The Intelligent Quarterly from the publishers of The Insurance Insider

Winter 2011 / 2012

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Lombard Street will be familiar to global insurance historians as the site of Edmund Lloyd's first coffee shop. As one might expect, this fact is acknowledged by one of the many little blue plaques that adorn the City's ancient thoroughfares.

So where does the plaque hang today? You might assume that the memorial decorates the headquarters of an international bank, a fund manager or a venerable institution such as one of the Livery Companies. But if you did, you would be utterly and completely wrong.

The headstone to the godfather of global insurance is attached to nothing more spectacular than an express supermarket that sells bread rolls and sandwiches to hungry office workers.

The lesson is that, even in a seemingly ossified environment like the City, you must adapt, modernise and stay relevant if you want to prosper.

So what does Lloyd's new chairman make of his new challenge? Speaking at a London One Hundred executive briefing, John Nelson outlined a vision of modernising the market's back office systems to make them more efficient and attractive for global customers, as well as bringing up to date the market's global diversity in personnel and sources of capital.

The chairman explained that as the balance of power of the global economy shifts to major emerging markets, Lloyd's too needs to shift focus from its traditional English-speaking customer base and widen its intake of global talent, while finding ways of giving the most talented employees a challenging and accelerated career path.

"Talented and ambitious people in their thirties and forties need to feel that the London insurance market affords them the challenges and opportunities for advancement and reward that they seek," he said.

Nelson lamented the lack of cultural diversity in the market, including the lack of representation of women in influential market roles, such as the Council of Lloyd's.

Picking up on the theme already alluded to by CEO Richard Ward at the Xchanging London Market Conference a few weeks earlier, he said his instinct was to "internationalise" the market in London by bringing in capital and personnel from the major emerging economies to widen the "gene pool".

The new chairman's intention was followed up almost immediately by an announcement from Lloyd's largest player Catlin, revealing that it was entering into a sidecar-style arrangement to manage the £50mn Syndicate 2088, which will write a whole account quota share of Catlin's flagship Syndicate 2003 in the 2012 year of account. Syndicate 2088 is backed by Chinese state-owned reinsurer China Re.

The market is still "significantly behind the curve" on the competitiveness and efficiency of its systems, said Nelson, adding that it was "pretty much compulsory that the market improves its services".

He said that unless the market acted collectively to provide a higher quality and more seamless and efficient service, competitors would leave it behind.

Nelson said there was a "certain amount of truth" in the common observation that Lloyd's often only acted decisively when the market was in crisis, explaining that for technological and process reform a more consistent strategy was required.

"The trouble with modernisation and improved processing is that it's not absolutely mandatory to get it right today - for a year or two it will be fine. But if we don't pick up the momentum we will sadly find ourselves in an extremely difficult position," he said.

Nelson alluded to the multiple layers of separation between the ultimate customer and the underwriter that the global broker distribution model often created.

Unless the market takes advantage and control of technology to shorten this distance, he said, rivals would eventually develop ways to disrupt the established model.

However, Nelson, a veteran of UK investment markets, was at pains to explain that Lloyd's did not need a "big bang" such as that experienced by London's main debt and equity markets in the 1980s. Instead, he wished to see face-to-face trading continue as an "absolutely fundamental" unique selling point.

Nelson said he saw process reform and technological advancement as an enabler and enhancer of higher added value face-to-face trading and not its nemesis. He mentioned the Project Darwin initiative that is currently honing a strategic blueprint for how the market should engage with the technological transformation projects of the future.

He also took the opportunity to outline his first impressions of the market to a packed audience of senior industry executives.

The new chairman opened by explaining that he saw his role as being in the traditional non-executive mould, with executive decisions the clear preserve of CEO Richard Ward.

The chairman reiterated this by reminding the assembled executives that he would be devoting three days a week to the role, quipping that this had already earned him the moniker of "half Nelson". However, he made it clear that as well as monitoring the performance of key executives, the highest item on his agenda would be deciding on the market's long-range strategic direction.

Nelson said he believed the market should take more advantage of the benefits offered by the global broker distribution model, acknowledging that brokers had made vast investments in overseas distribution that Lloyd's would not be able to make on its own.

However, Nelson also noted that the proportion of business placed into Lloyd's by major brokers only amounted to a "small percentage" of their business flows. He suggested that a relatively simple strategy for allowing the market to grow profitably might be to engage with these brokers to achieve a greater share of their business.

Nelson explained that he would be consulting the market widely to produce a long-range strategy document looking to 2025 over the next few months.

Turning to the market itself and the role of the Corporation of Lloyd's, Nelson explained that he saw its role as an overseer and enabler for the market rather than its master. "The Corporation does not run Lloyd's, the market does," he said.

Early US President John Adams coined the phrase "We cannot guarantee success, but we can deserve it," and for a beginner, IQ humbly opines that Nelson already looks like he deserves success.

IQ wishes him all the best of British luck with his latest challenge.