Across the Pond
Q&A with Christopher Croft, Chief Executive, London & International Insurance Brokers Association
Leader’s Edge caught up with Croft for an international perspective on the global climate crisis, the role of regulation, Llyod’s new underwriting framework, and a thing or two (or three) about what he thinks commercial insurance brokers should be thinking about.
Q
You have written about the reality of climate change and the need for the insurance industry to take a lead role in helping businesses achieve net zero carbon emissions. Can you discuss the steps LIIBA is taking to develop the framework for this approach?
A
We published a paper in the summer, “Our Role in Net Zero,” to highlight this. The unique role insurance brokers have in helping their clients manage risk means they will be pivotal to businesses achieving their net zero ambitions. We model climate risk and help clients analyze the threat it poses to their operations. Then we can help them mitigate those risks by building greater resilience into the way they do things. And only then do we help them find the right insurance product to cover any residual risk.
Some of those products will need the innovation that brokers specialize in. Net zero will only be achieved by adopting new, emerging technologies so we will need to find ways of insuring those—a challenge in a world where regulators more and more insist on mountains of historic data to underpin risk decisions.
And we will be at the forefront of measuring progress and incentivizing firms to make the right decisions. We believe that this is a particular area where LIIBA can help. A market approach to accrediting net zero plans and rewarding the achievement of milestones along that plan with better, cheaper insurance for the client is vital. We are working on how we can put that framework in place.
Q
How can brokers increase the appeal of environmentally effective policies when the market is already hard?
A
I think there is a wider mind set change that has to happen, but I think we are already seeing this in practice. Resilient, sustainable businesses are increasingly becoming synonymous with profitable ones. Environmentally effective no longer equates to additional cost. Extreme weather events are already demonstrating the need to cater for this risk to clients around the world. Insurance just needs to follow this trend and ensure the modern, green aware businesses of now and the future get the cover they need.
Q
What is needed for the industry at large to respond to the climate crisis?
A
I think the biggest challenge is ensuring an appropriate response from regulators. I have touched already on the need for them to show sufficient flexibility and foresight if we are to find ways of insuring the emerging technologies we will need to meet the world’s net zero ambitions. Regulators are going to have to accept that there will be minimal data and the market will have to develop an approach. It may be a bit like the early days of motor insurance where Lloyd’s policies described automobiles as “a ship that travels on land”! We need regulators to embrace their challenge as well as we will ours. Unfortunately, flexibility is not a word you would naturally associate with regulators here in the UK. But I hope we are pleasantly surprised.
Q
Lloyd’s is known for being the place that writes the risks others won’t. What are your thoughts on Lloyd’s new underwriting framework in terms of the market’s ability to continue to cover challenging, complicated risk while at the same time maintaining underwriting profitability?
A
Loss making insurers don’t work for anybody. So, Lloyd’s is right to keep its focus on performance and underwriting discipline. But you are right that this must not come at the expense of innovation. Here we hit an interesting example of our two countries being divided by a common language. What U.S. clients tend to think of as “Lloyd’s” is, in reality, the entire London market. Of the USD $110 billion of premium that is written in London each year, only around half ends up in the Lloyd’s market itself. We have a vibrant “company market” outside of Lloyd’s that leads on large amounts of business. So there is a strong competitive challenge that will ensure that Lloyd’s does not disadvantage itself by pursuing profit at the expense of what London is good at—and what the world looks to us for—being the complementary excess and surplus lines market that has an appetite for risk that others sometimes don’t.
Q
Small businesses are a large part of the LIIBA membership. What are the biggest challenges facing small to mid-size brokers currently?
A
Of the 152 groups of firms that are LIIBA members, only 18 employ more than 100 people, and half employ 10 or fewer. We are the prosperous SME sector in the heart of the City of London. The biggest challenges for those firms are the cost of operating and the cost of regulation. And the two are intrinsically linked. More and more regulatory requirements are leading to the need to invest in sophisticated—and very expensive—modelling software across multiple business lines. The fixed cost of operating is therefore rising, probably exponentially, and firms require scale to cope. And they are faced with a regulator that we feel does not show sufficient proportionality in the way it deals with our members. Regulations designed to protect retail consumers are imposed on businesses who deal almost solely with sophisticated corporate clients—people who can look after themselves to a large extent. It’s inappropriate and it costs. That drive for better, more efficient and effective regulation is a crucial part of LIIBA’s agenda.
Q
From an international perspective, what are the top two issues commercial brokers should be thinking about?
A
Back to where we started! Climate is a huge opportunity for our industry and we have a keen focus on ensuring our members take it. COP26 [The 2021 United Nations Climate Change Conference] in a few weeks’ time should be the launching pad for that.
Elsewhere, and maybe I shouldn’t be saying this in a U.S. publication, but we need to look to develop beyond our traditional markets and increase insurance penetration in countries that, thus far, have tended not to shop in London for cover. We need the brand recognition we enjoy in the U.S. to be replicated in Latin America, Africa and Asia Pacific.
I know I have had two but I would like to sneak in another—again something we have touched on, regulation. We are global businesses, big and small, trading across borders to achieve the right outcomes for clients all around the world. The regulatory framework does not begin to reflect that and those clients are disadvantaged by the extent of duplication in compliance our members—and our hugely valued partners amongst The Council membership—have to manage. We need to find a way to address that and deliver a better service for clients—the people that the regulatory system is supposed to be there to protect.
