Bermuda Shorts

While Bermuda is destined to be a force in the insurance world for the foreseeable future, I tend to agree with those at the recent ACORD London Conference that it's more of a complementary player than a pure competitor to its U.K. rivals. In fact, Bermuda is doomed to see some of its competitive advantage erode over time, and the two are bound to become far more integrated.

After all, Bermuda cannot continue to expand forever, right? There has got to be a limit for the available talent pool and resources on such a tiny island paradise, and it's doubtful Bermuda can sustain its tax advantages indefinitely.

Still, Bermuda has made an enormous contribution to the global insurance market–not only in providing badly needed capacity for a growing number of troubled lines, but in being true innovators, as well as in shaking up their more stodgy colleagues in London, Europe and the United States.

In addition, while listening to those at the conference lament over and over about the inability (or is it stubborn unwillingness?) to abandon paper-intensive transactions and face-to-face dealings in favor of electronic data exchange and placing, it's also clear that Bermuda has tremendous advantages in not having such legacy systems and cultures weighing them down with unnecessary costs. But that advantage is bound to disappear over time as well, as other markets get up to speed technologically and culturally.

Indeed, the keynote speaker–Dennis Mahoney, chairman and CEO at Aon Global, based in Bermuda, whose provocative remarks about electronic trading I blogged about on Oct. 22–said that he would “like to see Bermuda further developed, along with other markets around the world, to provide true 24-hour trading [in insurance risks]. Why not have a Lloyd's of Bermuda? Of the Middle East? Of the Far East?” Why not?

In the closing panel discussion at the conference on challenges and opportunities facing the market, Mr. Mahoney added that Bermuda is “more of a complement than a threat” to the London market, and I would definitely agree, with so much money flowing both ways.

“You see many of the same people on Front Street [in Bermuda] as you do on Lime Street [in London],” he noted. “The only difference is they wear shorts in Bermuda, despite the fact that many, myself included, do not have the legs for it.”

He added that he believes “the competitive pressures from Bermuda have sped up efficiencies in London”–even though, as I noted in my earlier blog, he decries the lack of progress in going electronic at Lloyd's and other U.K. markets.

ACORD Chairman Clement Booth, who is also chairman and CEO of Allianz, chimed in during the closing panel that “Bermuda is not a threat to London. London is a threat to London,” emphasizing that no matter who U.K. players are competing against, “we must modernize our processes so we are not our own worst enemy in terms of cost.”

Peter Arbenz, managing director of Swiss Re Group, observed during the closing panel that “London for hundreds of years had a natural efficiency because of the proximity of the players. It's tempting to sit on your laurels, but technology in general and electronic-placing in particular has eliminated much of London's competitive advantage in terms of proximity.”

The “battle” between Bermuda and London definitely has the feel of a sibling rivalry, with the younger brother eager to climb over the older relative. Overall, however, they make a very strong family and a fairly unbeatable duo.