Lloyd’s, the private insurance market, proposed a radical overhaul of some of its business practices on Monday in an effort to tackle increasing competition from rival insurance centres such as Bermuda.
Lloyd’s set out a three-year strategic blueprint, saying it would review some of the ways it has historically conducted business as some of its biggest insurers look to set up operations in lower cost markets which offer a lighter regulatory touch.
Lord Levene of Portsoken, the market’s chairman, said: “Lloyd’s has made significant progress in recent years but we operate in a fiercely competitive environment and cannot afford to stand still.”
Lloyd’s also revealed that it aims to open a representative office in India this year.
Julian James, director of worldwide markets at Lloyd’s, admitted last year that the insurance market faced growing competition from other centres. Two of the biggest insurers in the Lloyd’s market, Hiscox and Amlin, recently established businesses in Bermuda.
Lloyd’s is also grappling with £2.9bn of claims from last year’s record hurricane season and is searching for a new chief executive after Nick Prettejohn joined Prudential, the life assurer.
The strategic blueprint – called “Building the Optimal Platform” and sent to the chief executives of Lloyd’s businesses yesterday – sets out objectives the market must deliver by 2008.
Lloyd’s will also examine the way it has traditionally brought fresh capital into the market each year on an annual timetable, broadly known as the “annual venture”.
In addition, it will review how businesses around the world are able to gain access to Lloyd’s policies.
One of the blueprint’s objectives is that the amount of capital each Lloyd’s insurer is required to hold, and the policies they can underwrite, should reflect each business’s track record.
Better performing Lloyd’s insurers would potentially be required to hold less capital. This would replace the current blanket approach to capital requirements.
Lloyd’s will also examine whether this could be extended to the annual contributions its insurers make to the market’s Central Fund – the ultimate safety net to meet liabilities. Better businesses could potentially contribute less.
The document also calls for greater efficiency in the day-to-day workings of the Lloyd’s market, so that the cost of doing business there is “comparable” with other insurance centres.
Lloyd’s should also develop clear performance standards for its insurers, so that all businesses are aware of the minimum standards of operating in the Lloyd’s market, and the penalties for failing to meet them.
The blueprint also aims to improve access to Lloyd’s policies, and ensure that Lloyd’s is represented in the most important insurance markets.