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LONDON MARKET: LLOYD'S
A ticket to trade
Brokers expecting instant results after Lloyd's opened its doors to broker accreditation in 2001 have been disappointed. Ana Paula Nacif finds out the reasons and pinpoints areas where processes could be improved.
Since Lloyd's opened its doors to broker accreditation in 2001, promising less bureaucratic access to the market, 63 firms have celebrated their successful applications. However, those that thought accreditation and direct access would be a magic wand, able to make their business dreams come true, have experienced some disappointment.
The Lloyd's market is not for the faint-hearted and, although accreditation can help, it does not necessarily make trading in the market less complicated.
Knowledge of, and a daily present in, the market are essential for developing a successful business as a Lloyd's broker - both can be particularly difficult for newcomers or regional brokers trying to expand their ventures.
Entry ticket
"I am not sure how many people applying for provisional accreditation
realise that accreditation is just an entry ticket and they will have to engage
on a potentially longer process with the syndicates," explains Alec Finch,
chairman and managing director at Manchester-based broker Alec Finch.
Richard Wise, managing director of Alec Finch's London business, adds: "After provisional accreditation, you still have to have Terms of Business Agreements with each individual syndicate." And, although he believes negotiating Tobas is not a major problem, he points out that having a personal standing in the market makes all the difference.
"Being in Lloyd's for more than 30 years has certainly facilitated obtaining Tobas," he explains. "If you don't know who you are dealing with, it can be a problem. And, if you are not London-based, it may be harder for you to get Tobas with underwriters based in London."
Brokers say that a little help from Lloyd's and its syndicates would not go amiss. "Lloyd's could make our lives easier, even finding out the basics such as telephone numbers and names can be difficult," says H Allan Thew, managing director at Leeds-based W Denis Insurance Brokers. "Syndicates tend to go towards traditional brokers, not the newly accredited brokers that can find the market terribly confusing. For brokers considering accreditation, I would tell them not to expect it will be panacea and that the market will go to them - they have to go to the market."
Kevin Young, chairman and managing director at Argyll Insurance Brokers, says that having a different Toba for each syndicate can prove to be quite difficult and time-consuming. "It would be a lot better if we had a system set up by which we could have one Toba that allowed us to do business with all syndicates."
Toba or not Toba
Some brokers also believe Lloyd's agents should be more reasonable with their
Tobas. "Some managing agents have peculiar ideas of what they should
demand and some people get themselves accredited and resent it, realising
it was a waste of time, an act of vanity that achieved nothing in terms of
better access to business and earnings," says Roger Bramble, chairman
at BDB.
To help facilitate the transaction of business, the Lloyd's Market Association has been in discussions with the London Market Brokers' Committee to draft a model Toba that syndicates could choose to use to simplify their business with brokers.
"We are trying to come up with a model designed to be suitable for everyone. A few years ago we negotiated a model Toba, which is now out of date," explains Simon Sperryn, chief executive at LMA. "We want the new Toba to be fully compliant with the Financial Services Authority's regulations and good business practices."
Before brokers get too excited about the prospect of having a single Toba for the whole of the market, Mr Sperryn warns: "It is not up to us to create an agreement that everyone has to use - this is a matter for brokers and syndicates to negotiate for themselves but I'm sure it will be of great help to brokers and managing agencies. And, if we do a good a job, they will hopefully want to use it."
Although having a presence in the market and good relationships with syndicates are paramount, business will undoubtedly suffer if the insurance market is not as healthy as expected. And some brokers have pointed out that when the accreditation scheme was launched in 2001, the gloomy market meant that it has taken years for them to start benefiting from accreditation.
Mr Young explains that the biggest challenge Argyll had to overcome in 2001 was low capacity and the consequent resistance from Lloyd's underwriters to provide business to new brokers. "The benefits after accreditation should have been better. Lloyd's opened its doors because it wanted to bring more brokers into the fold, but on the other side there was a negative attitude from agents that did not want to write new business - it was disappointing. Things will improve now that capacity is less of a problem. The London market is a good place to be and we hope 2005 will be a better year."
As the market changes, so does the attitude. "Lloyd's underwriters have started to become a little less arrogant than they used to be," says Mr Thew. "I am not sure if this is the result of how soft or hard the market is at the moment but these guys are going out of their way to attract business. Some syndicates are getting their act together now that the likes of Royal and Sun Alliance and Axa are starting to be able to offer reasonable levels of service."
