REPORT BACK ON 17 JUNE 2022 MEETING
With DANIEL LLOYD-JOHN of the BRITISH INSURANCE BROKERS ASSOCIATION.
A glorious day dawned outside and Chapel Golf Club car park was already busy, as we gathered for the last breakfast meeting before the summer break. The night before, Manchester had seen a big insurance industry dinner – but our speaker Daniel Lloyd-John was as fresh as a daisy.
Daniel came originally from the south-east; at Manchester Business School he discovered how good life can be up here. He worked for Marsh McLennan, but given the chance to return to London preferred to stay put. He set up his own company Broadway Insurance Brokers in March 2020; he says he saw opportunities during the pandemic – “We can control this risk,” – and hasn’t looked back since.
Insurance is about risk. It’s been around a long time, and as an industry it’s as big as banking, though it gets far less attention. It started with trade, Daniel explained. The Babylonians around 4,000 BC were probably the first, then India in 600 BC and the Roman world all grasped the idea of paying a bit over the odds towards a ship’s cargo to cover potential losses, and so did the Lombards in 15th century Italy.
Things really got going in 1700s London, as another Lloyd (no relation) opened a coffee house frequented by merchants, ship owners, financiers, and sea captains. Lloyd’s List showed what ships were loading, where they were heading and their cargoes (and with increasing knowledge, the weather); bankers wrote their names under the ship’s name to indicate how much risk they would bear against that shipment, hence “underwriters.” A bell captured from the French frigate Lutine[1] hangs there, rung twice if a ship was overdue (bad news), and once when it was home (good news).
Lloyd’s of London (still with an apostrophe, good for them) is a global player, second only to the USA in insurance underwriting. It’s a marketplace for insurance and reinsurance, not an insurer itself. The field has widened from shipping; the Great Fire of London in 1666 lead to the creation of fire companies throughout London and other cities, whose little brass signs you can still see on some old houses (the fire engines would race past any burning house not carrying their badge). The idea of property insurance was slower to materialise, but in 1930 came motor insurance, and governments started to get involved with (for example) the Compulsory Insurance Act of 1969 for employers.
The underwriter has a very broad brief, and that’s what fascinates operators like Daniel. On paper, they have to draw up a contract specifying which risks are insured and at what price. In practice, much of the job involves understanding what the client does, and what they need; that can be based on data and experience, or on knowledge of a particular activity or industry. Daniel thinks it works best to get everyone together – bankers, management and other advisers – all in the same room, so they’re all hearing the same story. “Often we can be the bearer of bad news,” he said. That’ll be the bit which can’t be insured (nobody insures against war, and sanctions mean nobody can sell insurance to Russians). But for most clients, the task of assessing the risk can be summed up in the acronym TRAP: terminate, reduce, accept and pass on.
“Terminating risk can involve us saying, “Please stop doing that…!”” he smiled. “But then we go on to Reduce and that’s how to mitigate a risk. If that can’t happen then we are into Accept – accept that some risk is unavoidable. And that can be Passed on – let others take the risk: and you do that by paying for insurance, which we as brokers can then arrange.”
Risk and Relief go together. Success requires both parties to know each other well, trust each other, and to speak honestly. I’ve used an insurance broker for over 50 years (one was at school with Mr Currie) so my insurers’ names can change from time to time; it’s my broker’s job to find me the best deal, which may not be the cheapest. The advent of price comparison websites does not undermine this, as these are mostly advertising sites, not brokers with the best interests of the client at heart. Few of us ever read the small print anyway – we don’t find out what’s not insured till we try to claim.
Daniel gave examples of how the world facing brokers is changing. Work from Home and lockdown have led to hybrid working for millions of employees, but employers still have responsibility for them and huge changes in their risk pattern. That’s happened to brokers too as they pivot from being High Street operators to online themselves. A large care home provider needed a Business interruption Policy – “We have to talk through with the client – what could hurt this business? What could close it?” Customer confidentiality must be a nightmare at times.
Some things can’t be predicted. Horrible things do happen, like the morning a Landrover driver fell asleep, crashed through a barrier on a bridge into the path of an Intercity 225 and a 1800 tonne Freightliner train, causing the Selby rail disaster. A £250 excess on the car turned into a £54 million loss to the insurer, and was all paid. And 9/11, the attack on the World Trade Centre in New York, which affected aviation, property, loss of life and injury markets world-wide, the biggest insurance event ever. We’ve been paying the $40billions cost ever since as insurers strove to recoup their losses.
Things that have happened before we know a lot about (eg, car accidents, age of drivers) but things that haven’t like Covid, especially if they’re fast-changing, make it hard for everyone to keep up. As Elon Musk points out, he knows more about electric cars than any insurer – but the business, and the cars still need insuring. “New and emerging risk is what makes the industry interesting,” Daniel asserted, and “You end up being a big business by trying to be a good one.” Good mantras for anyone.
Comment later from an attendee, who had asked some questions.. ”Thanks for arranging such a good speaker for the Business Club today. Very interesting altogether and it confirmed my suspicions that my insurers had misjudge the relative risks with my business.”
[1] Actually the story is more complicated than that. Yes the Lutine was a captured French navy ship, but was being used by the British. Loaded with gold and silver – and reportedly, the Dutch Crown jewels – and heading from London to Hamburg in 1799, it sank in a storm off the Dutch coast. Lloyds paid up the full enormous value of the ship and cargo within two weeks, and thereby sealed a global reputation for paying out on a valid claim. The bell was recovered in 1857. Hopeful divers have been searching for the cargo ever since.