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asia focuslloyd’s looks to build on a decade of success 07 lloyd’s charities trust

‘brighter futures for londoners’ scheme08risk in transit

nick gooding explains cargo underwriting 18

How research partnerships with science keep insurers ahead of the game

chemistryWorking

www.lloyds.com market Issue Four 2010 0302

see our feature on science and risk

16XL Insurance develops a new policy covering the problem of supply chain-related product recalls

We talk to Nick Gooding about insuring high-value cargo

Lloyd’s celebrates ten years in Asia and looks to the future

The second in our series of syndicate profiles looks at Sportscover

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How science and business are increasingly working together to better quantify risk

Sue Langley talks us through her plans for the Exchange

The dangers posed by space weather to life on earth

The Lloyd’s Charities Trust announces new three-year partnerships

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Navigators at Lloyd’s has introduced a new combined insurance liability product to protect the growing number of organisations that carry out clinical trials and other contracts in the life sciences sector.

With its Life Sciences Research Related Liability Coverage, Navigators has created a product specifically for contract research organisations (CROs), covering the two main exposures they face by combining personal and professional liability cover.

CROs can be left vulnerable when things go wrong. In 2006, a UK drug trial led to six volunteers being hospitalised with organ failure. The German company developing the drug later became insolvent, leaving the CRO that ran the trial facing lawsuits even though it followed the correct procedures.

Care has been taken to ensure accuracy of information but neither Lloyd’s nor the publishers can accept responsibility for omissions or errors. Lloyd’s is regulated by the Financial Services Authority. © Lloyd’s 2010

Managing EditorJames Cash Assistant EditorJames de MellowArt DirectorRachel CreaneDesign DirectorBen BarrettPublisher Rob SawyerManaging DirectorClaire OldfieldCEO, WardourMartin MacConnol

If you want to contribute to the next issue, please contact Jonathan Watkins at Lloyd’s at jonathan.watkins@lloyds.com,tel: +44 (0)20 7327 6256.

If you’d like to view Market electronically, please visitwww.lloyds.com/themarket

Market is published on behalf of Lloyd’s, One Lime Street, London EC3M 7HA, by Wardour, Walmar House, 296 Regent Street, London W1B 3AW.

product news

> morewww.navg.com

More common exposures for CROs, however, come from damages assumed under contract, according to James Bird, Partner in the Life Science Practice at broker Jardine Lloyd Thompson. “Basic exposures would come in the form of failure to perform or loss of data,” he said. “But exposures also arise when contract research firms fail to follow protocols drawn up by sponsors and injury to

subjects result.”Life sciences companies

are increasingly collaborating with scientific facilities around the world. “Pharmaceutical companies have had a bumpy ride of late,” said Lyn Rossano, Senior Vice President and

Global Practice Leader for Life Sciences at Navigators, “but the limited availability of capital in the recession has meant many are turning increasingly to outsourcing.”

Navigators provides the coverage through its Lloyd’s Syndicate 1221, allowing it to offer the specialist policy in most major markets where Lloyd’s has licences.

CROs can be left vulnerable when things go wrong

On page 12

lloyd’s news

interim resultsLloyd’s reported pre-tax profits of £628m for the first six months of 2010, despite having to deal with large claims and extremely challenging investment conditions.

Although profits were down significantly from the first half of 2009’s £1,322m, the interim results demonstrate Lloyd’s underwriters’ capacity to fulfil their obligations to policyholders even in a year that has already seen several events demanding significant payouts.

“The first six months of 2010 were the costliest since we began interim reporting, testing not only Lloyd’s

underwriters but insurers around the globe,” said Lloyd’s Chairman, Lord Levene. “While events such as the Chilean earthquake and the Deepwater Horizon loss have proved challenging, paying these claims and supporting our policyholders is what we are here to do.”

Conservative investments resulted in a positive return of £597m during a volatile period for the financial markets, and central assets are at a record high of £2,232m.

Lloyd’s Chief Executive Richard Ward added: “The first half of 2010 demonstrates that we are well-placed to deal with the challenging market conditions. Our resolute focus on underwriting discipline, close attention to our customers’ needs and a prudent approach to investment stands us in good stead for the second half of the year.”

