Insurance Day - LMA chief to tackle contract certainty

Ace European’s Andrew Kendrick has taken on the top role at the Lloyd’s Market Association at a crucial time. He has been tasked with representing the interests of Lloyd’s insurers when dealing with Lloyd’s and the market’s brokers at a time of difficult reforms and competition from Bermuda and continental Europe, writes STUART COLLINS, 15 March 2006

AT the end of January the Lloyd’s Market Association (LMA) appointed head of Ace European Group Andrew Kendrick as its chairman.

Mr Kendrick, who was already deputy chairman of the LMA, answered the call of then chairman Dane Douetil, chief executive of Brit Insurance Holdings, to take on the top slot at the trade body representing Lloyd’s insurers.

Mr Douetil stepped down from the chairman’s position to take on the same post at the Market Reform Group (MRG). He will continue to be a member of the LMA board. Mr Kendrick says he took on the role of LMA chairman out of a sense of duty. "I started my career at Lloyd’s and wanted to give something back," he tells Insurance Day.

Referring to Mr Douetil’s new role at the MRG: "His job is a lot bigger than mine; it’s a truly tough job."

Although Mr Kendrick heads up Bermudian insurance group Ace’s European operations, he has worked for most of his life in the London, and specifically Lloyd’s, market. He started out in 1978 at Sturge Lloyd’s syndicate. He joined Ace Global Markets in 1996 when the Bermudian company purchased Ockham Underwriting Agency, previously known as Sturge Underwriting Agency.

During his term in office Mr Kendrick will concentrate on three main issues:

* Effective liaison for the market with the franchise board

* The continued drive for modernisation of London market processes

* Developing the campaign for transparency of broker remuneration while strengthening relationships with the broking community

Spelling out his priorities, he says: "The immediate challenge is achieving contract certainty. Then I think about trying to inject more transparency within the broking community over disclosure. And to a lesser degree trying to get accounting and settlement in order."

The Lloyd’s market is in the process of reform and introspection. There are a number of reforms under way aimed at improving inefficiency of premium and claims processing in the Lloyd’s market but there is still a lot of work left to do.

STRATEGY DOCUMENT

The Lloyd’s strategy document of January began to address some of the remaining big issues and new chief executive Richard Ward has been tasked with making Lloyd’s an "optimal" platform for trading insurance risk.

As was made clear in comments by chairman of a leading Lloyd’s insurer, Robert Hiscox, on Tuesday, some players in the market are getting impatient at the speed and progress of reform at Lloyd’s. Many companies at Lloyd’s, including Hiscox, have the option of writing business outside the market.

The LMA will be one of the main avenues for communication between Lloyd’s senior management and its participants. "Lloyd’s needs to demonstrate it has a desirable platform where people want to park their capital," Mr Hiscox says.

"It’s been a them-and-us," Mr Kendrick says on the relationship between Lloyd’s and its participating insurers. "There hasn’t been enough accountability at Lloyd’s. We need a better relationship with the franchisor - it has been strained in the past - and we need to be seen as one - franchisor and participants."

Mr Kendrick is looking forward to working with Lloyd’s new chief executive when he starts next month. "I’m a supporter of bringing in people from other industries. They bring a different skill set, discipline and a different view." He adds: "I’ve heard he’s a hard task master and that will drive change."

The LMA is the collective voice for the market but a group of Lloyd’s insurers known as the G6 has taken it upon itself to speed up the pace of reform, examining issues such as standardising data transfer. The G6 has had some bad press of late and has been touted as an unfair attempt by a group of Lloyd’s insurers to push its own market reform agenda.

"There was an unnecessary veil of secrecy surrounding the G6," says Mr Kendrick. "It was one of the first things I wanted to get on the LMA’s table. There’s been a lot of unspoken concern and people did not understand what the G6 represented. I asked the G6 what their agenda was and it is reasonable. They just got frustrated waiting for the entire market to move as one.

"They will share their findings with the market. What I learn from the G6 I will impart back to the LMA board. There’s no sinister ulterior motive at G6."

This sharing has already begun, with the LMA taking on the G6 ideas on developing a wordings database.

COST COMPARISONS

Commenting on the cost of operating in London compared with other markets such as Bermuda, Mr Kendrick says: "One problem is that underwriters give too much brokerage away.

"I believe we can’t afford to pay more brokerage in London. Brokers have been too keen to take advantage of that. We have to address that cost. We have to question why [as insurers] we don’t deal more directly with brokers in the US or, say, France."

The LMA chairman points to the costcutting efforts of Aon, one of the largest London market brokers. Aon is part way through a major restructuring of its London operations, which so far has included outsourcing large parts of its claims management capability, cutting 750 jobs in the UK and a move from its City of London offices to Canary Wharf, where rents are substantially cheaper.

But insurance brokers in general are under pressure to cut costs to make up for falling profit margins and revenues following the end to contingent fees from insurers.

"Brokers are our life blood but they take too much of the cake," Mr Kendrick says. "If they strip out cost they’ll get those margins back."

Last week the LMA and its London market counterpart, the International Underwriting Association, called on the UK regulator to force brokers to disclose their fees.

According to Mr Kendrick broker’s commission is 10% more in the London market than in the rest of the UK, for the same business. "That’s why we’re campaigning for transparency," he says.

On a positive note Mr Kendrick says there is increasing dialogue between insurers and brokers about efficiencies.