The two existing London company market associations will merge later this year to form the world's largest representative organisation for international insurers and reinsurers, the International Underwriting Association (IUA) of London. Tim Carroll sets out a personal view of what it will try to achieve and how it will set about its task.
The International Underwriting Association (IUA) of London will represent 110 ordinary members and 80 associates from more than 40 countries. Virtually every major international reinsurer will be included, together with many more specialist ones. Of the two associations involved in the merger, the Institute of London Underwriters (ILU) is much the older, founded in 1884. It has a long tradition of representing marine insurers, later encompassing aviation, transport and energy. The London Insurance and Reinsurance Market Association (LIRMA), which was itself the result of a merger, was founded in 1991 and represents reinsurers as well as commercial non-marine insurers.
It would be tempting - and misguided - to think of IUA as an end in itself. The merger of the Institute of London Underwriters (ILU) and LIRMA (London Insurance and Reinsurance Market Association) is a significant step forward, but it is only part of a continuing story. Events are moving so rapidly in our industry that any organisation will be sidelined and irrelevant if it stands still - and we intend to make a difference. I am well aware that, with no past, the IUA will be judged only by its future actions and their consequences.
The IUA will be uncompromisingly international in outlook. Although the two merging organisations were originally set up to serve the London market, their perspectives have changed to reflect the increasingly global nature of insurance and reinsurance. LIRMA, for example, opened membership to companies trading from other parts of western Europe. Its back office processing systems, meanwhile, have been opened to brokers worldwide, except North America, and to all branches of member companies. As a consequence, risks are now placed and claims processed electronically on a cross-border basis through its facilities.
The IUA will take this international view further and sees itself as operating entirely in an international context. This is no more than you would expect from an association whose members come from more than 40 countries; and whose elected governing board includes representatives from several major European and American reinsurance companies, with customers from every country in the world.
It is in this context that one main objective will be to make the unique qualities of London - which is still the world's most important insurance marketplace - more accessible to the international industry. This means working with reinsurers, brokers and others worldwide, who recognise the need for an international centre, to make it more efficient, more cost-effective and easier to understand. It also means working with our colleagues in other centres to ensure that governments and regulators create an environment that will enable our industry to flourish.
London has two outstanding attributes of value to both suppliers and buyers of reinsurance. It offers a tremendous choice of capital provider. More than 100 top international insurers and reinsurers and 150 Lloyd's syndicates are located within walking distance of each other. I do not envisage electronic commerce replacing face-to-face negotiation in our industry for the foreseeable future when it comes to very large, complex or specialised risks, so this proximity and concentration will continue to be a big asset.
London is also a centre of expertise on behalf of the international industry. To quote Mike Wacek, formerly chief executive of St Paul Re, now of TIG Re: "The human capital located in the London market is astonishing. The concentration of underwriting, claims expertise and increasingly actuarial expertise is unrivalled. The brokers are all contained within a physical space, so it is very efficient to access. Information travels very rapidly."
So what does our approach mean in practice? I have five personal, closely related objectives as chairman-designate of the IUA.
First, with one authoritative voice for companies centred on London, we must ensure that we represent our members effectively. Although the UK regulators remain the most important in terms of the London environment, we shall continue the representational work of the ILU and LIRMA in the US, the European Union and other regions where issues of importance to the industry emerge. For example, the world trade talks will become a focus for action in the new millennium - especially in the marine and aviation areas, which are likely to come under the spotlight during GATS 2000. We shall be supporting the EU in pressing for liberalisation of world markets, which would be of long term benefit to the reinsurance industry.
Secondly, we shall foster a close working relationship with Lloyd's to enhance London's role in the global market.This has changed dramatically over the past 15 years, as has the industry itself. As electronic commerce grows in breadth and scope, information and risks travel effortlessly across national boundaries. We are approaching an era of virtual markets and even virtual corporations, which require us to think of the London market as a concept as well as a geographical entity.
Thirdly, following on from the second objective, we shall work with all other sections of the London insurance community to challenge current practices and procedures. Where necessary, we will work to update and streamline them, improve efficiency and provide customers with the best possible service.
I have already mentioned the expertise and capital available in London, but much needs to be done to make it more accessible to its customers throughout the world. Many people find the divisions between Lloyd's and the company market centred on London baffling and impossible to understand. The fact that there are different ways of doing things makes processes slower, cumbersome and less efficient than they should be. Fortunately, Lloyd's chairman Max Taylor sees this clearly as well, and it is important that together we make inroads into this problem.
The fourth objective follows from the third: to bring London's electronic commerce infrastructure into line with the needs of the people it serves. In some respects, we are already highly successful. The London Processing Centre, which will be owned by the IUA, is a state-of-the-art, speedy and cost-effective means of handling premiums and claims electronically. Nonetheless, as a unique market, London has unique and highly complex information technology needs. As an environment where face-to-face dealing has always been prevalent, it has sometimes resisted other forms of communication.
This resistance is now changing into positive acceptance. IT spending among London reinsurers is rising, and LIMNET (the umbrella grouping that sets electronic standards in the London market) is investing in a new information highway, with additional facilities such as an information repository. It is now the job of the market's representatives - specifically Lloyd's, the brokers and the IUA - to create an electronic environment that will turn this activity into improved speed and cost effectiveness.
My final main objective, which is again connected, is to work for the merging of the international insurance and reinsurance industry's electronic networks. LIMNET, RINET (based in Brussels) and the broker-led World Insurance Network (WIN) recently set up a working party to consider ways of moving towards a common purpose and vision. The competitive advantage to the global reinsurance industry of a united electronic network - embracing US systems as well - is hard to overstate. It will help us to catch up with other industries and enable us to satisfy the ever more demanding and sophisticated demands of risk management.
The reinsurance industry, as I said at the start of the article, is changing incredibly fast. Representative organisations and markets that seek to serve the industry must reflect, adapt to and occasionally lead this change. I believe that the actions set out in this article will contribute to the industry in a positive way, as it heads towards a global and electronic future.
Tim Carroll is chairman-designate of the IUA of London and managing director of ERC Frankona (UK).