> morewww.lloyds.com/2010interims

Risks of researchWELCOME TO THIS

ISSuE OF MarketScience influences our everyday lives whether we realise it or not, and it’s just as important to the insurance industry. Our cover feature this issue investigates how the partnerships formed between the research and business worlds can lead to increased understanding, and better pricing, of risk.

Staying on the scientific theme, we also take a look at the threats posed by space weather. Solar activity is increasingly thought of as a phenomenon that can affect communications and infrastructure on earth, and governments are looking into how they can protect themselves.

Away from the laboratory, Lloyd’s celebrated the 10th anniversary of its Singapore office in October. We mark the occasion with an in-depth look at what the future holds at a time of great potential for Asian insurance markets.

Elsewhere, Director of Market Operations Sue Langley talks us through the Exchange, and Marine Cargo underwriter Nick Gooding describes some of the more unusual shipments he’s had to insure over the years.

Finally, the Lloyd’s Charities Trust has announced Brighter Futures for Londoners, two three-year partnerships with charities that will see more than £350,000 donated to some of the capital’s most disadvantaged people.

We hope you enjoy this issue and, as always, welcome your feedback on the magazine.

Jon WatkinsEditor

FrOM thE EDitOr

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pre-tax profit over six-month period

>£628m

www.lloyds.com4 5market Issue Four 2010

newsnews

market news

market news“Flexible”, “innovative” and “forward-thinking” were just three of the superlative terms brokers used to describe Lloyd’s in a recent survey conducted by a leading insurance consultancy.

The Gracechurch London Market Study 2010 reveals a significant increase in the number of London Market brokers who are favourable to doing business at Lloyd’s in the next three years: 84% say they are very positive, compared with 67% in 2008.

Gracechurch Consulting interviewed more than 300 London Market brokers to gauge satisfaction in their dealings with Lloyd’s.

The study also found that reinsurance brokers are the happiest at Lloyd’s, with 91% of those interviewed feeling very positive about using Lloyd’s as a market.

On all business-processing measures tested, most brokers rate Lloyd’s on a par

with, or outperforming, other markets. In particular, brokers say that Lloyd’s performs ahead of other markets on obtaining quotations, agreeing a final risk acceptance and processing and settling claims.

“This independent research is great news for managing agents at

Lloyd’s. Their hard work and commitment are

reflected in the fact that broker satisfaction is at an all-time high,” said David Gittings, Chief Executive Officer of the Lloyd’s Market

Association (LMA). “Lloyd’s appears

to be more forward-thinking and positive,”

said one broker quoted in the study. “It is embracing

changes that need to be made, as opposed to just dodging the issues. It’s taking on board people’s comments and acting on them.”

> morewww.lmalloyds.comwww.grch.net

> morewww.lloyds.com/graduates

> morewww.xlinsurance.comwww.lloyds.com/360

> morewww.lloyds.com/strategySee our interview with Sue Langley on page 14

product news

corporation newsWork on designated priorities for 2010 is proceeding well, and in some areas better than expected, according to the Lloyd’s Strategy 2010 Mid-Year Progress update.

The five priorities – performance management, Solvency II, the Exchange, claims transformation and access to business – were outlined in the Lloyd’s Strategy 2010-2012 document, released in February.

Of these, the Exchange has seen particular success to date. Connection has exceeded expectations among all managing agents, and the entire market is now connected.

Performance management progress in 2010 has included improvements to benchmarking performance data that helps syndicates to track performance against the market average.

Solvency II implementation has also had a promising start, and engagement from syndicates has been positive. The first release of Lloyd’s Solvency II capital model has been delivered on schedule.

The new claims agreement framework is being piloted, and early indications are that average transaction times for claims are improving. Lloyd’s also continues to improve awareness and the efficiency of the coverholder channel, which aids access to business.

A key challenge identified by the Lloyd’s Strategy report was maintaining London’s position as the leading centre for specialist insurance. With governments reacting to the global financial crisis with increased regulation, Lloyd’s will continue to emphasise that core insurance and reinsurance activities do not represent a systemic risk to the global financial system. There is evidence that this industry-wide lobbying is having some influence on national and international policymakers.

