David Gittings is Chief Executive of the Lloyd’s Market Association (LMA), the association that represents underwriting companies in the London‑ based insurance and reinsurance market. He is therefore a key player in the latest market‑wide effort to rise to some critical challenges identified.
What is your background? How did you come to be in charge of the LMA?
I went to London University and hold an honours degree in Law. My early career was spent in the London Stock Exchange where I contributed towards the modernisation of the market that resulted in ‘Big Bang’ in 1986, the de‑ regulation of the London financial market. I was Director of Regulation at Lloyd’s from 1995 to 2002 where we developed and implemented a regulatory regime at Lloyd’s fit for FSA [the UK financial regulator] purposes ahead of the changeover to statutory regulation at the end of 2001.
In 2002 I joined Wellington Underwriting plc, where I was a member of the group’s Executive Committee and a Director of Wellington Underwriting Agencies Ltd. I became Chief Executive of the Lloyd’s Market Association in December 2006.
How have you found the role since you took it on 8 years ago?
It has been a great experience. We have a great team of people and a huge level of market support that is clearly critical to make real progress in a market such as Lloyd’s.
Some brokers and risk managers often mention that they would like to use Lloyd’s more but feel that it is sometimes a difficult market to understand and access. Is something that has been a concern for you and that the LMA is working on as part of the overall reform process?
It is interesting to hear that risk managers would like to place more business at Lloyd’s and obviously positive.
The Boston Consulting report (see box "London Matters”) suggested that some risk managers are finding it more difficult to justify placing business in London and they increasingly prefer to buy their coverage in local markets. There is also a perception that Lloyd’s is not the easiest place to do business with. This was the real value of the Boston Consulting report. It provided hard evidence for a number of assumptions that we in the market had made. For example we felt that Lloyd’s was writing less business in emerging markets and that we were losing share in reinsurance but there were no numbers to support that.
What were the main challenges that were raised by the Boston Consulting report?
One of the key areas that we looked at was based upon comments made by CEOs of the leading broking firms who said that they were no longer placing as much business in London as they had in the past. They said that overseas markets tend to be more efficient. The report also backed this up by showing that the expense of placing business into London is up to 9% higher than other markets. Again the report provided a hard number to prove an assumption. The cost of regulation and policy processing is higher in London. Another key area that was identified was that, while London has a long‑held reputation for innovation and being prepared to consider risks that other markets will not look at, the fact is that the market does not have a strong or leading position in key emerging risks, or at least the perception is that it does not.
So what are you doing about this? What can the LMA, as a market association, do to help fix these problems and reform the market so that it is an easier and more efficient place to do business with?
One of the first things that we decided that we needed to tackle was this perception problem. We needed to work out how to put London back on the map as a centre of excellence in the international insurance market. We decided that we needed a kite mark of excellence for London. Wall Street is known for banking, Bordeaux for wine, Switzerland for watches.
So we decided that we needed to find a way to have a kite mark for insurance business placed in the London market. A marketing response is needed.
What about the placement process itself? Can you come up with a market response to make it easier and cheaper to do business with London?
Yes, this is critical. There have been a lot of initiatives over the years to try and achieve this but they have been quite fragmented and did not really have the vision of seeking to make the process of doing business with London for brokers and customers more seamless.
This means that brokers and risk managers need to be confident that the system will work efficiently and in a transparent way from the moment the business is placed right through to the end, when the claims are paid. This requires a concentrated agenda and consistent commitment.
That is like a laudable goal that would really help London make itself easier to use for international brokers and risk managers. But how are you actually going to make this happen?
The markets main representative bodies – the LMA on behalf of the Lloyd’s underwriting market, the International Underwriting Association (IUA), on behalf of the non‑ Lloyd’s London insurance market, and the brokers, as represented by the London International Insurance Brokers Association (LIIBA), are all members of the London Market Group (LMG). This body was created to push forward the market’s modernisation process and help ensure that all the parties co‑operate where it works to the benefit of all. I am a board member of LMG along with Inga Beale, CEO of Lloyd’s, David Matcham CEO of the IUA and other leading market figures. In 2013, the London Market Group’s (LMG) Future Process review concluded, amongst other things, that access to the market for brokers and risk managers needed to be improved and it was decided to deliver a central placing platform.
