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Tradition at Lloyd's is a fleeting thing.

Tradition at Lloyd's is a Fleeting Thing

The Lloyd's insurance market is proving the old adage that converts make the most avid believers. Although renowed for adhering to traditional ways in the face of change and decay, Lloyd's exploits this public image because it has never lived up to it. In effect, Lloyd's continued success, like that of any durable business, owes much more to a readiness to jettison old ways and beliefs the moment they are no longer useful and enthusiastically convert to promising new ones.

Once again true to history, in response to rapidly changing market conditions, Lloyd's is undergoing a conversion and avidly pursuing business practices which, a short while ago, would have been unthinkable as they represent a break with tradition. The point is, however, that for Lloyd's, tradition is expedient. The rationale is that if a tradition contributes to success, keep it; if not, then there is no use in keeping it. The latest conversion sees Lloyd's in full pursuit of business in Europe in anticipation of freedom of services in the European Community in 1992. Also, Lloyd's has made a point to increase its share of personal lines business in the United Kingdom, in which until recently it has taken little interest.

Thus, within the last 10 years, because it ceased to make financial sense, Lloyd's had rid itself of the tradition that its brokers are not to be owned by foreigners. For the same reason, it has also ended the incestuous ownership relationships between Lloyd's brokers, underwriters and underwriting agencies. It is now opening up channels of access because the rigid Lloyd's-broker-only system is no longer financially sensible because there are now so many alternatives for potential clients. When Lloyd's was the only major market, it made financial sense for the Lloyd's community to keep itself exclusive; it no longer does, so the system must go.

1992 Sparks Interest

Like other insurers, Lloyd's underwriters are keenly interested in the single European Community in 1992. But Lloyd's has no branch office overseas and depends entirely on its brokers to obtain business directly from insureds or local overseas brokers. Lloyd's has always had to conduct business across frontiers, but to do so, it has generally had to become established in the countries where the business emanated.

Certainly, 1992 will have the effect of breaking down the barriers between member states of the community. Lloyd's has used the non-life establishment directive to become a licensed insurer in Belgium, France, Holland, Ireland and Italy. Most of the general insurance laws were drafted for insurance companies, but with passage of the European Community's freedom of establishment directive, governments have had to harmonize their general insurance laws, and at the same time, make provisions for Lloyd's underwriters.

Approximately 75 percent of Lloyd's business originates from overseas, North America being the largest market. Syndicates are now looking at other markets in an effort to obtain broader-based underwriting accounts coupled with the need to service the insurance requirements of rapidly growing multinational companies.

The EEC market represents a considerable potential market to which, until now, Lloyd's has had limited access. Underwriters are seeking to play a responsible part in the insurance markets in which Lloyd's is licensed or operates under the services directive. Even where Lloyd's has been licensed for many years in the European Community, its share of the local market is very small. For example, after 40 years in France, Lloyd's share of the market is a mere 0.6 percent.

Yet, in 1986, Lloyd's became licensed in Italy, and in 1987, it opened a general representative's office in Rome. Now, taking things a stage further, Lloyd's brokers Alexander Howden and Willis Faber are setting up a lineslip facility and binding authority to market Lloyd's direct insurance products in Italy. Nine leading Italian brokers are participating in the deals which are intended to double Lloyd's direct premium from Italy over the next year. The new company, Consulenzee Servizi Assicurativi, has offices in Milan and Genoa.

Accepted Vehicle

No doubt, it will be interesting to see whether this type of cooperative venture becomes the accepted vehicle by which Lloyd's brokers share their privileged access to win new business in Europe. Already, it is rumored that similar facilities are being considered for Spain and other EEC countries.

In the meantime, Lloyd's has appointed Wolfram Kausche as its general representative in West Germany. Dr. Kausche took up his post in Frankfurt on February 1. Lloyd's currently derives about 100 million [pounds] in premiums from West Germany.

Until now, Lloyd's underwriters have been able to accept only certain classes of business through German intermediaries other than by way of reinsurance. The classes include marine, aviation and transport (apart from compulsory aviation liability insurance). Lloyd's is awaiting approval on its application to transact non-marine business.

As for domestic business, Lloyd's is shifting gears and looking to write smaller personal lines, such as automobile and homeowners. Its brokers are expected to provide the entry ticket for non-Lloyd's brokers throughout the United Kingdom. But then again, Lloyd's has always believed that if you cannot beat them, you should cooperate with them.

Chris F. Best is the editor of Foresight, a London-based risk management and insurance journal published by Risk and Insurance Group Limited.
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Title Annotation:Lloyd's of London
Author:Best, Chris F.
Publication:Risk Management
Article Type:column
Date:Apr 1, 1989
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