Hank Watkins, president of Lloyd’s America Inc., smiles like he has a big secret he wants to spill.
The history of Lloyd’s of London is no secret: originated in Edward Lloyd’s coffee shop in London; underwriter of exotic risks including the World Cup and celebrities’ body parts; and survivor of a near-death experience in late 1980s and early 1990s over asbestos liabilities to cite just a few highlights of its more than 300 years.
“We advanced over the years from just writing ships that would go off to sea, to writing just about everything under the sun, except for life insurance. We’ll write satellite launches, oil rigs. We write all types of construction projects, bridges, tunnels. We also write Troy Polamalu’s hair – we insure that for Proctor & Gamble and Head & Shoulders,” Watkins says.
That’s a history worth smiling about but it’s not all that the U.S.-based executive for Lloyd’s wants to talk about. In fact, he’d like to move the discussion of Lloyd’s beyond that history, beyond the mystique of the sexy risks that make headlines to how the Lloyd’s of 2011 is just as eager to take on “bread and butter” specialty risks for U.S. agents and brokers.
“We want to be known in this marketplace as a reliable alternative to the U.S. market,” he told Insurance Journal.
As president of Lloyd’s America – a post he assumed in August 2009 – Watkins is responsible for Lloyd’s operations in the United States. He has worked in the insurance industry for 30 years, holding positions in the United States and Europe at insurers and brokers, including Chubb, Barney & Barney, Johnson & Higgins, Hilb Rogal & Hobbs, and Marsh.
The United States is by far the largest market for Lloyd’s. Lloyd’s writes about $13 billion in premium in the United States, which is about 40 percent of its worldwide premium.
But as has been the case for most surplus lines writers, business at Lloyd’s has been shrinking. Overall exposures have decreased due to economic conditions and opportunistic standard insurers have been grabbing some of what the surplus market would typically get if the market were not so soft. Electronic insurance exchanges have also been eating away at some surplus lines business. So Lloyd’s like other surplus lines writers is looking to regain some of what has been lost.
“We’re not looking… to grow just for the sake of growing… We want to maintain where we are. And if there are opportunities in new areas – cyber risk, any other emerging risk that we can grab a market share – we’re going to do it. But we’re not electing just to grow across the board for the sake of growing.”
The Lloyd’s brand is well-known around the world; brand recognition is not the problem, according to Watkins. Instead, the mystery, or the big “secret,” is why more U.S. brokers don’t use Lloyd’s as a market for more risks.
“We’re the best known, least understood brand in insurance. Everybody’s heard of us, but I challenge you to find a whole lot of people out there who can really articulate why they should put their clients with us, on anything but the more creative, challenging types of exposures,” he says.
To solve this mystery, Lloyd’s must do a better job of communicating with wholesale brokers and retail agents, in the view of the U.S. executive. Watkins recognizes that, especially in today’s soft market, it will take some work to get the attention of U.S. wholesalers and retailers who have established relationships with one another and who may harbor preconceived ideas of Lloyd’s.
“It’s, in my opinion, purely a matter of a retail agent sitting there and having so many options right now, not only in the standard market but also in the surplus lines market, that unless it’s a really unique risk that only Lloyd’s underwriters will take a peek at, they tend not to think about us,” he says.
He’d like to convince these U.S. agents and brokers to take a broader view of Lloyd’s.
“If you have a really wild risk or you have an oil rig, take it to Lloyd’s because they love it. And we love that, but think about us for a lot of the other things, too,” he says. “We’re not just a catastrophe marketplace for earthquake and flood or wind. Pick the peril – we do a lot of the ‘bread and butter’ E&S business. We just want to do more of it.”
The largest brokers – Marsh, Aon, Willis and others in the top 10 – handle some of the biggest and most complex accounts in the world and Lloyd’s gets its share of this business. About half of Lloyd’s global business is from the largest brokers.
Where Lloyd’s sees opportunity and where Watkins is targeting his message, is with U.S. mid-sized agencies, many of which qualify for the Insurance Journal Top 100 list.
“Specifically in the middle market tranche of brokers, we see that as our biggest opportunity. By that I mean, however you want to define middle market, it’s generally speaking those brokers that are not in the top 10; they’re probably the top 90,” Watkins says.
Beyond the mystique that Lloyd’s is only interested in the quirkiest business, Watkins faces several other obstacles in his mission to raise the comfort level of U.S. brokers with Lloyd’s. For one, he thinks there may be some lingering doubts about the financial condition of Lloyd’s due to the troubles it experienced 20 years ago.
