North American Binding Authority Business at Lloyd’s

Presented by: Wm. Mark Woodall

Introduction

• “The future ain’t what it used to be” – Former New York Yankee Manager and Hall of Famer Yogi Berra

• The present Insurance Industry market place will look quite different in the years to come. The creative and adaptive will survive, the weak will have expense ratios that will be unsustainable.

• Lloyd’s have been leaders in the distribution of Insurance products in Canada, but the gap with the domestic insurers has been eliminated.

North American Binding Authority Business at Lloyd’s

Key Items for 2014 and beyond• Will Lloyd’s avoid creating another “Australia” with their current aggressive pursuit of

the Canadian Market.

• Will Lloyd’s and it’s partners adapt to the “New Normal” with constant innovation and technology advances in all facets of the distribution system.

• How is the Internet going to change our business framework in the next year, five years and ten years.

• Regulatory issues - How are we going to cope with increased regulatory requirements and its associated costs.

• Can Lloyds adapt and change with the speed required to continue to be a leader in distribution and Underwriting creativity.

North American Binding Authority Business at Lloyd’s

Canada’s Economic Success• Economy growing at 2.2%- second fastest among G7 countries

• Population 36 million

• Unemployment at a soft 7.1%

• Interest rate stability

• Resource base is growing throughout Country: PotashOilLNG

• Canada Sharing Economic Experts – Mark Carney

• Automobile sales strong

• Manufacturing sales expanding on trend

North American Binding Authority Business at Lloyd’s

Can the Canadian Insurance Market avoid being the next “Australia”?

• Syndicates “flooding” into Canada looking for market share

• Many syndicates pursuing the same business as other syndicates

• Domestic Insurers now “copying” Lloyds distribution strategies

• Domestic Insurers need to recover loss of premium on Ontario Automobile rate reductions

• How can we avoid massive rate reductions as many Insurers pursue the same business

North American Binding Authority Business at Lloyd’s

Will Lloyd’s and its partners adapt to the “new normal” with constant change in the innovation and technology advances in

all facets of the distribution system

• Make no mistake, the domestic insurers have watched, reviewed and listened and are now trying to copy the Lloyds distribution system.

• Domestic Insurers now taking an aggressive position on product branding even though distribution continues through brokerage network.

• Lloyds Canada in house technology needs substantial upgrade and adaptation to “user friendly” approach. Lineage is opposing the trend of the ease to do business.

• Many domestic Insurers adapting the “Coverholder” approach for product distribution as a way of assisting in cost reduction. Domestic Insurers adapting Lloyds product distribution strengths.

• Syndicates, London brokers and Coverholders need to get closer to oppose the domestic Insurer pressures.

• Product distribution costs must be controlled through technology advances.

North American Binding Authority Business at Lloyd’s

How is the Internet going to change our business framework in the next year, five years and ten years.

• Deloitte Consulting LLP predicts small commercial will be purchased over the Internet immediately when available. Insurers will need to adapt to the changing business strategy of “do it myself” mentality of todays online customer.

• Interface between the London broker, syndicates and coverholder is a must.

• Product distribution costs must be reduced to offset increased costs in technology and regulatory requirements.

• Digital marketing and operational strategies a must.

• Technology levels will separate Insurers.

North American Binding Authority Business at Lloyd’s

Regulatory Issues: How are we going to cope with the increased regulatory requirements and its associated costs.

• Lets agree the regulatory changes and requirements are here to stay. Lets stay ahead of the compliance “police”.

• Ontario Auto mandated rate reduction will not be an isolated government entry to our market place.

• FSA, what else needs to be said?

• Lineage reporting

• Earthquake modeling

• Syndicate audit requirements

• We need to create an automation focus with regulatory issues

• ALL ADD SIGNIFICANT OPERATIONAL COSTS TO AN ALREADY FLAT PREMIUM BASE

North American Binding Authority Business at Lloyd’s

Can Lloyds adapt and change with the speed required to continue to be a leader in distribution and Underwriting creativity.

• Lloyds is the largest Commercial Insurer in Canada.

• Currently 375 Coverholders in Canada. Proportionally high.• 58 Coverholders are MGA’s, representing 16% of the distribution team. • Now, approximately 90 MGA’s operating in Canada • MGA’s represent 45% of the current premium into Lloyds and rising. • MGA’s have seen substantial growth in the past 10 yrs: Insurer Consolidation

Domestic Insurers changing strategyLloyds believed in MGA modelMGA’s more professionalMGA’s have greater opportunity to grow.

• Serious threat posed by the domestics with MGA strategy: IntactAvivaChubbSovereign Northbridge

North American Binding Authority Business at Lloyd’s

Adaption (continued)

• If all equal, many brokers prefer or lean towards domestic insurers for a few key reasons:

Claims handlingSenior management profileNational strategies with Domestic Insurers

• Currently a number of large US Insurers awaiting Licensing approval for entry into Canada.

• Pension funds and others looking to enter the Canadian market place.

• Claims initiatives. Lloyds claims services need to change. Average won’t be acceptable

North American Binding Authority Business at Lloyd’s

Summary• We need controlled and “smart” growth. Let’s not repeat our

actions in Australia.

• Lets be very conscious of the Domestic Insurers need to challenge Lloyds

• All players in the “chain” need to get closer • Internet will play a massive role in our industry going forward

• MGA’s are the way of the future

North American Binding Authority Business at Lloyd’s