The UK’s Exchequer Secretary to the Treasury, Angela Eagle MP, released a 64-page document on Friday, March 7, outlining a series of proposals to modernize the Lloyd’s market. The paper is the first step in a plan to overhaul the Lloyd’s Act of 1982, which currently governs how Lloyd’s functions.
The bulletin noted that the “consultation is part of the Government’s ongoing commitment to support City competitiveness, and follows the Government’s promise last year to bring forward proposals in 2008.”
Eagle stated: “The reforms I am proposing today complement the reforms that Lloyd’s itself has already put in place, and will help it continue to compete in the global insurance market of the 21st century. This consultation is a chance for anyone with an interest in the future of Lloyd’s to influence these proposals, and I welcome comments from all concerned.” The consultation period is set to close on May 30, 2008.
The proposed changes include measures to make it easier to do business at Lloyd’s by opening access to managing general agents by insurance intermediaries. Access is currently restricted to certified Lloyd’s brokers.
Plans also call for streamlining and simplifying Lloyd’s administrative procedures, notably the 18-member Council of Lloyd’s, which regulates and supervises the market. It proposes to recognize that leading executives may be selected from outside of Lloyd’s. Both the current Chairman, Lord Levene, and the current CEO, Richard Ward, have come from outside of Lloyd’s.
The proposals have been made in consultation with Lloyd’s and other insurance and financial entities. If and when adopted, they would take the form of a “Legislative Reform Order,” described as a “Statutory Instrument made under the Legislative and Regulatory Reform Act 2006.” The consultation process and a legal analysis of the effects of any changes are a condition for compliance with the Act.
In her “Executive Summary,” Eagle outlined the changes as follows:
- Relax the rule requiring the Chairman and Deputy Chairmen to be working members, so that these posts may be filled by any member of the Council, provided always that one of the Chairman and Deputy Chairman is a working member;
- remove restrictions on elections to the Council affecting working members, to permit more flexibility and greater alignment with the Combined Code;
- remove the requirement for the Governor of the Bank of England to approve appointments of nominated members of Council, as this duplicates the Financial Services Authority’s approval process;
- remove the provisions relating to the Committee of Lloyd’s;
- modernize and streamline the Council’s delegation powers, while preserving the Council’s existing reserved powers;
- ease restrictions on the composition of Disciplinary Committees;
- remove the restriction that requires managing agents generally to accept business only from a Lloyd’s broker, while retaining the class of “Lloyd’s broker” for brokers that want to bear the title of “Lloyd’s broker”; and
- remove the divestment provisions (which prohibit prescribed associations between Lloyd’s brokers and managing agents), in favor of a new mechanism, consistent with the Financial Services Authority’s regulatory requirements, which will allow the Society to monitor potential conflicts of interest between managing agents and associated brokers, and provide transparency on such associations to members.
The complete text of the proposals may be obtained on the Treasury’s web site at: http://www.hm-treasury.gov.uk/media/0/C/consult_lloydsact070308.pdf. The material in this article and that contained on the web site is the property of the UK government and is protected under Crown copyright. It is cited here under those conditions.
The consultation document emphasized that the proposals relating to the selection of Lloyd’s executives are “very important for Lloyd’s to continue to be able to attract the ‘right person for the job’ for these roles.”
The proposed opening of access to the Lloyd’s market is perhaps of the greatest interest to the global insurance community.
The Consultation proposal specifically recognizes that “Under section 8(3) of the 1982 Act, managing agents are, with limited exceptions, only permitted to do business through a Lloyd’s broker. Lloyd’s operates an admission process for Lloyd’s brokers and Lloyd’s brokers have various rights -including the fact that employees of Lloyd’s brokers are eligible to be working members, and thus participate in the governance of the Society.
However, it also states: “With changes at Lloyd’s and increasing globalization of the wholesale insurance market, there are now several reasons for change.” Specifically, at §1.34, it notes: “Third, as Lloyd’s faces competition from centers like the US, Bermuda and Dublin, it is increasingly important to ensure use of the Lloyd’s platform does not involve additional costs for policyholders. The requirement to use a Lloyd’s intermediary under section 8(3) may obscure where there is extra cost in the placement chain – and conversely, where costs reflect real value added5. A more open regime would help reduce unnecessary financial costs on policyholders, whilst ensuring added value is properly recognized.”
As set forth, the proposals would not do away with the “Lloyd’s broker” designation, but would open up access by “allowing managing agents to deal with any intermediary (whether a “Lloyd’s broker” under the new definition, or another intermediary) or deal directly with insureds.”
The Government also proposes to “amend Schedule 2 of Lloyd’s Act 1982 to confirm expressly that Lloyd’s is able to make bylaws governing the conditions on which underwriting agents may deal with insureds and with intermediaries other than Lloyd’s brokers (where an intermediary is involved). The aim of this would be to allow Lloyd’s to set rules for managing agents to ensure the quality of intermediation was safeguarded.”
A second change would allow brokers to apply to the Council for permission to use the title of “Lloyd’s broker.” This title would carry with it “all the existing rights and obligations that currently attach to the title of Lloyd’s broker, save that being a “Lloyd’s broker” would no longer entail a right to exclusive access to the Lloyd’s market.”
A Lloyd’s spokesperson said: “We welcome the Treasury’s proposals published today. They represent an important package of measures that will help Lloyd’s comply with modern standards of corporate governance and develop our business without the constraints of outdated statutory restrictions.”
Sources: HM Treasury; Lloyd’s – www.lloyds.com
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