“A lot of clients will want to know, specifically, what’s the financial security of Lloyd’s? What’s backing this up? And a lot of clients remember back in the late ’80s that Lloyd’s was almost gone. So unless they have kept up with it they might have this perspective on Lloyd’s that isn’t correct,” he says.
“In the late ’80s, early ’90s, we were a pariah. The world was against Lloyd’s and we were almost out of business. A lot of that was because liabilities were written – asbestos, primarily, and environmental – by underwriters who didn’t understand them. Nobody did. So if you have someone who was in the business in the late ’80s, early ’90s, they remember that. They’ve got to be reeducated and realize that now we’re solid.”
Watkins calls that period a “tragedy,” but one that won’t happen again for many reasons, including the fact that Lloyd’s no longer accepts pledges of personal assets. The capital at Lloyd’s is now 36 percent from corporate members, 51 percent from the international insurance industry, and 13 percent from individual members.
Lloyd’s is not a traditional insurance company with one set of financials. Rather it is a market where underwriters for 85 syndicates of members decide what risks to insure and on what terms.
While U.S. agents may not all be familiar with the financial structure of Lloyd’s, Watkins hopes they might take comfort in knowing that some major, A-rated, U.S. insurance companies have syndicates at Lloyd’s, including ACE, Travelers, Chubb, Chartis and Liberty Mutual. Lloyd’s itself also has ratings from key agencies: A+ with Standard & Poor’s and Fitch and A from A.M. Best.
Another, and perhaps the biggest, obstacle Watkins is dealing with is the perception that Lloyd’s is hard to access compared to other surplus lines markets. But Watkins says the process should be familiar to retailers.
“You [retail agent] go to a wholesaler. I don’t want to specifically name any one over the other, but you go to any number of the wholesalers out there. Or you go to what’s called a ‘coverholder’ – that’s a managing general agent. There are about a thousand of those in the U.S., about 2,500 worldwide, that have Lloyds’ planning authorities. So if you’re a retailer and you need a property placement, you go to XYZ MGA and they’ll have two or three Lloyd’s slips that they can choose from that best fits your risk.”
About 30 percent of Lloyd’s business written in the United States originates with MGAs, or coverholders.
Watkins worries that many agents believe it takes a long time to get a response from Lloyd’s because the underwriters are far away in London in that famous underwriting room. “Whatever they do over there, they roam around the floor, they get a quote, they come back with it,” he half-jokes, contrasting this perception with the way other markets are perceived to work. “This guy down the street is coming in tomorrow morning to talk to us about it. I’m just going to do it. It’s just a lot easier. That’s part of it, just distance, out of sight, out of mind.”
But Watkins insists Lloyd’s is not complicated to begin with, and the electronic age continues to speed up and simplify transactions. “If it’s complicated to get there, let us come talk to you, because it really isn’t that much more challenging. Especially now in this electronic age, we’ve done a lot to make claims payment easier, to make transactions between our cover holders and us easier.”
Lloyd’s promises to put its real live underwriters and lots of experience to work for U.S. agents and brokers.
“One of the things I have to tell people about Lloyd’s is that we have 85 syndicates and those underwriters see risks from all over the world every single day. They see more than any other U.S. based underwriter is going to see in a month,” says Watkins.
Lloyd’s has also not made the inroads it would like in the middle market brokerage field because it has not had much of a marketing footprint in the United States.
“We don’t walk the halls every day of these brokers like our competitors do,” he told Insurance Journal. “You walk into a wholesaler and they’ll have all their plaques on the walls of all the carriers that are our competitors. That says it all.”
That U.S. footprint, however, is evolving. In addition to Watkins in New York, and long-time offices in Illinois, Kentucky and the U.S. Virgin Islands, Lloyd’s now has marketing representatives in Atlanta and Los Angeles as well.
Lloyd’s is strengthening its relations with industry associations, including the American Association of Managing General Agents and the National Association of Professional Surplus Lines Offices. Lloyd’s America is also engaged with the School of Risk Management at St. John’s University, New York and the Katie School of Insurance at Illinois State University.
Watkins may wish to move the discussion beyond the 300-year history of Lloyd’s, but he doesn’t want people to forget history completely. He notes that the 1906 San Francisco earthquake was its “steppingoff point ” in the U.S. for a massive claim situation. Lloyd’s was also the biggest insurer of 9/11 and one of the largest on Katrina.
“So we’ve been here for people,” he says, with a smile.
Lloyd’s Top 10 States
- New York
- New Jersey
- South Carolina
- North Carolina