Christopher Croft, Chief Executive of LIIBA - the London and International Insurance Brokers’ Association - gave the keynote address at our 73rd annual meeting luncheon in Chicago on November 5, 2018.
LIIBA represents the interests of Lloyd’s insurance and reinsurance brokers and their mission is to ensure that London remains where the world wants to do business.
Ladies and gentlemen, many thanks for welcoming me to your annual luncheon today. I am honoured to be addressing such an esteemed group. I am delighted to be here to talk to you a little about LIIBA, our work, and some of the hot topics in the London market. I hope it will be the start of a close relationship between our two organisations as you are the capital A Association of capital L Lloyd’s capital B brokers and I run a small case association of Lloyd’s brokers.
Perhaps I might start by talking a little bit about LIIBA itself and who we are. London and International Insurance Brokers’ Association is the trade body for Lloyd’s brokers active in the specialty markets in Lloyd’s and the wider London market. Our members bring $91 billion of premium to the market each year – predominantly from overseas as only a third of the market’s business emanates from UK clients. At least that much comes from here in North America making you our most valued international clients – another fine reason for me to be here today.
Our membership ranges from the large global brokers some of whom are represented here today to small niche players with single figure numbers of staff. And the scale in terms of numbers is much more to that end. Indeed our twentieth largest member employs fewer people in its entire London market operation than one of our largest does in its internal catering department.
LIIBA’s principle role is to represent our members interests with regulators; and with governments both at home but also in Europe from where, for now, so much of our regulatory framework stems and here in US given the balance of our business and the need to trade so closely with you. We also provide the voice of the client in market level discussions on the ways in which we can improve our infrastructure to underpin yet greater service. I will return to all these topics as I meander through these remarks over the next few minutes.
At this point it has become something of an unwanted tradition, to my mind, for London representatives at events in the States to begin a peroration apologising for some of London’s perceived short comings and try to provide vague reassurance with phrases like “the market is open for business”. I am not going to continue that custom. Rather I thought it might be apposite to remind ourselves what we – because London is the global marketplace for commercial insurance – we all have in London; and to talk to you a little about the work we are doing to grow that asset and the challenges we face to some of that work.
As I have already set out, London is a $91 billion a year business. It is larger than the next three insurance centres combined. It is a true subscription market, which enables some of the world’s largest and most complex risks to be seamlessly shared across many insurance businesses. It is driven by a unique eco-system that delivers product innovation, expertise that is not available elsewhere and offers a deeper, broader risk appetite than any other hub. All of this drives competitive solutions for clients around the world.
My favourite example of this concentration of extraordinary expertise came early in my life in the market when I spent the afternoon sat on the box in the Lloyd’s building with a marine war underwriter. He believed he had a competitive advantage in that he knew details of the range of the mortars used by the Organisation for the Emancipation of the Niger Delta that other underwriters did not. This led him to believe that they could not hit anything moored in the ports at the mouth of the Niger and thus he was prepared to insure ships that went there. I have to confess that, at the time, I wasn’t wholly aware that the Niger Delta needed emancipating; much less that there were people with substandard firearms committed to doing so. But in London, that sort of knowledge is common place and at the heart of our ability to insure the world’s largest and most complex risks.
And the expertise that London can bring to assist clients is by no means limited to insurance knowledge. My members employ just as many specialists in risk mitigation – be it fire prevention; or security; or increasingly spooks recruited from FBI to advise on cyber exposure – to help clients identify what their overall position might be before they decide on what insurance to buy. An example of how sophisticated this service can be is that Allianz – the large German insurance company – purchases it Directors and Officers insurance in London using one of our largest member firms. So that is an incredibly sophisticated insurance entity with a large in-house broking capability that still needs the know how LIIBA members add to the process in order to get the right cover.
And this specialist input is not restricted to the placement process. The actual delivery of the product clients buy – paying claims – is also an area where London can excel. The London Market has a global reputation for delivering on its claims promise - paying over $100 million every day – real evidence of the depth of resource available to take on and pay out on larger scale risks, in any market condition.
For example, after huge wildfires in Canada caused CAN$3.58bn in losses, the London Market used advanced satellite imagery to accelerate the claims process. That way, it was able to evaluate the extent of the damage and make faster claims’ payments so residents could get their lives back on track, and the local economy could get back to business.
When the Caribbean was hit by hurricanes in the summer of 2017, widespread damage was inflicted on hospitals, hotels, supermarkets and other major resources. In response, the London Market went the extra mile to provide funds and support for vital services.
With power loss a widespread issue, planes were chartered to fly in generators and fuel. Satellite phones were sourced to guarantee communications, and in one exceptional case, an adjuster hired a catamaran and sailed through the storms to reach an insured and begin assessing their claim. In spite of difficulty of access, as well as lack of power and infrastructure, London made multi-million dollar payments to a huge number of insureds within days.
