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BestWeek/BestWire, September 23, 2003
Lloyd's CEO Calls for Industry 'Transformation'
BestWire Services via NewsEdge Corporation : LONDON (BestWire) –
The global insurance industry needs to take "urgent action" to transform itself if it is to have a profitable future, said Lloyd's of London's chief executive in a speech at the Chartered Insurance Institute's annual conference in London.
CEO Nick Prettejohn told the CII gathering that what he called the "major transformation" Lloyd's underwent over the past few years shows that improvement is possible for the industry as a whole if there is a "will to win." The property/casualty industry needs to take steps to avoid repeating mistakes of the past, which feed the notorious insurance cycle characterized by huge swings in pricing and underwriting discipline.
"History strongly indicates that the industry needs to transform itself," said Prettejohn. "But many previous attempts to tackle the problem have failed. The historian would be justified in concluding that the industry either cannot or will not become more efficient. However, we do not need to be slaves to history. The future lies much more in our own hands, and in our heads, because it is about an effort of will--a will to win."
Prettejohn said the industry must impose underwriting discipline on itself to avoid the "peaks and troughs" of pricing and profit. Chasing market share for its own sake is a "route to disaster," he said.
"In London, and specifically at Lloyd's, we are taking active steps to break out of the rut of history, where business process is an unchanging, forgotten and inefficient backwater," he said. "Whether it is policyholders wanting faster documentation and claims agreement, brokers wanting easier access and streamlined administrative processes or underwriters wanting better-quality data, higher contractual certainty and lower frictional costs, we must and will deliver business process change."
Lloyd's transformation has been "epic," said Prettejohn. Beginning with a "reconstruction and renewal program" that launched Equitas in 1996 to cover asbestos and other prior-year liability claims, Lloyd's then changed from a market backed wholly by private capital to a market with more diverse capital backing--from U.K. public companies, insurers and reinsurers from around the world, and other private and public funding.
"We have changed from being a self-regulated market to being regulated by the Financial Services Authority," said Prettejohn. "We have introduced annual accounting to replace traditional three-year accounting, making the market intelligible and comparable."
Perhaps most significantly, Lloyd's created a new governance structure around the franchise concept, focusing attention on the performance of the market and protection of the Lloyd's brand, said Prettejohn. The franchise concept recognizes that "the individual businesses in the market share in valuable financial and brand assets that must be actively, and commercially, protected and managed," he said.
Prettejohn's industry call-to-arms is part of an ongoing campaign by top Lloyd's executives to push market discipline as the global property/casualty market rides what many believe is the crest of a new hard market, in terms of pricing and terms and conditions. Lloyd's Chairman Peter Levene also has been on the speechmaking circuit, giving addresses in London, Europe and the United States on the same theme over the past few months.
At the annual Rendez-Vous reinsurance gathering in Monte Carlo in early September, Levene warned reinsurers that their own financial stability, and their perceived lack of ability to control the pricing cycle, are forcing primary insurers--their clients--to more deeply "inquire into the heart of the insurance relationship" as never before (BestWire, Sept. 15, 2003).
The financial strength of Lloyd's of London is rated A- (Excellent) by A.M. Best Co.
(By David Pilla, senior associate editor, BestWeek: David.Pilla@ambest.com)