Big insurers are no longer assumed to be the safest or the best, according to a recent “op-ed” in The Economist magazine (Eggs and baskets, May 28th 2009). The article says that uncertainty around many of the world’s biggest financial institutions means that commercial insurance buyers are no longer prepared to put all their eggs in one basket.

One beneficiary of this trend, the Economist notes, is the subscription market model and specifically Lloyd’s. At Lloyd’s the insurance buyer enlists a broker to place the risk among multiple underwriting syndicates (many of which are owned by outside insurance firms). By doing so, the client gets a single contract but, importantly, potential losses are spread between carriers.

And not only is the buyer’s risk diversified but Lloyd’s unique model means that because the market is partly mutually owned its customers have the security of both syndicate members’ capital and, as a last resort, a shared cash pool funded by all members. The article goes on to point out that even by the relatively hygienic standards of most insurers, the asset side of Lloyd’s’ balance-sheet is “squeaky clean”.

The Economist also lauds Lloyd’s for improved risk management that prevents individual Lloyd’s insurers from losing their pricing discipline.

Commenting on the piece Lloyd’s CEO Richard Ward agrees that better risk management has strengthened the appeal of the subscription model at a time of uncertainty in the insurance business. “People recognize that there is safety in numbers so it’s not surprising that more are considering sharing their risk among insurers at Lloyd’s,” he said.

Tags: Lloyd's, Risk management, subscription market

This entry was posted by Garry Booth on Friday, June 5th, 2009 at 11:16 am and is filed under Insurance Commentary.