The possibility of a turn in commercial insurance pricing and the certainty of major changes in the way the world's oldest insurance market does business are among the key areas being addressed at the annual conference next month of the National Association of Professional Surplus Lines Offices, Ltd.
The state of the market will be tackled by a 43-year industry veteran, William R. Berkley, while a progress report on standardizing processes in the London market will come from Adam Stafford, senior project manager of market operations for Lloyd's.
While the talk by the chair of Greenwich, Conn.-based W.R. Berkley Corp. (scheduled for 9:30 a.m. on Oct. 13) will focus on some potentially negative changes–the uncertain risks of a changing world–he is also likely to share his prediction of the single biggest positive change that NAPSLO members have been anticipating: a cycle turn.
As was the case in a recent NU interview, Mr. Berkley can be easily coaxed to outline the reasoning behind his two-year-old prediction that the cycle will turn by year-end 2010. "Could it be 2011 before it happens? Surely, but there's no question that pricing is inadequate," he told NU. "Price levels are effectively where they were in 2000," he said, giving one reason he believes the turn is not far away.
Mr. Stafford also promises to bring news of positive developments coming before the year is out during his 1 p.m. presentation on Oct. 11–the opening day of NAPSLO's three-day meeting in Atlanta.
According to Mr. Stafford, Lloyd's is truly breaking free of its well-known attraction to reams of paper and trying to put an end to multiple and varying data requests for different bits of information, often on the same contract and coming from different corners of the market.
Explaining that data sought by London underwriters from U.S. distribution partners falls into three buckets–risk, premium and claims information–he said a property-catastrophe risk standard has already been developed. "That is now live," he said, stressing that this effort, as well as the others in the works, are ACORD standards.
"Lloyd's needs to speak the same language as other markets do. We're not good at that at the moment," he told members of Kansas City, Mo.-based NAPSLO during a July 13 webinar. "We offer a lot of 'bespoke' information," he said (using a British term meaning custom-made to a buyer's specification), adding that "we need to be speaking in a standard language. In the insurance world [that means] conforming with ACORD."
Updating NU on progress during an August interview, Mr. Stafford said the next step for the property-catastrophe risk standard (ER3001)–currently an Excel spreadsheet reporting standard–will be moving to an XML format, which "will allow us to extract the data directly from MGAs' agency management systems." He noted that the XML standard is expected to be ready before year's end.
He said London market brokers and MGAs (syndicates) have also agreed on a premium standard, which standardizes accounting and regulatory information that currently sits on premium bordereaux–a form providing data on specific risks. The premium standard is slated to be published by mid-September.
"Beyond property, we're not quite sure there's an appetite to standardize a lot of the risk information because a lot of the core risk information is actually captured on the premium standard" for other types of risks, Mr. Stafford said.
He explained that if, in fact, worldwide distribution partners have no need for risk standards other than property-catastrophe, the only other standardization task will be to have a claims standard in place by the end of this year.
VALUED PARTNERS
"The overriding goal is to make the lives of our MGA partners easier," he said, explaining that U.S. MGAs underwriting business in the United States on behalf of Lloyd's–known as U.S. coverholders–will be encouraged (but not required) to use the new standards.
"We're not going to mandate it right now because there are coverholders out there who have older systems, or maybe they don't have systems at all, which would make it quite onerous for them" to move forward quickly, Mr. Stafford said. "We need to work with them on their timescales so we don't burden them with something that ultimately costs them too much money."
For those who want to forge ahead this year, support from London will come not just in the development of standards, but as Lloyd's representatives meet and work with all of the key agency management suppliers to ensure they can capture the needed data in their systems. That means it can be sent to London "at the push of a button" and that coverholders no longer have to rekey information, he said.
"Coverholder business has become an absolute priority for Lloyd's," Mr. Stafford said, summing up the reason for all of this effort. "They understand the local pricing, local requirements and what will sell locally, and therefore have far greater knowledge than our underwriters in London of what's needed on the ground." He explained that Lloyd's is looking to coverholders as a way to tap into more small-to-medium-sized enterprise business.
This will help to balance a portfolio dominated by high-end risks and property-catastrophe business, he noted during the July webinar. He emphasized the strategic importance of 2,500 coverholders globally–including 1,100 in the United States–by noting that they wrote 33 percent of Lloyd's premiums in 2009, up from 25 percent in 2008 and 21 percent in 2001.
"A lot of business that we place in London is big, complex business, which requires face-to-face negotiations. But for the slightly smaller business–the higher-volume business–we need people in the various territories in which we operate to represent the market" with local expertise. "Coverholders are exactly that," Mr. Stafford told NU.
He also said coverholders are part of a longer-term plan over the next two-to-five years to further modernize the delivery of risk information. A technology road map, focused right now on open-market business–sent by U.S. wholesalers to Lloyd's brokers, who underwrite the risks in London–envisions electronic data transfer through a single messaging hub (known as the Exchange) instead of via multiple messages to different parities in London.
(For more information on the technology project, a replay of Mr. Stafford's presentation during a July 13 webinar is available at http://bit.ly/cTt26A. The webinar was sponsored by the Retail Agent E&S Initiative–a collaboration of the Independent Agents and Brokers of America's Agents Council for Technology, the American Association of Managing General Agents, NAPSLO and ACORD, and which now has Lloyd's as a member.)
MORE CHANGES
Unlike the deliberate plans to move Lloyd's forward, some of the changes that will impact NAPSLO members over the next few months and years are unplanned, and Mr. Berkley said the bulk of his remarks will touch upon those types of challenges.
"The world is changing so fast [that] we don't know what the world is going to be like" in October, he said, promising to pay attention to events over the next few weeks as he prepares for his lecture.
"I'm sure I'll talk somewhat about the volatility of the world, the various issues of risk and how all risk is interrelated," he said. "I'll also talk about how and why the property and casualty insurance business was able to get through these difficult times [over the past few years] without sustaining the kind of debacle that most of the rest of the [financial services] industry suffered."
Sandwiched between the Lloyd's presentation and Mr. Berkley's keynote address will be networking opportunities and a Tuesday afternoon panel discussion featuring members of the NAPSLO board and the board of NAPSLO's Next Generation group, which works to help advance the careers of younger NAPSLO members and to get the next generation–employees under age 40–involved with NAPSLO functions and committees, among other things.
Panel topics will be focused on hiring practices of NAPSLO members firms–younger vs. older, experienced vs. inexperienced, outside industries vs. insiders–while keeping with a broader conference theme, "Adding Value, Promoting Growth."
Mr. Berkley weighed in on the conference theme during an in-depth phone interview with NU last month, describing strategies that have set the stage for growth of profitable business and the ways in which great wholesalers add value to the specialty insurance business. "In 1973, when I first got in the insurance business, one of the first things I was told was there would be no more wholesalers within 10 years. It was explicit," he told NU. "Since that time, wholesalers have a larger share of the market than they did."
He explained that "what really happened is wholesalers no longer offered all products. They instead have become specialists and offer specialty products. So the more expertise that's required in the insurance business–which I think is increasing–the more valuable wholesalers become."
Asked to deliver some words of advice to wholesalers, he observed that layers make it more difficult to deliver products or information to the ultimate customer. "But that's the difference between great wholesalers and not great ones. Great wholesalers are transparent and help deliver the message and make it more functional, and other wholesalers create dysfunctions."
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