Magazine article Risk Management

What's Happening in the London Market

Magazine article Risk Management

What's Happening in the London Market

Article excerpt

In risk management circles, the words "insurance" and "London" are synonymous, going together like love and marriage. And like most marriages, London has had its problems. But the extent of those problems has been greatly blown out of proportion by the industry. While many think that London has lost its pre-eminence, London is still, in fact, one of the world's top three insurance markets.

Leading the charge for a more professional industry, the London market has realized that concentrating investment on underwriting and marketing to the detriment of claims and service is no longer viable. Consequently, the London market is undergoing a transformation, starting with contract certainty.

While London is essentially a "subscription market," with multiple insurers providing capacity on each separate layer, it does not adequately explain why contract certainty is a bigger issue in London than elsewhere. The London market prides itself in being nimble and responsive to clients' needs. Rather than issuing prescribed wordings, it often provides manuscript policies designed for the specific needs of a prospective insured. But it takes a lot of time and effort to agree on manuscript forms and buyers can become frustrated.

A key source of confusion within contract certainty is who holds responsibility for producing policy wordings. In some cases it is the insurer, while in others it is the broker, who has taken on that role. Prior to the Lloyd's Act of 1986 many of the underwriting agents and brokers shared a common ownership and much of the administration was performed by the brokers. Thus a relationship developed where the brokers often performed services, such as policy issuance, normally associated with the underwriter.

This practice extended beyond Lloyd's to the company market and continued after 1986, in contrast to other markets where very often the "lead" underwriter takes on the responsibility of policy issuance. A recent London Market Survey on contract certainty highlighted the importance of the issue, but when asked who should be responsible, 75% of respondents said both brokers and insurers. The London market still needs clarity and some say the underwriter must take ultimate responsibility, albeit they may subcontract that service to a broker or other third-party vendor. …

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