In a speech to the Insurance Institute of London yesterday, Jan. 25, Alex Letts, the Chief Executive of RI3K Ltd. – the London-based provider of platform technology infrastructure for the reinsurance industry, analyzed problems facing the London Market and maintained that it needs to change in order to survive.
“Times change, needs shift, competitors appear and it’s no great surprise therefore that no brand or market is everlasting, ” he began. “The subscription market [particularly Lloyd’s] has evolved gradually over the past 300 years, but the product itself has not radically changed. It is well documented that London is looking increasingly outdated both in terms of its cost -base and service. To add to the pain, regulators and legislators are making the subscription market increasingly unwieldy.”
Letts then reminded his listeners that his experience – as opposed to theirs – is in marketing, rather than insurance, finance or technology, although he knows a great deal about all three. He maintained that his differing perspective gives him a fresh viewpoint.
“People often get confused by this term ‘marketing,'” Letts noted. “It means nothing more than looking at it from a standpoint of what the customers get, and how this is differentiated and relevant to them.”
He acknowledged the strength of the Lloyd’s brand name, indicating it was “a dangerous game to bet against the London Market, not least when it has such a strong brand in Lloyd’s powering it along.”
While acknowledging the Market’s strengths, however, Letts also pointed to what he indicated were some worrying signs, beginning with the increasing importance of Bermuda as an insurance center. “Here’s a case where an upstart brand, in this instance, Bermuda, is creaming reinsurance market share from London,” he said. “The situation is so bad for London that some of the premier players [Amlin, Hiscox, Beazley, etc.] from London itself are beginning to hedge their bets by entering the Bermuda market as well.”
One of the slides he presented put it this way: “Now let’s look at the recent share of new capital entering the reinsurance market. When I first created this slide, I thought, ‘surely some mistake.’ But according to the published stats, the numbers are correct: 10 to 1 in favor of Bermuda over London ($7.2 billion, vs. $750 million) says it all.”
It doesn’t actually ay it all, as Letts then discussed “other significant marketing problems that need to be addressed.” From a marketing standpoint London is no longer unique. “I’m not the person to tell you about your product,” he continued, “but your customers and producers tell me that relevant differentiation between London product and elsewhere is increasingly hard to find. You’d better have strong and compelling evidence that London is better if you want to sustain the premium cost of doing business here.”
Letts summed up the list of deficiencies. “Here you have an aging market, whose basic offering is old. It is more expensive than its nearest competitor. Its product differentiation is seen to be tenuous, its people no better, and its service simply worse. With this set of attributes, any marketer would tell you that maintaining market share is impossible,” he said.
Unless such problems are solved, they will inevitably have a negative effect on any brand, even one as strong as Lloyd’s, which is arguably one of the oldest, if not the oldest in the world, he argued.
“As a marketer, I can tell you: no brand is bullet-proof,” Letts continued. “A brand has relevance to buyers, but only at the right price, or the right service level. No brand in the history of the world has ever been strong enough to be bought regardless of the customer value equation.”
Letts discussed the “life cycle” of brand names, which he observed grow, age and eventually die with predictable certainty. His question is whether the Lloyd’s, and indeed the entire “London Market” brand, is declining to the extent that it passes the point where it could be resuscitated and eventually disappears.
While the U.K.’s Financial Services Authority (FSA) is addressing the problems it has with the U.K.’s insurance industry, he said that the impression left is that it might produce a case of “the operation was a success, but the patient died.”
Letts cited David Strachan, the FSA’s insurance regulation head’s speech delivered to the same institution two weeks ago (See IJ Website Jan. 11). Strachan warned that problems involving broker commission drawdowns, operational and other risk charges for insurers, and amendments to the conduct of business rules are “in the armory being prepared to penalize the industry if it fails to meet the contract certainty challenges it has set itself!”
Letts indicated that “this could tip the cost of doing business off the scale when it gets reflected in the pricing. As Bronek Masejada [Chief Executive of Hiscox] put it, on the contract certainty issue the market faces ‘a choice between Heaven and Hell.’ I couldn’t help thinking that by ‘Hell’ he seemed to imply that 2006 might well be the last Hurrah for London’s subscription market. My own view is that if you think that Hiscox set up in Bermuda opportunistically and solely to take advantage of the hardening cat market, then I’d suggest you think again.”
Letts’ analysis of the London market’s problems isn’t totally negative. “From a marketing viewpoint, Lloyd’s potentially has it all,” he continued. “But it has ‘rubbish plumbing.’ In fact the drains round here are so bad that customers can’t bear the stink. Even some of your long-term residents are moving out or preparing alternative accommodation. Rotting sewage in the form of ancient processing is backing up in open drains has got to go.”
His solution? “We have to move to modern, streamlined processes and processing that is relevant to a world that has moved on from the Guilds and Lloyd’s coffee shop days. If you don’t get an electronic marketplace soon, London will become irrelevant. Grow the physical market, but the world has to see that it has moved on to underpin itself with the ability to move the contracts, records and processing data electronically. Technically this is easier than people would have you think.”
Letts ended his speech with a warning and an expression of hope. “The statistics do not lie. Nor are they being bent out of shape. I will never pretend to be an insurance expert, but as a lifelong marketer I am telling you this. Unless you fix the product, the brand is going to carry on losing market share. If Lloyd’s goes wrong, then London will simply become a small domestic battleground, the rump of a global center of commerce that has long lost its relevance. In short, the marketing science says that if you don’t fix the product now, 2006 is the Last Hurrah for the London subscription market.
“I’ll leave you with one final thought. At the heart of the subscription market is one of the marketing world’s astonishing, powerhouse brands. The brand is so strong that it will turbo charge your business overnight if you fix the product. The 3 Year Strategy Plan shows that there is clear thinking for how to go forward, so if you fix the product the subscription market can go from strength to strength. London could perhaps dominate the global market again. But only you can fix it.
“Your time starts now. It seems you have 340 days to go.”
Was this article valuable?
Here are more articles you may enjoy.