Financial Services and Markets Appendices to the Minutes of Evidence



  1. Divestment: s10-12. The divestment provisions contained in the Act prohibit the cross ownership of Lloyd's Brokers, who bring the business to the market, and managing agents who employ the active underwriter who accepts the insurance risk on behalf of the capital for whom the managing agent acts. This restriction was incorporated in the Act as a protection for the individual member of the Society whose interests might have been harmed by such a relationship. With the introduction of corporate capital there has been a rapid movement towards the alignment of managing agents and the capital for which they underwrite. This trend will result in these restrictions becoming irrelevant since the members they were designed to protect are under common ownership with the managing agent. As many businesses in the insurance industry integrate vertically to secure their distribution networks, and new participants enter the industry unhampered by such restrictions, Lloyd's ability to compete is reduced.

  2. Exclusivity of Lloyds Brokers: s8(3). The requirement that all insurance transactions at Lloyd's, whether risks being underwritten in the market or outgoing reinsurance, should be passed through a Lloyd's Broker places those underwriting at Lloyd's at a unique commercial disadvantage. All other insurers are at liberty to freely choose the intermediaries they use or, as is increasingly common, deal directly with the assured. At a time when distribution is a key competitive issue for the Lloyd's market this restriction in the Act greatly reduces the Lloyd's market's ability to keep pace with international developments. The Council's ability to relax the requirements is limited.

  An additional problem is that the existence of an approved group of intermediaries, Lloyd's Brokers, imports the need to police and regulate them. This contrasts with Her Majesty's Government's decision not to yield to pressure for statutory regulations of other insurance brokers.

  3. Underwriting through an agent: s8(2). The Act requires that all underwriting should be undertaken through the medium of an underwriting agent. This was a sensible precaution when the membership of the Society was exclusively composed of individual members, few of whom were insurance professionals. However now this requirement has no relevance for those units at Lloyd's who have simplified and modernised their structures by full alignment with the capital for which they underwrite. The Act requirement produces unnecessarily complicated arrangements, which are expensive for those who have to operate them and potentially embarrassing for those responsible for their policing.

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