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The trouble with Lloyd’s
I was recently asked to participate in a survey to work out how best to reform Lloyds of London. It is a pertinent issue for readers because our professional advisers rely largely on Lloyds for their professional indemnity cover. If PI costs keep creeping up, the end result is an increase in fees we have to pay.
The survey made a big play about IT and I’m sure that making this efficient by keeping up with technological advances, will play a part in keeping costs down. Yet I don’t think the cost of “distributing” products is the root cause of the increases. It is more to do with a failure to adhere to the rules or basic underwriting principles.
Why is Lloyd’s so important?
As well as being a hub that is the envy of the world, Lloyd’s, and insurance in general, keeps the world going round – as we know it. Insurance companies also use Lloyd’s to lay off some of the risk they are carrying.
It is vital that it is well run. Like the Bank of England. It’s integral in our economy. So perhaps that is why it is taken for granted. It’s always there. Come what may, insurance is being arranged every day.
Why do they need to reform?
The public perception of Lloyd’s is of a “boozy” old boys network that lacks diversity. There is work to be done. As is the case everywhere. Yet the reforms are already underway. Inga Beale started off with a booze ban and it got a mixed response, despite being absolutely correct. Inga’s successor is concentrating on IT.
After being treated to a discussion at the British Insurance Brokers conference, about mental health awareness I know that things are improving. Diversity starts with awareness and I can see the message sinking in.
There are other cultural reforms that are necessary, especially those that mirror the banks. The most concerning has been the failure to price risk correctly. Sound familiar? The banks did that and it lead to the crash. We have short memories. Underwriters have been doing this as a matter of course. Instead of working out rates, they ask “what price do you need?”.
What’s so bad about being able to cut premiums?
It’s not sustainable.
Naturally, those that do this constantly go bust first. Yet some don’t go bust. They simply lose their backing which means another insurer has to step in. This has happened more in the last 12 months than I can remember. Yes, there have been sectors that suffered from a sudden lack of insurance in the past. However, this time it is across the board. From professional indemnity to home insurance. The practice of setting team sales targets instead of trying to generate a profit has become the norm.
It wasn’t always this way and it must be stopped. Or the trains might. At best, your rates might go up when another company’s insurer unravels. At worst, big things don’t happen if they’re not insured.