The pressure for change has never been greater in the London market, says Sue Copeman.
In any discussion on the London market, the word “change” crops up with inevitable regularity. This issue of Global Reinsurance, focusing on London market activities, is no exception. It is clear that all participants in the market, whether (re)insurers, brokers or clients, have new expectations. Stagnating property and casualty business, greater self-insured retentions by clients and strong competition are all contributing factors in the search for greater efficiency. There is also a common perception, certainly among some clients, that the London (re)insurance market has been slow in comparison to some other industries to exploit the opportunities and potential savings offered by today's technology.
Much has already been done to address the industry's changing needs. In the last 10 years, Lloyd's has virtually reinvented itself, most notably with the admission of corporate capital. The merger of the London Underwriters Association (LUA) and the London International Insurance and Reinsurance Market Association (LIRMA) at the beginning of last year produced a powerful market organisation in the shape of the International Underwriting Association (IUA). It also heralded the beginning of unprecedented co-operation between Lloyd's and its traditional rivals - London insurance companies - with both Lloyd's and the IUA now working together to create a better market environment.
It is crucial for the continued success of the London market that they succeed in this aim. Many of the (re)insurers that operate in London are foreign-owned. Indeed, around half of the 20 largest UK insurance groups, based on worldwide premiums, are controlled by foreign parents, while the Association of British Insurers (ABI) put foreign controlled insurers' share of the UK general insurance market (including Lloyd's) at nearly 33% in 1998, compared to just over 22% in 1989.
While much of this foreign participation has come about through mergers and acquisitions involving British companies, it is also true that London attracts insurers from around the globe. In order to maintain its position as a leading world market, London must ensure that it is at the forefront of innovation, whether that involves developing new risk solutions or improving its own business processes.
Environment is all important. The London market is taking a hard and critical look at how it operates. “Re-engineering” and “refocusing” are words now frequently used. If improvements necessitate radical change, so be it.
The run-off market in London, once a relatively neglected area, is also focusing on change and achieving a stronger presence in market decision-making. While actively underwriting insurers are described as “live”, companies and business in run-off represent the “undead”. A quick burial and the hope that they will rest in peace are unrealistic. However, many people are now putting a great deal of thought into how a successful run-off can be achieved and the best tools for doing this.
While the need for more effective processes and systems is a continuing theme throughout all parts of the London market, most participants stress the importance of face-to-face contact. There are clearly fears that greater use of technology will lead to impersonal relationships.
One of the market's greatest strengths is that it provides an environment in which to forge close bonds not only between (re)insurers and brokers and brokers and clients but also, increasingly, between all three. It is unlikely to lose sight of this. Hopefully, automating mundane procedures and removing duplication of effort - both likely outcomes of future developments - will leave (re)insurers and brokers with more time to devote, not just to maintaining relationships, but also to developing the innovative solutions to problems for which London is justly renowned.
“Change is not made without inconvenience, even from worse to better.” These words, attributed to the 17th century writer Richard Hooker, may well sum up the situation in the London market in the next few years. However, the inconvenience will be only temporary - and the rewards are significant.
Sue Copeman is a freelance writer and researcher and a director of Insurance Research & Publishing Ltd.