Challengeaccepted

XL Insurance at Lloyd’s has developed an extension to its product contamination policy for North America that addresses the growing problem of supply chain-related product recalls for food and drink companies – including, for the first time, adulterated ingredients that aren’t necessarily dangerous to consumers.

Increasingly, food and drink companies are purchasing product recall insurance, but until now most recall policies would not pay claims unless the product is considered harmful, according to Mark Colgate of R K Harrison Insurance Brokers. “By providing positive cover for adulterated ingredients, XL is likely to make some food and drink companies re-evaluate the viability of recall insurance,” he said.

The Peanut Corp of America recall in 2009 – when a salmonella outbreak killed nine people and made 714 ill – has led to US regulator the Food and Drug Administration (FDA) taking a more proactive approach. The Food Safety Modernisation Act, currently working its way through the US Senate, is likely to produce tougher rules for food and drink companies, including mandatory product recalls.

XL’s announcement comes shortly after the publication of the Lloyd’s 360 Risk Insight report on globalisation, which highlights the inherent risks to businesses with long, complex supply chains. In particular, the report emphasises the potential problems with keeping chains under control, the vulnerability of just-in-time business models and the risk of cascade failure – when the whole chain crashes due to the failure of one or more of its parts.

Nuts about food safety

Broker approval

rising

Applications for Lloyd’s 2011 graduate intake opened on 27 September, only weeks after the newest group of six graduates began their 18-month placements in a programme that is rapidly growing in popularity.

The number of students registering for the scheme has doubled from 1,500 to more than 3,000 since its launch in 2007. Organisers expect that number to be surpassed before the January 2012 deadline.

Lloyd’s Graduate Programme has also earned a spot in The Times Top 100 Graduate Employers, which placed Lloyd’s as a new entry at number 92.

“To make the Top 100 Graduate Employers is a massive achievement for a scheme that’s only been going for three years,” said Suzy Black, Head of Human Resources at Lloyd’s. “It shows that the insurance sector is now considered an interesting career choice – reflected in the ever-increasing number of applications we receive.”

The graduate section of the Lloyd’s website aims to answer all the questions candidates might have regarding the application process. It features a graduate blog, where some of those on the scheme give an insight into what working at Lloyd’s is really like, as well as a video discussion between successful applicants and details of careers events at universities around the country.

Grad scheme open for business

84%of brokers interviewed are favourable to doing

business at lloyds

Food and drink companies are increasingly pushing product recall insurance

From left to right: Georgie Collings, Maeve Grant, Cordelia Witton, Alice Merry, Lara Green and James Banks

For food and drink compainies, effective insurance means protecting the supply chain

newsnews

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describing the essence of what makes the London market special, and how it works, is a challenge brokers at Lloyd’s routinely face when dealing with their counterparts in the US. That’s why, for the last decade, Lloyd’s has invited a representative group across the Atlantic every year to see and experience the market for themselves.

“Lloyd’s is the best-known brand in our industry,” says Hank Watkins, President, Lloyd’s America. “While we value this recognition, we realise that many of the agents and brokers charged with delivering risk transfer options to their clients may not be as familiar with Lloyd’s as they are with the US domestic market.”

Sixteen American retail and wholesale brokers, plus four risk management students, visited the Lloyd’s market in June for the five-day US Broker Programme, now in its tenth year. Participants got the chance to

experience The Underwriting Room firsthand, both spending a day with an underwriter and shadowing a Lloyd’s broker.

“The most valuable thing for the visiting brokers is spending time in the market,” says Kiran Bhovan, Marketing and Communications Manager for Lloyd’s America. “They go back with a new sense of confidence when talking to their clients about the benefits of the Lloyd’s market.”

Participants regarded the programme as a success, too. Overall, they felt that they were better prepared to present submissions to the market, and could explain with more confidence to clients why Lloyd’s was a good choice for their business.

“I’ll have much more focused and worthwhile conversations with London [after going through the programme],” says Tom Brighton, a broker from the Aon Corporation in San Francisco. “I now have what I would consider to be working knowledge, which is so important in this business.”

christmas decorations seem to appear on the high street almost as soon as August is over, and new research suggests that online shoppers are beginning the festive season earlier, too. According to a Retail Eyes survey, 23% of UK gift buyers planned to start their Christmas shopping in October, meaning that expensive items could be left lying in homes for over two months.