The idea was that this platform would support a flexible negotiation process, facilitate easier access to the market and offer faster placement for the benefit of the client. The platform would support both traditional face‑to‑face negotiations and purely electronic placements or a combination of both. The market associations agreed that such a solution would be best delivered via a market utility.
The idea was that this platform would support a flexible negotiation process, facilitate easier access to the market and offer faster placement for the benefit of the client. The platform would support both traditional face‑to‑face negotiations and purely electronic placements or a combination of both. The market associations agreed that such a solution would be best delivered via a market utility.
It was key to win the support of the leading brokers and insurers for such an effort and when this was secured we created Placing Platform Limited (PPL). PPL’s job was to establish a market level relationship with a software provider for the provision, governance and management of this platform.
There are a number of benefits to this approach.
These include:
•Enhanced client service through transparency of process, reduced turnaround times and lower error rates;
•Simplified access to the market for brokers and carriers;
•The creation of a single point of storage of the core placement information and audit trail;
•Operational efficiencies through reduced rework and rekeying;
•The avoidance of a fragmented approach when dealing with multiple solutions with differing levels of capability.
Why was it necessary to create a new company – PPL – to take this forward? And what happens next? How quickly can brokers expect to find London an easier place with which to do business?
The creation of PPL was critical to ensure a coordinated cross‑market approach to the development of electronic support for placement that actually meets the needs of the market.
It will accelerate take up in the market by working together as a whole and simplifies the contracting process by providing a single contracting body and a transparent pricing mechanism for market participants.
No‑one pretends that the job is done because this is a very detailed and complex task that involves a lot of different parties. But I am more confident than ever that this will come to fruition. There is still a lot of paper in the system and this needs to be cut out. We will be rolling out the system over the next two years.
The Boston Consulting Group report identified one of the key challenges facing the market as the rise of securitisation as an alternative to traditional reinsurance. But the report also concluded that this actually provides an opportunity if London can establish itself as a home for such vehicles. What should the market do to rise to this challenge?
The UK government announced plans in its last budget to investigate whether it should help promote the growth of an Insurance Linked Securities (ILS) market in London. Tax and the regulatory environment are an important area of reform and one in which we felt the government could really make a contribution, to help make London a market for ILS. This is a fast‑growing international market and one that, in some senses, is in competition with the London reinsurance market.
We recommended the creation of a working group to look into how this would benefit London. We gathered a team of experts to investigate and understand this market better and its potential and the findings have been very positive. The group is now in dialogue with HMT, the UK treasury department, to take this forward and recently held their first meeting.
What about people and talent? This remains a people dominated market and brokers and risk managers regularly tell that they need more dedicated and consistent key contacts within insurers to help them properly manage and transfer their risk. Is this part of your strategy too?
It is a very important element of the strategy. Lloyd’s Vision 2025, the strategy document published in April of this year, said that Lloyd’s needs to attract the best talent and provide an accelerated career path for the progression of high achievers. It said that Lloyd’s will be a "diverse and inclusive” market and its people will increasingly mirror the geographic origin of the market’s business and capital. We all pride ourselves on being able to attract and hire the best talent and the London market, just as the wider international insurance market, has made great progress in this area in recent times. But the trouble is that we tend to still hire the "pale, male and stale” talent that is historically recruited from the leading UK universities, the so‑called Russell Group. There is nothing wrong with that but there is a huge pool of talent out there in the wider world and we need to build a pool that more accurately reflects our increasingly diverse customer base. We are again looking to have a coherent strategy on this important area.
What about the falling levels of business that London attracts from emerging markets? How do you reach out to these emerging markets without losing the competitive edge provided by the fact that historically the business was brought to London by brokers?
This is a big strategic question for Lloyd’s and the whole international insurance and reinsurance market. How to respond to this rising demand for local coverage and service partly explains the recent wave of consolidation in the market as international insurers seek to build a broader global footprint and network to meet the needs of multinational customers.
The good news is that the market is really pulling together again on this area. Steve Hearn, Chairman of the London Market Group, has done an outstanding job bringing together the market to debate the best way forward and ensure that it is a coherent approach.
