over the years.

The companies that will be members of the LUC are already linked through such organizations as the Reinsurance Offices Association, so it is easy to see how an environment could be created where a larger market and regulatory role might develop.

A powerful new non-marine marketplace like the LUC could bring the best out of Lloyd's and, with the ILU, help form a new London insurance market capable of maintaining its dominant position into the next century.
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Title Annotation:insurance; London Underwriting Centre
Author:Best, Chris F.
Publication:Risk Management
Date:May 1, 1990
Words:1016
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