The market is also taking steps to achieve a faster, more efficient authorisation of non-complex payments. In 2018, a new protocol was launched for claims of up to £250,000 to help get clients back on their feet faster.
I know that I am probably preaching to the converted here today. But sometimes I do think it is worth just taking the time to appreciate the gem we all have in London. Expertise, innovation, risk appetite, entrepreneurialism all abound. But the most important aspect is that when wrapped up by the cluster into something more than the sum of its parts, the London magic delivers outstanding results for our clients.
That is not to say we should be complacent. So I would like now to move on to discuss some of the work we are doing to make those outstanding results even better – and also touch on some of the other issues we are facing as a market and as the broking community within that market in particular.
I am sure I do not need to tell this audience – one step removed from the day to day work of the market – that London’s approach to processing remains labyrinthine in its complexity and often archaic in its execution. 330 years ago, the representative of the client – in that case the captains of cargo ships – would walk into a room – then Edward Lloyd’s coffee shop – with a piece of paper detailing the insurance they were seeking to purchase and ask those customers of the coffee shop who wished to provide a proportion of that insurance to sign their names below a line on the paper – hence the term underwriter. In 2018 far too much business placed in London still follows a very similar process. People talk in lofty terms of insurtech, digital marketplaces and artificial intelligence and the impact all might have on the insurance industry. But none of that is going to happen if we don’t first start using computers.
So our latest initiative to adopt an approach to electronic trading in London is, in this phase, aimed squarely at that – getting the market to use computers to underpin the central transaction. We refer to this initiative, somewhat idiosyncratically, by the name of the company we have created to own and provide the service – Placing Platform Limited or PPL.
PPL provides an electronic trading platform that allows brokers to present the information that underlies the negotiation to a collection of underwriters. It supports that negotiation process and it allows underwriters to bind contracts and subsequently endorse them. Given the complexity of some of the business we write, face-to-face negotiation is the very essence of the London Market. But we do want to replace manually intensive paper tasks with electronic processes. The benefit of electronic placement is that it removes the admin and the paperwork, it brings all the placement documents together into a single platform, reducing the administrative burden of using paper in the negotiation process - and creates a strong audit path, and, crucially, and here is the answer to the question some may have in your minds “how is it better than email?” its underlying interchange agreement creates legal certainty as to whether or not an insurer is on cover at all stages of the process.
If used effectively, it speeds up the placement process and enables data to get into the market process much earlier and with less effort than today. Currently our record is that an endorsement was agreed in 68 seconds.
All lines of business are live. We have 50 brokers and 113 underwriters now signed up and as of Q2, just under 20% of the risks in the London were being bound electronically – this was double our target for the quarter. Our ambition is to hit 30% by December this year and then over time, move to around 80% of all risks being placed on the platform. As a scoop for this event, I can tell you that the Q3 target of 20% has been met by a distance and this will be confirmed officially next week
Every month we break the record for the number of brokers signed up to PPL, the number using the platform and the volume of business placed. London has struggled to adopt electronic trading initiatives in the past. Not this time. #PPLMomentum is amongst the market’s most tweeted phrases.
We are also making strong progress in improving our central services so that money can flow through the market faster and more accurately.
The Central Services Refresh Programme – known as CSRP – is standardising the process for premium and claims accounting. It allows brokers to use the same data and process standards as they do in other markets. This radically reduces the administration burden on brokers and makes it much easier for them to place business with London. Premiums and claims functionality are now live.
Delegated authority business is a significant part of the market’s business – and, I imagine, of significant interest to this audience. But historically partnering with London market insurers has resulted in expensive and time-consuming processes such as multiple audits and compliance. Our aim has been that coverholders have a single audit, that compliance processes are consistent and done once only, and that data is collected once and shared with the relevant stakeholders. And I am delighted that we have made real progress across all three of these areas.
1,500 fewer audits took place this year because of the automated co-ordination of audits. One of our major US coverholders went from 50 annual audits two years ago, to two in 2017. They have said of the service; “This underscores the value of this streamlined audit service, making it easier for us to do business in the Lloyd’s and London market.”
Our second project focussed on centralising the collection, collation and analysis of compliance information – doing it just once on behalf of the whole market. Our group of market representatives has been able to define a list of the necessary compliance information for all coverholders and this process has been managed centrally by Lloyd’s in 2018.
And finally, we are making great progress in achieving standardisation of data requests for those doing business across the London Market. By being specific about what data is required, coverholders will have clarity and consistency in dealing with many carriers.
Our Delegated Authority: Submission, Access and Transformation Solution went live last month. It provides a central service to standardise the collection, validation, processing and supply of delegated authority data across the market. Market take up has been strong and, at launch, half the underwriting and broking businesses that focus on delegated authority business had signed up for the service. By capturing the right information at the right time, we can make the underwriting and claims processing as efficient as possible for everyone in the value chain and help attract coverholders to London.
