Insurance and Risk Professional: In the months since you took over the role from Adrian Humphreys, what would you say is the key lesson you’ve learned so far?
Chris MacKinnon: The expanse of the Lloyd’s engagement in Australia has surprised me. I think, as an outsider, when you’re working in and around the Lloyd’s market, you tend to have a perception as to what Lloyd’s is and what it means to the Australian insurance market, but the sheer diversity of the engagement that Lloyd’s has in Australia is quite staggering.
There are nearly 120 cover holders, right across the country. I haven’t even begun to work out how many people that employs, but it’s a lot.
We have eight service companies on the ground in Australia now. Obviously, there are also a significant number of brokers transacting business into the London market.
I don’t think I’d ever really contemplated the fact that the Australian footprint for Lloyd’s equated to about 4.5–5% of the Australian market, with more than $2 billion worth of premium.
IRP: One could term Lloyd’s as a bit of an invisible giant, in that you’re here but further back, behind the scenes.
CM: I think there’s always been a perception that Lloyd’s is offshore, Lloyd’s is in London, Lloyd’s is that strange-looking building that looks like a coffee percolator. Certainly in the past 10 to 15 years, there’s been a concerted effort by Lloyd’s to not globalise the brand but to take the brand out to the world. It’s a people business and we want people on the ground engaging with our customers, not just waiting in London for people to have to come in, even though a lot of people do like the trip to London.
I think it’s really important that we’re on the ground and physically present. That’s something that we’re going to be working on pretty heavily over the next 12 months.
IRP: How would you say the average Australian broker views Lloyd’s currently? How far is it away from how you want them to view you?
CM: The brand is strong. We have a wonderful track record and an extraordinary history that no-one else can compare to. It’s the only insurance market in the world and the leading specialty market in the world.
But one of the concerns that we have here locally is we are somewhat the invisible giant. There has been a tendency in recent years for coverholders to step away from the Lloyd’s branding.
That’s fair enough because they’ve been developing their own brands and doing a very good job of it. Some of the larger managing agents or homegrown agencies don’t always feel the need for the the Lloyd’s brand to back them up, although I think it would always add value.
There are plenty of good suburban and regional brokers who just don’t have the level of direct engagement with Lloyd’s that some of the bigger guys do.
There is definitely a perception that you try to place a risk in the local markets first, but then if that doesn’t work you try with Lloyd’s, but of course we are already part of the local market, regulated and authorised under the Insurance Act.
That’s a frustration and I think that that’s a frustration that is probably brought about because of our own inefficiency, if you like. As a marketplace, we’ve never been the easiest place to transact business with from Australia.
We’re very conscious of the perception that you can go along to your local mainstream Australian domestic underwriter here and you can transact business right away, or you can go through a London broker into Lloyd’s and often wait for a couple of days for a response.
One of the key priorities that we’re working on within Vision 2025, which is the [Lloyd’s Chairman] John Nelson initiated plan for the future of the Lloyd’s market, is ease of doing business and market modernisation.
This is an all-encompassing response to make it easier for the average Australian insurance broker to understand Lloyd’s and to access our security, our capacity, our innovation and our expertise without the frictional costs of trying to do business into the London market.
As a marketplace, we’ve never been the easiest place to transact business with.
IRP: Speaking of innovation, Lloyd’s is often at the forefront of examining emerging risks. How important are the white papers you produce?
CM: While we have been publishing reports and research on emerging risks for many years, we have perhaps been guilty of hiding the research away on our websute waiting for the market, the world, to come to us.
The Australian market is one of the most important markets for Lloyd’s. It’s third- or fourth-largest in terms of its demographic, depending on the exchange rate with the Canadian dollar, which is impressive given the size of the country. Those thought leadership pieces are valuable to brokers because they can take them to clients to discuss emerging risks.
Take, for example, the report we have published on solar storms and the potential implications of a major storm on the North American power grid. Providing thought pieces like this to our customers generates discussion and that leads to improved preparedness and risk management strategies being implemented.