I am not sure I would pick any one particular country or region that we need to focus on. But certainly we need to be looking to expand in Latin America, the Middle East and the Far East and have made progress already with operations in Brazil and Mexico, Singapore and more recently Dubai.
What kind of research have you carried out among risk and insurance managers – your ultimate clients – about what they want and need from the market and how they would like to see it improve?
We have a close relationship with AIRMIC, the UK risk management association, and received some very useful feedback. Because of this we found that we were not really as good as we thought we were and could improve from a customer perspective. I shared a speaking platform with Edwin Meyer of Arcelor Mittal who sadly recently passed away. It was really refreshing to be on a platform with such an articulate and straight talking customer. Edwin was clear that he was not really interested in being sold products in traditional lines of business that are led by different underwriters with differing perspectives. He said that he and other risk managers want a more holistic approach and above all want to actually get to know the claims handlers who they would have to deal with in the event of a claim. He mentioned that he was not really comfortable with a broker going out into the market to arrange his coverage without him. Another point he made was that it really is not helpful that policies are typically in English worldwide. Edwin’s concerns, although personal, were endorsed to some extent by the Boston Consulting report.
And what about the brokers? These are the London market’s key customers. What about the bigger picture including the expansion of Lloyd’s footprint in emerging markets?
The Lloyd’s Vision 2025 strategy places brokers at the heart of the market’s future. It states that Lloyd’s will be a broker market and will build on its relationships with the larger firms, as well as encouraging other specialist ones. Coverholders and service companies will provide efficient access to local markets and brokers will find it as easy to access Lloyd’s as they would local carriers.
The strategy also states that the distribution chain will be optimised through the efficient use of technology, as discussed above. And, Lloyd’s will have a local presence, in some cases local establishment, in international markets, where this is a commercial or regulatory requirement for business access.
The market has recently obtained licenses in emerging countries such as Colombia and Mexico. We have also made great strides in other, more established emerging markets such as South Africa, Brazil and Chile. In all them we are working out how to make Lloyd’s more local. This may mean that we need local capital or even to incorporate, which is a new model for Lloyd’s that historically relied purely on the license system to attract business.
For this reason we have set up two groups to study where the opportunities lie and whether they are worth investing in.
The Opportunity Group is looking in‑depth at where the opportunities are and how much potential business is there for Lloyd’s.
Then, once the opportunities have been identified the Operational Group will look at what is actually needed to obtain a license and what would be the costs involved in the process. For some markets, such as China, it may not make huge profits straight away but it is vital to be present now for the next generation.
What about service on the ground? Particularly in this highly competitive market this is a critical element for brokers and risk managers. They want and need documentation and claims to be handled as smoothly and hassle‑free as possible. What is the market doing about this?
I have been in this role for 8 years now and I have to say that things have really changed during this time. The market has stepped up its game with claims and service, it is truly engaged on this topic. There is a growing realisation that in areas such as claims the market needs to act as one with each other rather than in competition. Again, this is one of the key objectives of the Vision 2025 strategy document in which it states: "Lloyd’s will be a subscription market, with efficient central services providing seamless processing to support face‑to‑face trading and world‑class claims management.”
So there has been a lot of collective work in this area and I think it is fair to say that Lloyd’s has a good reputation when dealing with big and complicated claims. As noted above there is a lot of work being carried out to improve the claims process in the market and this is an important development as brokers and customers will be able to look into the system and see exactly where the claim is.
Transparency is very important in today’s market.
And finally, there is the big question about innovation. What can the market do to help improve the speed at which it responds to demands from customers for more innovative coverage in key emerging risk areas such as cyber and supply chain?
This is another key area identified as an objective by the Vision 2025 document. It states that Lloyd’s will be a market where entrepreneurialism and innovation will thrive. It is a fact that larger corporations demand more bespoke programmes and the market needs to respond.
To a large extent it is up to the broker to identify this need and then for the underwriter to come up with the bespoke cover. I am not sure that this is an area that the market can mandate centrally. We can help create the environment in which innovation can thrive but at the end of the day it is up to the brokers and underwriters to differentiate themselves from the competition by coming up with innovative products and services.
Interview by Adrian Ladbury