We have been receiving very positive feedback from coverholders on all of these initiatives and the ease of doing business that they enable.
So electronic trading, and its associated other process improvement projects, is on the march. It will massively simplify access to our world class service offering. It will make the administration of business significantly more efficient and cheaper. And that will be of enormous benefit to you our primary customers.
But we do have a few other things that have been sent to try us. And this is the point where I am going to talk about Brexit. I do this for two reasons. One I was billed as going to do so on the invitation to this event and wish to fulfil my brief. And secondly because along with the weather and a general suspicion of Meghan Markle and what she is up to, Brexit has become a topic of conversation that no British person can steer away from for more than 10 minutes. And I bring you, as US buyers of insurance in London, one message on Brexit. Don’t worry about it. We’ve got this. The wholesale broking model that in general you use to access our market will be unaffected by UK leaving EU. Where the insurance you want to buy has an element of EU coverage, our insurer friends have done the necessary work to set up the necessary subsidiaries in one of the 27 countries that will remain part of the Union and so will be appropriately licenced. This includes Lloyd’s new insurance company in Brussels. All carriers are, however, clear that the “deal” will still be done in London even if the EU element is booked elsewhere. This means that the power of the cluster that I have already lauded will not be diminished. So you are sorted. Let us move on.
Now about Ms Markle…
I digress. The last issue that I wanted to cover this lunchtime was the work of our regulator the Financial Conduct Authority, and, in particular its Wholesale Insurance Broker Market Study. I wanted to pick up on this if for no other reason than I suspect some of you here today may have been involved in the process during the phase when FCA was seeking the opinion of the market’s clients.
A few important points to make about this work. Firstly it is a study and nothing more. The FCA has powers to engage in this sort of fact finding mission; it felt that it had not informed itself as to how the market worked since intermediation came within its scope a little more than 10 years ago. It is very much not an investigation triggered by suspected wrong doing. Further, FCA is carrying this study out under the powers it has as the regulator of competition in UK financial markets; not in its role as our conduct regulator. This has meant that the majority of the team working on the study are not the regulators who we deal with day to day. They were not known to us; and, crucially, we were not known to them. So how and why the market operates as it does was not something they were familiar with. So part of our work with them has involved a sizeable education exercise.
The process thus far has been that FCA asked our members for a large amount of information about placements over the last five years. The result of this has been that the regulator has been furnished with in excess of a billion rows of data. Which will take some sifting through. Then, as I mentioned earlier, they have carried out a survey of the market’s customers both in UK and internationally. This has been an interesting exercise. Aon, Marsh and Willis appeared on the lists of clients FCA wanted to talk to for a number of our independent wholesale members. And there was also one glorious circular exercise. LIIBA is a member of the WFII – the World Federation of Insurance Intermediaries - along with our counterparts across the globe including your Council Of Insurance Agents & Brokers in Washington. So when in a meeting the FCA team were asking me a lot about why international business flows to London I suggested a conversation with WFII. So I put them in touch with Nic de Maesschalck who runs WFII. He sensibly told them that they didn’t really want to talk to him, they wanted to talk to some of his members and asked them to send a questionnaire he could circulate. One of the people he sent it to was CIAB. CIAB sensibly thought, we shouldn’t fill this out, we need to talk to our members who trade internationally. One of these firms was Marsh in New York. Marsh looked at the list of questions and thought “the person who really knows about this in our organisation is Roy White”. For those of you who don’t know him, Roy runs Marsh’s London market operation; and, in his spare time, is Chairman of LIIBA and thus my boss. So the request came almost full circle.
I tell this story mainly because it is funny. In reality our dealings with FCA over the study have been very productive. They have listened to us when we have raised objections around some of the timescales they have sought to pursue. And they have been open in discussion about some of the issues. So, whilst nobody really likes having their regulator stick their noses into their business in this way, we have no complaints about how the study has been conducted.
And now we await the outcome. An interim report is now scheduled for end January or early February next year. We have few clues what it might contain. But we comfort ourselves that it would be hard for anybody to conclude that a market that is in general providing its clients with broader than ever coverage on quality paper at what are still considered, despite recent mild adjustments, to be historically low prices can be inherently anti- competitive.
Ladies and gentlemen, I feel I have detained you long enough. Once again thank you for inviting me to address you here today. It has been a huge honour. I hope that I have managed to remind you a little of what we all share in the London market – a unique and brilliant vehicle for delivering what our clients need. I hope I have also persuaded you that we who are at the centre of the cluster are resting on no laurels and are firmly committed to the work needed to grow and enhance this beautiful machine. 330 years in and London continues to deliver. Long may that continue.