Lloyd's may be the oldest and best known insurance market in the world, but that doesn't mean everyone understands how it works, or what it is capable of doing for buyers here in the United States, according to Hank Watkins, president of Lloyd's North America.
Mr. Watkins, who took office last August, appreciates how the Lloyd's brand can open doors for his market, but does not take anything for granted, he explained in a recent interview with National Underwriter.
Indeed, with a territory comprised of the United States and Canada, he knows he has his work cut out for him as a sort of evangelist for Lloyd's.
"A big part of what we do is make sure regulators in the states and territories understand what we are doing and are reasonably comfortable with who we are," according to Mr. Watkins, who noted that between the United States and Canada, Lloyd's writes about $13 billion in premium each year.
"Canada is about $1.5 billion of that, so the U.S. is clearly the largest component," he said, adding that the U.S. market represents some 38 percent of all Lloyd's business. "It's clearly a focus of Lloyd's North America to continue to spread the word and build the brand around the U.S. and Canada."
Coming into the position, Mr. Watkins said his perception was that "everybody knew the Lloyd's story and it was just a matter of maintaining our momentum."
But after visiting a number of states and meeting with brokers, he saw his challenge. "You'd be surprised at how many out there don't really understand the specifics of our business," he noted.
Mr. Watkins said he gets questions such as: "You're Lloyd's in New York, can't you just write this? Why do we have to go to London?"
He explains to them that while Lloyd's is admitted to write business in Kentucky and Illinois, his team does not have binding authority in these states, or elsewhere in the United States or Canada. Lloyd's supports the "cover holders"–managing general agents and wholesalers with binding authority for specific lines of business–in all aspects but binding and claim decisions, he added.
These questions, however, merely present the opportunity of "getting the word out and educating people, so they can quickly find their way to Lloyd's," he said.
Another example of the activities Mr. Watkins and his team engage in on behalf of London-based managing agents is a trip he took recently to a retail agency on Long Island. Together with the New York City-based wholesaler used by the retail agency to access Lloyd's, he delivered a presentation to their commercial and personal lines staff on the history and current relevance of Lloyd's as an alternative market for their customers.
"This type of outreach to the retail and wholesale brokerage community can't happen often enough," he said.
INDUSTRY CHALLENGES
Mr. Watkins, who has held a range of positions in the United States and Europe at global insurers and brokers (including Chubb & Son, Barney & Barney, Johnson & Higgins, Hilb Rogal & Hobbs, and Marsh), noted without hesitation what he sees as the biggest challenge facing the industry–the soft market, which he doesn't expect to budge until 2011.
"At NAPSLO in October [2009], people were talking about 2011," he said. "That was the first sense I got that people were looking past 2010 and its anticipated challenges, including a decreasing exposure base, abundant capacity and the inherent competiveness of our industry."
He observed that much has to happen for pricing in the market to turn. "Obviously, an improved economy will drive an increase in payrolls, sales, property values and other components of premium pricing," he said, while noting that industry loss experience–which has been generally favorable–is another factor influencing cost and coverage terms and conditions.
While maintaining underwriting discipline has been an industry mantra, Mr. Watkins conceded that this can be a difficult feat for the industry overall.
"There's been pressure on insurers, not only to maintain premium levels against the above-mentioned issues but to write new business as well," he said. "And with so many budgets stretched, their customers are less inclined to spend the premium dollars that were easier to justify in a more robust economy."
This means clients may choose a less expensive coverage option "and hope they get through the next year and then maybe reconsider carrier choices again." He added, however, that "there will usually be someone who will do it for less," which is the customer's choice.
Bowing to the pressure of competition, however, is not Lloyd's position, he emphasized, "especially after Renewal and Reconstruction"–referring to the plan the market put into place in the mid-1990s to recover from catastrophic losses in asbestos and pollution liability.
Since that dark period, he added, the resulting emphasis on underwriting performance management over the past 10 years "has transformed the Lloyd's market."
As a result, he said, every syndicate must submit a business plan annually, which is monitored throughout the year by the Lloyd's Performance Management group.
"They're very careful about the mix of business written by the market and are prepared to intercede should a particular syndicate deviate from the agreed-to plan," Mr. Watkins explained.
"We all want to write new business," he added, "but Lloyd's is pretty conservative, both in their investment mix–where they put their money–and the types of risks they take. The challenging experience back in the 1990s was enough of a scare."
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