New CEO Ward Promises Transformation At Lloyd's

In his first public address to a U.S. audience, Lloyd's Chief Executive Officer Richard Ward guaranteed a transformation in the world's oldest insurance market by year's end–promising greater contract certainty, electronic processing of all new claims and direct access for outside brokers.

“If we don't achieve these goals by the close of 2007, I might be looking for another job,” he quipped in a speech here last week before the New York Chapter of the Risk and Insurance Management Society and the Association of Professional Insurance Women.

Mr. Ward–who said he spent a good deal of his first year in office learning the ropes by working with underwriters, brokers and “the unsung heroes” in claims–guaranteed that Lloyd's under his stewardship will rid itself of the “two jumbo jets” full of paperwork “clogging up the process” to improve turnaround time, product quality and the expense of doing business.

While expressing admiration for the financial strength, brand reputation and quality of “human capital” at Lloyd's, he said he is “less impressed with the processes that support the market. We haven't fundamentally changed the way we do business in 100 years.”

“This business has not embraced technology,” he said, adding that “fear will be the driver for change, given the threat of competition coming from Bermuda right now, then closer to home from Dublin, and before long probably from Dubai or somewhere else without our legacy issues.”

However, streamlining the market's operations and cutting costs with new technology “doesn't mean closing the underwriting room,” he said, emphasizing that face-to-face meetings with syndicates to shop risks will not intentionally be phased out anytime soon.

“But all the functions supporting the underwriting room could benefit by going electronic,” he said. “We want to get human hands out of the process as much as possible.”

When asked when clients would see a real difference in how Lloyd's does business, he said “you already do, in that we're delivering 90 percent” of contracts to buyers within a month of the policy's inception, promising to continue to improve on delivery time as the year progresses.

However, by year's end he also vowed that “all new claims will be processed electronically. Our goal is to build a system offering electronic documentation in a single repository offering global access.”

In addition, he promised to “open up the brokerage system” to allow buyer representatives from around the world to directly approach Lloyd's for quotes.

He said “it is not an appropriate structure” to limit access to underwriters to a group of London-based intermediaries. “If Lloyd's brokers add value, people will pay for their services, but we can't build artificial fences to protect broker relationships with clients.”

He recalled hearing similar laments in his prior job as CEO for the London-based International Petroleum Exchange, where “there used to be a pit with people shouting at one another all day long to do business,” but which today conducts all its trades electronically.

“The disintermediation cry went up when we closed the pit,” he said. “It was a tough transition, but those who adapted have survived and prospered.” He noted that the market–now called ICE Futures–traded 100 million barrels of oil daily when the pit closed, but trades 500 million electronically today.

“That's why I'm here,” he said. “I didn't have a clue about insurance when I walked in the door last April, but given my background at ICE, Lloyd's believed I might be suitable to change the way business is done in this market.”

He confessed this goal would not be easy to achieve, given human nature. “Trying to change behavior is the most difficult thing to do in business,” he said. “But if you recognize that holding onto traditional ways puts you at risk of becoming irrelevant–that you'll be gone–that fear will drive whatever changes are necessary.”

Beyond back-office challenges, Mr. Ward said another goal is to end the “herd mentality” historically driving underwriting behavior across the insurance industry.

“When rates start falling off a cliff, we don't want everyone in our market racing to jump off with them,” he said. “We are trying to smooth out the cycle so that we don't fall victim to such extreme peaks and troughs.”

Since Lloyd's is a market, rather than a company, this is where the Lloyd's franchise management concept–implemented prior to Mr. Ward joining the market–should face its most severe test, he noted.

As the commercial insurance market softens globally, he said, “we will encourage our people to hand back capital if it can't be profitably employed. Give the cash back to shareholders if it doesn't make sense to write the risks at the prices out there.”

When asked about the competitive threat posed by Bermuda, Mr. Ward said he has a “schizophrenic view. It is definitely a complementary market in that it fills gaps in global capacity and provides capital for Lloyd's syndicates. But on the other hand, it has attracted an extraordinary amount of capital and companies there pay no taxes, making it a formidable competitor.”

In the long run, however, he said “there will always be a Bermuda out there challenging Lloyd's. We have to emphasize our strengths–the diversity of our book of business, financial depth, our talented entrepreneurs, brand reputation and global distribution system. Plus, our mutual structure allows for less capital to write business, which in my view outweighs any tax advantages other locations offer.”

One area where the market could clearly stand improvement is in the “diversity of its people”–or lack thereof, he said, vowing to launch a program to recruit and train new workers to “improve ethnic and gender diversity at Lloyd's.”