Lloyd’s reforms passed despite “names” opposition

A package to reform the 300-year-old Lloyd’s of London insurance market was passed by members, despite opposition by individual names. At a seminar sponsored by Lloyd’s in Toronto just prior to the vote, deputy chair John Coldman called for unity to back the reforms. “We have never regarded standing still as an option. This is clearly a turning point in the 340-year history of Lloyd’s.”

With regards to the new franchise system to be instituted in the market, he says that a number of poor performers have dragged the market down in the past, and the new system is designed to raise standards and catch poor performers early and eject them if necessary. He adds that greater transparency is needed, hence provisions relating to annualized financial reporting, rather than the previous three-year reporting structure. “Any business in the 21st century needs to offer more than mystique.”

Groups representing individual investors, or names, had called upon members to reject the reforms, although the move was largely symbolic as names do not have the voting power to veto the package. Although there was no opposition to the franchise system, there was concern about potential changes to the Lloyd’s Act that could reduce the standing of names versus that of corporate investors. To change the act, a one member-one vote system is used, rather than the weighted system used in the most recent vote, so names would have the voting power to veto such changes.

The Toronto seminar also focused on issues impacting the Canadian insurance industry including rising class action and bad faith claims. Lawyer Graeme Mew of Gowlings also pointed to recent court decisions which could put an onus on insurers to reveal legal opinions sought in bad faith claims, which he says will encourage insureds to “throw in” bad faith suits to force insurers to produce heretofore privileged communications.

In the troubled Canadian market, where insurers lost both “crutches” of easy reinsurance and investment returns, the picture is bleak, says Joel Baker of A.M. Best. While there is “robust growth” in commercial lines, industry fragmentation “does not provide sustainable [price] discipline in the market” across lines of business. Between 1998 and 2001, only 15% of the business in the market was written profitably, and auto insurance has been the “bane of the Canadian industry”, with a loss ratio of 94% by mid-2002. Mew says he is not holding his breath that current auto legislation changes in Ontario will do more than “tinker with what is essentially a bad system”.

Amidst questions of Lloyd’s commitment to Canada, Chris Cudgeon of Lloyd’s broker First City Partnership admits, “certain underwriters in London have a jaundiced view of Canadian business”, and the issue for brokers is to get Canadian risks to “the top of the pile” by emphasizing the good risk environment here. With U.S. rate increases outpacing those in Canada, this may not be an easy sell, some speakers note. Lloyd’s will be looking largely to “specialty” personal lines and commercial business in Canada, says Coldman.