The season of goodwill isn’t cheap, and presents alone can end up costing hundreds, if not thousands, of pounds. Early birds will have a stress-free time in the shops, but could run into problems unless precautions are taken to protect the costly toys or jewellery they buy.

decade of success

Beat the queues, but beware“Homeowners in the UK should be protective of the

presents hidden in their house prior to Christmas morning,” says Andy Leggett, Online Marketing Manager at Regal Insurance, a specialist high-value home insurance provider that deals with Lloyd’s managing agents such as Brit. To cover themselves, Leggett says, homeowners should take out a home contents insurance policy, or update an existing policy, to cover new purchases.

The Lloyd’s market, through managing agents such as Kiln and Beazley, also writes risks associated with online shopping – identity fraud, for example. Even though total fraud losses on UK cards fell by 20% to £186.8m in the first half of 2010, that number is still vast, and customers should ensure that they are fully covered.

Visiting brokers in the Adam Room Q. tell us about some of the more unusual cargo insured at Lloyd’s.Live animals in transit are often insured, including a whale that was shipped in a large tank on its way to a zoo in Florida. The Lloyd’s market specialises in stock and bloodstock in transit, and regularly insures stallions flown around the globe for breeding. These horses can have high values: Rock of Gibraltar, for instance, was valued at £40m.

Q. Why is Lloyd’s a good place to underwrite such risks?The beauty of Lloyd’s is that each underwriter specialises in a particular area, such as fine art, bloodstock or space, and this will often include the risk of goods in transit.

As a subscription market, Lloyd’s can quickly insure high-value cargo – such as a $350m oilrig – by sharing risks among syndicates. A broker can place a complex high-value risk in the market in just one day because of the face-to-face nature of Lloyd’s.

Q. how big is the cargo insurance market, and how has it changed over the years?The global cargo market premium is $12bn-$13bn, with Japan the largest single market. Containerisation, however, has meant that cargo underwriters require less skill than in the past and pay far less attention to detail. When I first joined Lloyd’s, I recall an underwriter asking whether the nails used to secure tea chests were galvanised or Japanese nails, as he had a different rate for each.

Lloyd’s is the ideal place to underwrite unusual or high-value cargo, according to Nick Gooding, Senior Marine Cargo Underwriter at XL Insurance in London

Q. What type of cargo is typically insured at Lloyd’s?The Lloyd’s market specialises in the more unusual high-value, high-risk cargos and catastrophe-exposed business. For example, the Lloyd’s market developed war risk on land policies and currently insures cargo going to conflict zones such as Afghanistan.

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Q. how varied are the cargo risks written in the market?Space satellites, which are very expensive and delicate pieces of equipment, are insured when in transit from the manufacturer to the launch site, right up until the point of ignition. Other high-value cargo risks insured at Lloyd’s include fighter jets that need to be delivered far beyond their normal flight range.

Smaller high-value cargos include fine art, precious metals and shipments of gems such as diamonds. These cargos are typically transported by air or land, and security is a real challenge.

Large infrastructure projects are particularly tough, and a lot of this type of risk is underwritten at Lloyd’s. Turbines, generators and equipment for power stations are typically very expensive, and total sums insured can exceed $400m when the potential costs of delay in start-up are included.

> morewww.lloyds.com/us

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a decade is not that long – and given that Lloyd’s originated more than 300 years ago, the unique London marketplace is a virtual newbie within Asia. But in that relatively short space of time, Lloyd’s has built a strong reputation, supported by its London pedigree, for innovation and an ability to tap into local demand.

Lloyd’s celebrated ten years of business through the launch of a 360 Risk Insight report on the sector along with a reception at the main hub office in Singapore. But, while there may be good memories of the past, sights are focused on the region’s healthy prospects.

For example, Lloyd’s is developing an ever-larger physical presence in Asia, with regional offices in Hong Kong, Japan and, most recently, China. These offices provide a trading platform from which Lloyd’s syndicates can do business with local markets.

think localOne person who realises why regional offices are so vital is Head of Operations for Lloyd’s International Markets, Kevin Reeves. “We would not have done so well without having a local presence,” he says. “We are a broker-driven business and that means we need to develop and maintain relationships with those brokers in the region.”

