The launch of another broker-backed London market facility offering guaranteed capacity may lead to more efficiency in the market, but the facilities have raised concerns over underwriting control and could marginalize smaller Lloyd's of London syndicates, experts say.

Willis Ltd. last month revealed its previously announced Global 360 London market facility will be supported by Berkshire Hathaway Inc., Hiscox Ltd. and the People's Insurance Co. of China. The subsidiary of London-based Willis Group Holdings P.L.C. said it was in discussions with other Lloyd's syndicates that might participate.

Berkshire Hathaway also is backing a similar insurance sidecar facility established by Aon P.L.C. in March. Under that set up, Berkshire Hathaway participates on 7.5% of the business placed by Aon that has Lloyd's participation.

Willis said its facility will offer follow-market capacity for aviation, space, construction, specialty property/casualty, marine, energy and facultative reinsurance for London subscription market business. The brokerage said the capacity allocated to each line of business would reflect market conditions.

“The proposition of access to whole portfolios of business has proven to be very appealing to capital providers,” Steve Hearn, CEO of Willis Ltd., said in a statement. “We have attracted high-quality capital from around the world: insurers who wish to provide additional capacity to the specialty market or expand into new lines of business or territories, and reinsurers who want to enter the market in a cost-effective way.''

The facility will provide policyholders with additional capital and they “will benefit from increased price competition and faster placements and claims agreement,” the statement said.

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A spokesman for Willis said the facility likely would start underwriting in the coming weeks.

While follow-market facilities have been set up before in London, the high-profile announcements by Willis and Aon have created a stir.

The Aon facility has drawn criticism from some senior figures in the Lloyd's market who say it dilutes underwriting expertise.

Aon, however, says the facility has been well-received by its clients as an efficient way to bring more highly rated capacity to business placed in the London market.

One London market broker, who asked not to identified, said such facilities are “not necessarily a bad thing,” and can bring extra capacity where it is needed, such as for offshore energy business.

But concerns will arise if these facilities are seen as a “free rider” on the expertise of Lloyd's, he said.

The arrangements could raise some questions for insurers, said Stefan Holzberger, managing director-analytics, EMEA at A.M. Best Co. in London.

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“For insurers that are involved in the new contracts, A.M. Best would become concerned if they lose underwriting control,” he said. “Should history repeat itself—as was the case in the late 1990s and early 2000s when many specialty companies in the United States and several Lloyd's syndicates gave their pens to U.S. managing general agents, which were volume-driven and not focused on underwriting profits —the consequences could be disastrous.”

Mr. Holzberger added, though, that for insurers participating in such programs, and other insurers more generally, the change in broker placements could have some positive implications.

“For example, insurers that are part of the facilities may benefit from a reduction in acquisition costs,” he said. “Such partnerships with brokers can result in good business flow and provide risk diversification.”

“Co-insurance per se is not only not a problem, it's the basis on which the London insurance market actually exists,” said Stuart Shipperlee of London-based Litmus Analysis, an insurance consultancy.

“Broker facilities are therefore an overall positive or negative dependent on two issues: namely where and how the underwriting is controlled and the quality of the security of the broker facility follow market.

“So, if a broker-generated facility relies on London-based underwriting knowledge and controls and has healthy security, that's a good thing overall, even if it presents a competitive threat to individual organizations,” he said.

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There are questions, however, about how the facilities could affect smaller Lloyd's syndicates.

“Those insurers that are deemed to be offering limited added value at the bottom end of slips may be removed from contracts,” said Mr. Holtzberger of A.M. Best.

Consequently, smaller syndicates and London market insurance companies could lose business, he said.

“What could make it more challenging for smaller players is that the major brokers feel less pressure to keep them onside as a market for their business overall,” Mr. Shipperlee said.

But he added, “We shouldn't lose sight of the fact, however, that it's really the buyer's choice where the business is placed, not the broker's.”

One London market underwriting source, who said his company had looked at participating in Willis Global 360 and other facilities, but was not taking part at this time, said such mechanisms are “a normal extension of market practice and negotiations.”

He said insurance buyers need to feel comfortable with the level of underwriting and claims delegation such facilities involve, and accept that the motivation of a broker putting together such a facility will not be the same as the motivation of a participating underwriter.