A spell of 10 days in mid-March was one of the busiest periods in the 327-year history of Lloyd’s of London, a name that has become synonymous over that time with the specialist insurance market.
As well as opening a branch office in Beijing to supplement its Shanghai hub, Lloyd’s opened a new hub office in Dubai. The corporate body is also celebrating the passing of amended legislation in India that clears the way for it to operate on-shore in a market with huge potential.
Those developments—together with the opening of a representative office in Mexico in February and potentially more regulatory changes in Turkey also in the pipeline—have helped to enhance a business that brings together 94 syndicates, already has a presence in over 200 countries and territories, and has just announced a profit of £3.2bn for 2014.
That is not bad for an organisation that started its operations in a coffee house, opened in 1688 by Edward Lloyd, in Tower Street in the City of London.
It is also testimony to Lloyd’s commitment to emerging markets as well as the locations in which it has long been doing business, said Chairman John Nelson, who was appointed in 2011 after a long career with some of the world’s best-known banking organisations.
“It has been a wonderful patch for us in terms of market access, and has significantly improved Lloyd’s access and our global footprint”, Nelson told BCCJ ACUMEN.
The developments also tie in with Lloyd’s Vision 2025, one of Nelson’s initiatives to develop the market over the coming decade.
He is seeking to create a place where entrepreneurism and innovation thrive, ratings are at a level capable of attracting the specialist business it will write, innovative indemnity insurance-linked products are available, and efficient central service provides seamless processing to support face-to-face trading and world-class claims management.
What is, perhaps, most important is that Vision 2025 will see Lloyd’s becoming larger than it is today and its performance will outstrip that of its rivals.
It is expected that the increase in premium income from the fast-growth developing economies will exceed their GDP growth as their specialist insurance markets develop.
Nelson says, however, that while Lloyd’s is taking steps to increase its presence in developing markets, its traditional markets are still performing well and are just as important. And that includes Japan.
The three major Japanese carriers—Sompo Japan Nipponkoa Insurance Inc., Tokio Marine & Nichido Fire Insurance Co., Ltd. and MS&AD Insurance Group Holdings, Inc.—are all on the Lloyd’s platform.
“Their total capital investment in Lloyd’s is just under £1.3bn, so they are significant players, and we take that relationship very seriously”, he said.
As sophisticated as business in Japan is, though, Nelson believes that the nation’s assets are not well insured. Economic losses that resulted from the March 2011 Great East Japan Earthquake totalled some £157bn, with a mere £24bn—just 16%—insured.
“In New Zealand, where by contrast 75% of losses were insured when the Christchurch earthquakes struck in February 2011, insurance provided a massive influx of capital that served to take the financial burden off the population”, Nelson said.
“This enabled businesses and communities to carry out repairs more rapidly and get back on their feet more quickly”.
Similarly, businesses in Thailand recovered more swiftly because they were insured against crippling floods—also in 2011—that caused an estimated £30.5bn in economic damage.
If Japan had had a comparable level of coverage, he said, the economic and social recovery in the Tohoku region would have been far swifter.
The lack of insurance penetration in Japan is attributed to a number of factors: not all infrastructure is insured, assets are not always insured for their full value and the insurance broking and risk management sectors are relatively underdeveloped.
“Japan’s culture of risk management is not where it is elsewhere in the world”, he said.
“Risk management doesn’t seem to be as high up the priority list for boards here as it is in the US or UK. There are some Japanese boards that are hugely focused on risk management but it’s not uniform across the country”, he said.
“If you attend a board meeting of a Fortune 500 or FTSE 100 company they would have an agenda item of the top 40 risks and how they are performing against them. The resilience of these companies is massively improved as a result”.
Lloyd’s has paid £1.8bn to date for claims from the Great East Japan Earthquake and previously had provided significant support for natural disasters, including the Great Kanto Earthquake of 1923 and Great Hanshin Earthquake of 1995.
In addition to protection against the effects of natural catastrophes, Lloyd’s plays a role in supplying the Japan market with various modern specialist insurance products designed to protect businesses against heavy losses.
It is arguably more important for Japan—compared to other markets—to address gaps in the specialist insurance market because this country “is often the first to incur risk because it is in the vanguard of new technology”, Nelson said.
“And Lloyd’s can offer a window on new risk with the best underwriting skills in the world”, he added.
One such emerging area of concern is cyber security.
“Cyber is an extremely difficult area, although we must remember that all emerging risks are in the beginning”, Nelson said. “We have to define the risk we are trying to cover as well as the loss or the claim”.
The worldwide market for cyber risk insurance has grown dramatically in recent years, having climbed from £569mn in 2012 to £1.7bn a year today in terms of gross insurance premium.
About 12% of Lloyd’s business is currently in Asia, but a glance at global demographics and the emergence of new businesses strongly indicate that the figure will grow.
“We are already strong in our traditional markets of Australia and New Zealand and we have an extremely healthy hub in Singapore, where we have 20 syndicates operating within one Lloyd’s office”, Nelson said. “But we do see ourselves expanding in South-East Asia”.
Malaysia is a market that is attracting attention, Indonesia will provide opportunities as protectionist rules are eased, and China presents “probably the biggest single growth opportunity long term”.
While Nelson says the best part of his job is weighing up the global long-term opportunities in insurance, he believes excessive regulation is the biggest difficulty to overcome. He is a firm believer that challenges within the industry are also opportunities.
“Lloyd’s may be 327 years old, but we’re not old-fashioned”, he said.
“Any institution of that age is going to have forces at work that are trying to slow things down and prevent change; that’s usual in any walk of life.
“In the three years that I have been at Lloyd’s, there has been a recognition that we need to modernise and adjust our business model to the realities of the global economy”, he added. “But we have been innovating for more than 300 years and we remain the place to go for modern insurance”.
Lloyd’s in Japan
In Japan, Lloyd’s offers various insurance products for businesses such as general property, casualty, liability and marine risks.
In addition, a range of specialist covers are offered, including but not limited to, terrorism, political risks & trade credit, contingency, and warranty & indemnity. To find out more, contact the bilingual team at Lloyd’s Japan Inc.
President and chief operating officer
03 5656 6926
Underwriting services manager
03 5656 6954