While solar storm events may sound like the stuff of science fiction, so does the idea of a tsunami destroying a nuclear power station, or a major New Zealand city practically being destroyed by Mother Nature.
Sadly, it does happen. There are obviously horrendous human consequences, but we as a market have a responsibility to analyse and assess the financial and physical consequences. It’s not going to help anyone if the world’s insurance markets collapse and go bankrupt.
When it comes to Australian brokers, we want to be at the forefront of mind. We want to change the psyche so that it’s a case of, “Well, let’s place this with one of our core local markets which is Lloyd’s and X and Y and Z,” as opposed to, “Let’s go to X, Y, Z, and if they can’t do it then we go to Lloyd’s.”
There are two reasons for that. Number one: we want the business because we’ve got the expertise in that, the skill and the security to back it up. Number two: we don’t want to be selected against. We don’t want to get the last chance business that others don’t want to ride because otherwise all we end up with is the opportunities to write all the business that noone else wants.
IRP: The past five years have been ones of huge growth for Lloyd’s. Is the aim now to consolidate or continue that pace of growth?
CM: There’s absolutely no consolidation on the cards. What we are out to achieve is a sustainable profitable growth.
In Australia, we have 119 cover holders. Half our premium comes from them, a quarter comes from reinsurance, and a quarter comes from open-market one-off placements. In all cases, we are looking to add skill, expertise and a niche knowledge around product lines.
We are looking to grow through innovation. We can adapt quickly. We can develop new products quickly and efficiently. We’ve got the subscription markets to support large complex placements with multiple capital providers so it’s structured perfectly for ongoing growth.
I certainly wouldn’t anticipate the levels of growth we’ve seen over the past five to 10 years in Australia. There was a very deliberate and strategic plan to develop and enhance the cover holder model in Australia. That was about regional distribution and around having a good spread around the country. We’ve achieved that now.
For 300 years we had this brilliant insurance market in London and we sat there and waited for the market, the world, to come and find us. Now we’re getting out to the world.
But one of the things that we are going to be bringing in over the next six months is co-location. We have had a desire from the Australian-domiciled service companies to collaborate more and that has led to discussions about moving in together.
I’m really excited about the opportunity because the service company model here in Australia is absolutely perfect for supporting and enhancing the cover holder model by having people on the ground. With decision-making authority, they can move faster and quicker and it helps ease of doing business in the market modernisation process.
We want to create an environment which nurtures and encourages the opportunity for collaboration within the service companies.
IRP: So what are the other major goals you hope to accomplish in the next year or two?
CM: One of things we are developing is a broker relationship management strategy. We are a broker market and we will always be a broker market. It’s the way Lloyd’s operates. Ultimately, they are our clients who generate the opportunities for us.
As part of Vision 2025, we’ve identified a need to develop strategic partnerships and relationships with our key brokers, not just transactional relationships.
We have a real ambition to work more closely with the key brokers within Australia, to sit down with them, understand their strategy and understand how Lloyd’s can engage with them better.
We want to understand what the impediments that are involved with doing business with Lloyd’s, whether it’s frictional costs or transactional difficulties or technology-based issues, whatever else, and work out strategies that are suitable for them to actually get rid of those impediments.
IRP: Finally, now that you’ve been in the role a few months, have you come up with a good way to describe exactly what the General Representative does?
CM: It’s a little bit like imagining that Lloyd’s is a small country and that I’m the ambassador to Australia, so the Lloyd’s office here is the embassy and we have constituent citizens around the country who are members of the Lloyd’s world. Our job is to oversee them, look out for them, keep an eye on them, help them when they lose their passport, rap them on the knuckles if they misbehave, and generally keep the trading borders open so citizens of Lloyd’s are able to come in and out of Australia without visas and without issues.
It is quite an adventure. You never quite know what you’re going to come up against next.