Lloyd's continues to establish a greater
presence in the U.S. marketplace
By Phil Zinkewicz
"Next time you go to a doctor, drive past builders on a new construction site, land at one of New York's airports, or ride a Metropolitan Transport Authority train, the chances are high that those organizations and those people have been insured or reinsured at Lloyd's."
--Lord Peter Levene, Lloyd's Chairman
Despite the fact that some London-based insurance companies--the Royal SunAlliance being the most visible one--have been withdrawing from writing U.S. business, the Lloyd's of London marketplace is looking at the United States and almost salivating--almost, that is. Furthermore, some Lloyd's syndicates are looking at U.S. business that has heretofore not held much interest for them. If that interest continues, it could be good news down the line for independent insurance agents.
In a recent speech before the Risk and Insurance Management Society in New York, Lloyd's Chairman Lord Peter Levene talked about the commitment Lloyd's has already made to the U.S. marketplace. "Next time you go to a doctor, drive past builders on a new construction site, land at one of New York's airports, or ride a Metropolitan Transport Authority train, the chances are high that those organizations and those people have been insured or reinsured at Lloyd's," stated Levene. Lloyd's, he said, has underwritten some $3 billion in reinsurance premiums in the United States. According to Levene, in New York alone, Lloyd's writes more than $160 million in surplus lines business, equivalent to 12% of the entire market.
"It is here in North America, that we do most of our business," Levene said. "Our business here virtually doubled in volume between 1998 and 2002 and stands at about $9 billion, or about 40% of our business, making it our largest market. We also account for about one-fifth of the U.S. surplus lines market."
Nevertheless, there are challenges to insurers doing business in the U.S. market, according to Levene: the threat of terrorism, the threat from nature and the tort liability system. Terrorism is a relatively new risk to the U.S. insurance marketplace, he said. He pointed out that September 11 showed clearly how the losses from a single terrorist attack can spread throughout the country, not just in terms of property damage but with business interruption taking many forms.
"Lloyd's is renowned for its specialist knowledge and expertise in these areas," said Levene. "Since 9/11, businesses have come to us, asking for help to cover these kinds of specific risks."
Levene said that those who went through Hurricane Isabel last year can understand the second challenge facing insurers operating in the U.S. market. "In terms of catastrophic storms, we face two trends that, when mixed, make a noxious cocktail of risk," Levene said.
"First, a growing number of people are living near the sea. Today, half of the world's population lives in coastal regions. According to research by the Insurance Information Institute, during the last 30 years, the coastal areas of the United States have seen their populations grow by more than 31%. Sixty-eight million people are now living in hurricane-vulnerable locations.
"Second, the number of natural disasters--including storms--appears to be on the rise. In the U.S., insurance losses from natural disasters have increased 15-fold since 1960. And, things are going to get worse. By 2050, mega-catastrophes, which used to occur every hundred years, are predicted to happen every 25. The U.N. predicts that losses will then be 900% higher than they are today."
The third challenge to insurers operating in the United States, according to the Lloyd's chairman, is the tort liability system. "The United States has to reform its tort system, as it is eroding the spirit of enterprise, innovation and risk-taking that lies at the heart of the American culture," said Levene. "I always thought of Americans as 'go-getting.' Their approach to life, I believed, was 'can-do.' For many, now it's 'Can-sue.' This 'I'll see you in court' approach is a leech on the U.S. economy. The tort system cost $721 per U.S. citizen in 2001. That's $205 billion in all. Or, to put it another way, at current levels in the United States, tort costs are equivalent to a 5% tax on wages. At this rate, by 2005, tort costs could equal $1,000 per citizen."
Nevertheless, daunting though these challenges may be, Levene is firm in Lloyd's commitment to the U.S. marketplace. An executive with one Lloyd's underwriter, whom Rough Notes interviewed in his London office, confirms this commitment. Steve Quick, director of business development at Hiscox Syndicate, said that Hiscox has already established a major presence in the United States, writing large commercial accounts through major U.S. brokers. Fully 50% of the firm's premiums are from the North American market, he said. Moreover, Quick said that Hiscox intends to increase that amount.
"In 2001, our premium volume in the United States was about £320 million," said Quick. "That number today has risen to £840 million. After September 11, a good portion of the domestic market in the U.S. began contracting severely. But the London market can be quite strong and we were able to provide a greater breadth of coverage where it was needed, particularly in the large commercial and industrial business."
The lines of business that Hiscox writes are many and varied. Forty-six percent of its business is direct, writing property, energy, professional liability, marine, terrorism, specialty and aviation. Twenty-four percent of Hiscox's reinsurance business is in non-marine, marine and aviation. Twenty-three percent of its business is in the specialty area, including kidnap and ransom, fine art and bloodstock. And, seven percent is in aerospace, media and technology. Hiscox also writes some commercial business through managing general agents in the United States.
Quick said that, despite the corporate scandals in the United States, Hiscox remains in the errors and omissions and directors and officers markets, although it is writing business with tougher terms and conditions. "We make certain we deal with brokers who understand our organizational structure as well as their own clients' needs," said Quick. "And we want to make sure that we're seeing the business that our underwriters want to see."
Quick maintains that further growth for Hiscox in the United States is likely to come in the small and medium-sized commercial lines area. "We've always been a major player in the area of large commercial accounts," he said. "Now, we want to begin making inroads into the smaller commercial lines arena, even down to Main Street business."
How will Hiscox do this? "We already have strong relationships with large brokers, Marsh & McLennan, among others. These large brokers, in turn, have established relationships with smaller brokers and agents and that will give us access to the smaller accounts. In addition, we already work with MGAs in the United States, and we'll pursue smaller business through them with special niche programs and such. That will benefit the smaller agent and broker who might be having a hard time placing certain risks in the American market. It will give them access to the Lloyd's marketplace. By this time, we'll probably get to know the smaller agents and brokers ourselves," Quick says.
Therefore, if other London underwriters are thinking along the same lines as Hiscox, smaller agents and brokers in the United States might heed these familiar words: "The British are coming." *