In many ways, Lloyd’s entered the Asia market at the right time and has quietly built its reputation over the past decade. Singapore, already a sophisticated insurance centre before Lloyd’s came on the scene, was the logical home for a regional hub and, through its deep-rooted links with the UK, was delighted to welcome Lloyd’s syndicates as world-leading providers. Growth has been so good that Lloyd’s is moving to larger offices.

Ten years ago, there were only three syndicates in Singapore; now there are 17. Jon Song, Lloyd’s General Manager for Singapore, says that further growth would very much depend on syndicates offering something different. “We favour complementary over competitive activity,” he says.

Japan offers exciting prospects. The market is opening up through provisions in the Japan Insurance Business

As Lloyd’s celebrates ten years in Asia, Market looks towards a future full of potential

Law that allow Lloyd’s members to underwrite non-life business through a coverholder, Lloyd’s Japan Inc.

The Japanese market is the ninth-largest source of revenue for Lloyd’s globally, and the premiums generated by Japan’s policyholders in 2008 amounted to approximately £289m. Ninety per cent of that was reinsurance and 10% was direct insurance, although the latter is viewed as having considerable potential. Lloyd’s Japan Inc. is active in property, casualty, liability, marine and specialist covers such as specie, terrorism, kidnap and ransom, and contingency.

Meanwhile, Hong Kong is an established centre with a long-standing regulatory environment where most leading brokers have a presence. Among those writing business for Lloyd’s is Catlin, one of the largest capacity providers specialising in marine, hull, cargo, property and terrorism. “We have extremely good relationships through our syndicates and local brokers,” Reeves says.

Brokers, too, have been seeking a share of the action. Bowring Marsh opened a new office in Hong Kong in July and will launch in Shanghai in 2011. JLT set up JLT Lixin in 2006 and recently launched a branch office in Beijing. Warren Merritt, Managing Director of JLT Asia,

asia focus

Lloyd’s begins trading in Asia

2000 2003 2004 2005

September SARS scare puts Asia on alert

December Indian Ocean tsunami kills more than 200,000 people and costs Lloyd’s £100m

November Lloyd’s granted licence in China

We have extremely good relationships with local brokers

headingeastward

11www.lloyds.com10 market Issue Four 2010

says: “The proactive attitude of the authorities in progressively liberalising the insurance industry has been a factor in the growth of the market and, importantly, in the introduction of global benchmarks and standards.”

china callingIn May, Lloyd’s announced that it had obtained a licence to write direct business in China, having been granted permission to write reinsurance three years ago.

“We had been building links for about eight years,” Song says. “Our Chairman, Lord Levene, was well received there and was able to get across that we could enhance the local market through our reinsurance expertise. Going for direct business was a different matter, but the Chinese could also see that a Lloyd’s presence would be beneficial and would help the insurance sector mature.”

Reeves says that the move to being able to write direct business came much sooner than anticipated. “We are now setting about building the operating platform that will move our reinsurance operation to a direct insurer in 2011.”

Eric Gao, CEO of Lloyd’s Reinsurance Company China, says: “There have been a number of catastrophes in China in recent years, and in many cases little insurance was present. Insurance penetration and density in China remains low despite the economic growth over the past decade. Understandably, this is one reason why the government wants to see private insurers take some of the strain.”

In April, for example, there was a series of earthquakes in north-west China. Officials said that more than 10,000 people were injured when six quakes hit Yushu county in Qinghai province. Broker Aon Benfield said that China also suffered from severe rainfall and subsequent flooding around the Yangtze River, with more

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than 650,000 homes affected and economic losses estimated at $12.5bn in July alone. “That is why a team led by the regulator is currently engaging in a feasibility study with regards to setting up China’s natural catastrophe insurance framework,” says Gao.

While London may be the insurance centre of the world, there is no room for complacency. Other countries, such as Bermuda, are growing in influence and Lloyd’s underwriters also need to compete with local rivals and the composites.

What’s more, any British insurance provider needs to show that it was unconnected with the financial crisis and the problems with the banking sector. “Regulators worldwide are understandably asking for more information,” Reeves says. “All our representatives, wherever they are in the world, have to develop close relationships with the regulator and keep promoting the key messages around our chain of security and A+ rating,” Reeves says.

