QBE sees business avoiding expensive London Market
Australia’s QBE is observing that business that in the past went through the London Market is increasingly being processed at other international locations, driven by cost pressure and client demands.
“There is not a lot of good business coming into the London Market,” said Richard Pryce, CEO of QBE Europe at a 27 Feb. press briefing in London.
“Good quality business is no longer coming into the London Market at the volumes it did in the past. The reason for that is that there are a lot more capabilities being built up in the international hubs, be it in Singapore, Dubai, Miami, arguably Hong Kong,” he noted.
The advantages of the London Market with Lloyd’s of London and historically grown capabilities and expertise have been waning as competition from other countries trying to attract business increased. There is now far greater ability for some of the international business to be processed in those countries as opposed to be sent to London, Pryce said.
QBE is seeing good business opportunities outside the London Market and would not want to rely on London as its distribution point, Pryce noted.
“We operate in Miami, Singapore, Dubai, plus we have the rest of the QBE family around the globe,” Pryce said.
“If customers want the business to be written in closer proximity to them then that will happen. […] If you have a choice to do it locally and the decision-making is a lot more proximate then that’s going to make a difference.”
The insurance industry operating via Lloyd’s and the London Market is trying to reduce cost in order to remain competitive.
The London Market Target Operating Model (TOM) has been launched as a set of initiatives to modernise the London Market and help it overcome the deficiencies unveiled in the London Matters report by the Boston Consulting Group.
The report showed that the London Market is falling behind in reinsurance premium growth compared to other hubs such as Zurich or Bermuda, and losing market share as a consequence. It also showed that the London Market was missing out on opportunities in high growth regions such as Asia, Latin America and Africa, where its market share was declining.
London’s competitiveness is under threat as other locations are investing heavily, the report said.
As part of TOM, the London Market Group (LMG) introduced a digital platform called Placing Platform Limited (PPL) that allows brokers and underwriters to exchange information.
There has been a lot of focus on TOM and great support for PPL, Pryce noted. “But I think the London Market has come quite a long way behind, the events have overtaken it to an extent and therefore this whole focus around being far more operational efficient.”
Pressure on the London Market has increased recently as the operating environment for the re/insurance industry became more difficult, driven by a historically low interest rate environment and a soft market.
“When the industry was far less competitive, operational efficiency wasn’t high on people’s list, but now the market is far more competitive,” Pryce said.
Reforming the Lloyd’s and the London Market is a complicated task as there are many independent players and interests involved. Pryce also pointed to duplications happening within the London Market between insurers and brokers.
“If we go back many years, the brokers did an awful lot for insurers, now the insurers do more of it themselves. […] One of the reasons why the London Market struggles to be as efficient as it used to be. […] I think that is one of the problems of the London Market.”
Another problem are arguably high broker commissions in the London Market, which tend to be higher than in most other places in the world, Pryce suggested.
“The general trajectory of commission in the London Market seem to be up. Elsewhere it’s quite stable. […] Brokers are using the competitive market to their advantage and at the moment quite successfully. […] That drives that whole high operational expense base [in the London Market],” Pryce said.
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