And, by the very nature of the market, brokers need to ensure their market intelligence is both deep and up to date in order to be able to respond quickly and effectively.
"Brokers must be prepared to adapt. The market is so volatile from one year to the next, even though there is a three to five-year cycle. You have to be on your toes all the time, which is why you need market intelligence everyday of the week," Mr Wise points out.
If the expectations of newly or recently accredited brokers are yet to be fulfilled, some argue that the Lloyd's opening was never intended to woo more brokers, regional or otherwise, into the market. "The accreditation system was designed to allow subsidiaries of global businesses to place business directly into Lloyd's, not to allow new brokers into the market," claims Andrew Holman, chief executive at Holman's.
Some of those who managed to break through have reaped the benefits, however. According to Michael Collins, chief operating officer at the Broker Network - the only accredited UK network in the market - its members are now in a much better position to place business. "We wanted to minimise the cost of fixing distribution channels. If you go indirectly via a Lloyd's broker, you are of many people; whereas, as an accredited network, we only place business on behalf of our members. We also wanted to establish a relationship so that when the shortage of capacity comes back we are ahead."
Provincial approach
Similarly, W Denis Insurance Brokers reports that business has increased "substantially"
since accreditation. "Because Lloyd's syndicates have always preferred
to deal directly with insurance brokers, we found greater enthusiasm to trade
with us now than in the past," explains Mr Thew. "We also found
that a good number of smaller provincial brokers approached us to place business
on their behalf in a wholesale capacity - they would not have approached us
otherwise."
He adds that being accredited has reinforced the business' reputation and aided the recruitment of staff members. "We are a major provincial broker and had strong connections with many companies outside London. However, to achieve our objectives we felt we had to cultivate business in Lloyd's and the London market in addition to our strong presence in the provinces. We felt that, for London to take us seriously, we had to become accredited."
Experts say regional brokers that do not want to become fully-fledged Lloyd's brokers are not necessarily losing out. "Current channels are very effective. The wholesale market is a vibrant market and there are a lot of good brokers in London," says Mr Wise.
Mr Bramble argues that existing channels can also give brokers more flexibility. "They sacrifice some of their commission but they do have the option to chose another intermediary if the service is not good enough. Going through existing Lloyd's brokers can have many advantages."
Mr Holman emphasises that regional brokers should concentrate on generating business rather than trying to work out the Lloyd's market. "We are good at placing business and getting the best rates and terms. Brokers are better off leaving that to a specialist and concentrating on what they are good at, getting business from clients."
Multiple choice
Lloyd's currently has 167 accredited brokers, compared to 112 in 2001. Of
those, 21 have their head offices overseas and only eight are regional brokers.
Lloyd's insists that interest from UK and foreign brokers has not waned. "There
has been a steady interest since the programme began three years ago,"
says a spokeswoman. "Lloyd's is committed, through the accreditation
programme, to giving brokers choice in how they access the market, and in
having transparent rules in place for how brokers can do this."
John Needham, manager at accountant firm Littlejohn Frazier, says that if the market continues to improve, brokers will be more likely to opt for accreditation. "As Lloyd's is perceived as a stronger and, therefore, more attractive market - indicated by the recent £500m of new capital raised for the Lloyd's central fund - we may see an upturn in the number of brokers seeking accreditation."
Perhaps simplified systems and tangible benefits could attract even more brokers. And Lloyd's is keen to get its electronic system up to scratch. "We are currently focusing on improving business processes, electronic accounting and settlement, and implementing Kinnect, which would impact the way business is done across the market, moving toward a more efficient system of electronic processes," explains the Lloyd's spokeswoman. "Successful implementation would allow overseas brokers to do business with the Lloyd's market electronically."
Brokers themselves are adamant that the market is still all about networking and face-to-face negotiating. "You need immediate access to the room. Nick Prettejohn's idea to do everything online has a long way to go yet. When you are negotiating, you simply cannot do it by e-mail," says Mr Bramble.
Mr Finch agrees: "You need to develop a personal relationship with underwriters
and it's difficult to trade successfully without being face to face with them.
To do your job fully, you need to be in the room everyday."
Post Magazine 11th November 2004
