Rules change allowing multiyear deals to keep Lloyd's competitiveReprints
Changes that allow Lloyd's of London underwriters to bind multiyear insurance agreements will improve efficiency in the marketplace as well as Lloyd's competitive position.
In the latest stage of a modernization project intended to develop a simpler way to do business in the London market — the target operating model or TOM, Lloyd's recently said syndicates will be allowed to underwrite binding authority contracts for up to 36 months starting Jan. 1, 2016.
Under the terms of binding authority agreements at Lloyd's, a managing agent delegates its authority to a coverholder — a company or partnership — to enter into a contract of insurance with a syndicate managed by that managing agency.
Currently, Lloyd's syndicates are limited to a maximum of 18 months, and most are restricted to 12 months, according to the London Market Group, a cross-market group representing underwriters and brokers in the Lloyd's and London company market aimed at improving London's competitive position.
A recent study by the LMG, “London Matters,” found that London was only tracking growth in commercial insurance and was losing share in the reinsurance market as buyers tended to look to local markets.
Because Lloyd's syndicates have three-year accounting systems, developing a system to allow binding authority to stretch over several years while properly allocating that coverage to the appropriate year has been among challenges in instituting the system, according to the LMG.
The group coordinated a project with Lloyd's market practitioners and legal counsel to create model wordings for multiyear binding authority contracts.
“Our coverholders have told us that the ability to write multiyear binders at Lloyd's will make it easier to do business, and we are delighted to have come up with a process that delivers this requirement,” Shirine Khoury-Haq, director of operations at Lloyd's and LMG sponsor for TOM, said in a statement.
Gary Clark, head of programs at Miller Insurance Services L.L.P. in London, said Lloyd's syndicates' inability to write multiyear binding authorities put the market at a competitive disadvantage compared with U.S. and other markets where longer-term contracts are available.
“I am aware of a number of our businesses that considered the restriction to 12-month contracts as a barrier to doing business with Lloyd's,” said Jane Comerford, general manager of the London-based Managing General Agents' Association. “I am sure this decision is both good news for our members, but also may open up new opportunities for syndicates.”
The Philadelphia-based American Association of Managing General Agents also welcomed the changes.
“We have been watching the development of the target operating model initiative with great interest, and the delivery of multiyear binders represents a huge step forward in the drive towards making it easier to do business with London,” Bernie Heinze, executive director of the AAMGA, said in a statement.
“We look forward to working with Lloyd's on further initiatives examining the various segments of TOM and the benefits they can provide to making delegated binding authority transactions into the market more seamless and expedient,” said Roger Ware, president of the AAMGA.