Lloyd’s CEO John Neal (pic) has told emerg-in that the US government needs to take action to stop a return to the US Litigation culture of the 1990s.
Mr Neal was addressing the Insurance Institute of London (IIL) when he was asked by Emerg-in.co.uk to respond to the views of the Prudential Regulatory Authority (PRA) over its concerns around the industry’s issues with accurate exposure management.
The PRA wrote to the CEOs of each of its regulated companies earlier this week to highlight the issues it would prioritise for 2020.
The letter highlighted the concerns over under reserving and that of exposure management revealing that there was a concern that in an era of new risks and a rising severity and incidence of natural catastrophes the reliance on historical data for models may no longer be fit for purpose.
Mr Neal said he had met with the Financial Conduct Authority (FCA) earlier this week where he had discussed the market and its drive for performance management.
“We as an industry are faced with new risks and we have seen a return in the US to the litigation culture of 20 years ago. We need to ensure we price risk properly.
“We cannot go back to the litigation situation we faced in the US 20 years ago, we need the US government to take steps to address the issue and we hope they will do so.”
In his speech to the IIL at the Lloyd’s Old Library Mr Neal said the market was delivering change to ensure that the market did not simply fall into the trap of believing that the pricing cycle would turn in the years to come.
“We cannot simply believe it is business as usual and if we do we will become increasingly irrelevant,” he added. “We must be relevant, innovative and effective in every area in which we operate.”
He said performance remains key to the market and its future management.
“We need to get up on a Monday and go to bed on a Friday thinking about performance,” he explained. “It is no longer a case of waiting for a return to the glory days. We have to take decisive action to improve performance. Poor performance by individual syndicates will not be allowed to drag down market performance as a whole.”
Mr Neal said the industry’s cost of doing business was 30% while in Lloyd’s it was 40%.
His aim under the future of Lloyd’s blueprint was to bring that down significantly to 20%.
“The average cost for a broker in the Lloyd’s market is 27% and the additional costs for the market are 14%,” he explained. “Outside of our market the brokerage costs are on average 17%. The cost of brokerage in this market is higher but it should not be ten points.”
He added: “We need to reduce that by 7% to 10% quickly.”
Mr Neal said the use of data and technology had the potential to reduce the costs to 20% however it was a “big ask”.
“We can get the costs down from 40% to 30%,” he explained. “We then need to work with wider industry to reduce that 30% to 20%.”