Lloyd’s McGovern Works to Expand No. American Business; Part II

October 18, 2010

Sean McGovern now heads Lloyd’s operations in the U.S. and Canada – the first and third largest sources of business for its underwriters. Lloyd’s not only wants to hold on to that business, but also to increase it. “We’re in the process of reorganizing the U.S. market,” McGovern said. “Our first priority is to protect the licenses and the market we have; the second is to promote the Lloyd’s market.”

Making London More Accessible

McGovern explained that around 40 percent of the business currently written in the U.S. originates with managing general agents (MGA’s) and wholesalers. Of that about 55 percent comes from the surplus lines market. Most of the remainder is from reinsurance.

“Market access is on three levels,” he said: “retail, wholesale and through London.” He hopes to improve the ways through which U.S. insurance intermediaries can go about placing their business there. “We want ‘supplementary business’ to go to Lloyd’s.”

To accomplish tthat Lloyd’s has expanded its participation with U.S. based organizations and brokers, attending the larger conferences, especially NAPSLO and the AAMGA meetings, and arranging information sessions with wholesalers and MGA’s.

“We’ve further developed relationships with individual brokers, MGA’s and wholesalers,” McGovern continued. “Our aim is to give them a feeling of what Lloyd’s is like, especially younger brokers.” As part of that program Lloyd’s arranges for interested brokers to spend a week or so in London on Lloyd’s underwriting floor, including observing the brokers and underwriters at work in the individual boxes where coverage is actually underwritten.

Just walking around the underwriting room at Lloyd’s is impressive enough. The entire floor is occupied by underwriters for the syndicates, which are mainly funded and managed by major insurance companies. The signs identifying them are a virtual roll call of the world’s major players. The famous Lutine Bell sits in the center, along with another reminder of Lloyd’s past – an exhibition of memorabilia on Lord Nelson and his victory at Trafalgar, which assured English domination of the seas until the 20th century. “When they go back to the U.S., they remember the experience,” McGovern said. Who wouldn’t?

Office and Regional Expansion

In order to give better service to U.S. and Canadian brokers Lloyd’s is in the process of restructuring how it operates in the two countries. The U.S. is divided by regions. Lloyd’s has long had its headquarters in New York, which is still the center for operations in the eastern U.S. In 2004 it opened an office in Los Angeles, which serves the western region.

In September Lloyd’s formed a central region with an expanded and redesigned office in Chicago, headed by Pat Talley. It is now in the process of forming a fourth region to serve the southeast, concentrating on “Florida, Georgia and Louisiana; we want to speak to the local market,” McGovern explained.

Earlier this year Lloyd’s opened an office in Toronto, headed by Deborah Moor, the president of Lloyd’s Canadian operations. In an interview in Lloyd’s “Market” magazine McGovern noted: “We have had an office in Montreal for some time, but we thought it was important to establish an office in Canada’s commercial center.”

McGovern described the restructuring as designed to provide “more outreach” to local markets, rather than to actually write business. He said Lloyd’s has no plans to expand its presence in the U.S. admitted market, “but we don’t plan on shutting down [the offices we have] either.” Lloyd’s is an admitted carrier in Illinois and Kentucky, but it is also present in the excess and surplus lines market in most other states.

Technical Support and Risk Management

It’s not enough just to tell U.S. brokers about Lloyd’s. New ways have to be found to make access to the London market easier and eventually less expensive. Increasing the use of technology is not only logical, but also produces results. McGovern explained the increasing use of “technical support for underwriters through message exchanges.” The system, which is also slowly being phased in at Lloyd’s in London simplifies the “transmission of data around the market,” he said. “Underwriters have to remain flexible, but that makes it [data] more difficult to deal with.

The risks that Lloyd’s underwrites are by definition complex – if they weren’t, simpler means of writing coverage would probably be employed. This makes transmitting all the necessary data to properly assess a risk a complex task. There are “problems with back office letdowns, which we are working on,” McGovern said. “We are working to implement ACORD data standards, which makes messages easier to deal with.”

He’s also aware that changing a system as old and as entrenched as Lloyd’s isn’t going to be accomplished overnight. “We have lots of capacity, but there’s more work to do [to get more brokers to access that capacity]. We’re taking smaller steps, as, in the long run, it will make it easier [to provide more accessibility].”

In addition to its technical initiatives Lloyd’s is also reaching out to risk management schools across the U.S. in order to inform future risk managers how Lloyd’s works and the advantages it can offer in minimizing risks.

New York’s Insurance Exchange

Asked about New York’s plans to establish (or rather to reestablish) an insurance exchange, McGovern said “Superintendent Wrynn [David Wrynn, New York’s insurance superintendent] doesn’t really see it as competition. It’s more complementary to Lloyd’s.” he added that Lloyd’s actually supports such a system and has worked with people in New York to establish the exchange.

However, McGovern said “we’re not afraid of competition; Lloyd’s is the central hub of the London market. It [a U.S. exchange] could bring more to the market, as long as it’s not irresponsible.”

The working group is due to issue its latest report on the project at the end of October, so more could be known at that time. But McGovern isn’t overly optimistic on the project’s chances for success. “The timing within the industry [i.e. the current soft market cycle] makes it difficult, as more capacity really isn’t needed.”

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