So is further expansion in Asia planned? Reeves says that Lloyd’s is keeping a close eye on the region, but that moves will be determined by what the market wants. “There have been visits to Vietnam and South Korea but there are no firm plans to set up in either at this time,” he says.

Reeves emphasises that the underlying principle is to write profitable business, not to go for growth. “A key factor in any decision to enter a new market is the maturity of the broker network,” he says. “We also need to be clear about the opportunity and any possible effect going local may have on the reinsurance which flows to London.”

“Ultimately, the Lloyd’s market sells itself on the quality of service and the claims service it provides,” Reeves says. “One of the foundations of our business in the US was the ‘pay all valid claims’ message following the San Francisco earthquake in 1906, which was cemented more recently by our speed of response after 9/11. It is always a challenge in new markets to convince clients that a ‘foreign’ insurer is a safe bet and they will get paid.” m

Continuing our series profiling Lloyd’s managing agents, the Market spotlight falls on Sportscover

Introducing…sportscover

Our representative in China is making excellent progress winning new business

www.sportscover.comwww.sportscover3334.comTo view details of all Lloyd’s syndicates,visit www.lloyds.com/directories

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sportscover is the only A-rated dedicated sports and leisure insurer at Lloyd’s. Market caught up with them to find out where they’ve come from and, more importantly, where they’re going. Having built the business up for nearly 25 years and established a Lloyd’s syndicate, it now has ambitious acquisition and expansion plans in the offing, underpinned by a sound business ethos.

HistoryFounded as an underwriting agency in Melbourne, Australia, in 1986, Sportscover set about developing an insurance product to satisfy the needs of amateur sports clubs and associations. It now provides cover to millions of customers in 16 countries and has offices in four continents. The group achieved a long-held ambition in August 2006 when it established the Sportscover Lloyd’s syndicate – 3334 SCS – gaining approval from the FSA and Lloyd’s for managing agent Sportscover Underwriting Ltd to begin managing the syndicate from 24 December 2008.

the teamGroup Chairman and Director of Underwriting Peter Nash heads up a team consisting of underwriting agencies, wholesale and retail brokers, risk management companies and the Lloyd’s entities. The syndicate’s experienced underwriters include Chris Nash as Active Underwriter and Murray Anderson as Deputy Underwriter. Matthew Riley is CEO of Sportscover Underwriting Ltd.

lines of businessCover includes personal accident, liability (including PI and D&O), property, contingency and travel.

“We really know the cover needed by sports clubs and associations,” says Chris Nash. “This means that we can keep our customers up to date with developments in sport and risk wherever they happen. It helps that many of the senior staff have been involved in sport as administrators or as players.”

When Sportscover diversified into leisure in 2005, a team of experienced underwriters was brought in to build the business. This has since grown to become a sizable part of the portfolio.

in factSportscover has rapidly become one of football’s major insurers. Clients include the Norwegian, Australian, Scottish, Irish and Welsh football associations, as well as many national leagues in the UK and beyond.

by the numbersSince starting underwriting in 2006 with a capacity of £8m, Syndicate 3334 has seen a steady and sustainable rise in capacity to £25m for 2010. It will increase further, to £35m for 2011, in accordance with the organisation’s strategic plan.

Word for word“Sportscover Underwriting will continue with its controlled increase of capacity in line with profitable business,” says Matthew Riley. “Our aim is to expand the number of syndicates that we manage when the time is right. We will continue to

look at opportunities to diversify, but only where we have access to the expertise to ensure the sustainability of the account.”

the future“We see a number of significant opportunities for us in the future through organic growth and strategic acquisitions,” says Steve Boucher, Marketing and International Business Development Director. “We are increasing our footprint in Asia, particularly China. We participate in Lloyd’s Reinsurance Company (China) Ltd. and our representative there is making excellent progress in winning new business in this rapidly growing and developing market.

“We are always on the lookout for acquisition targets that will provide synergies for our business. Nevertheless, our overriding principle is that growth will continue to be based on profitable business and long-term stability.” m

May Lloyd’s receives approval to write direct insurance in China

March Lloyd’s expands its influence in Malaysia with the Lloyd’s Labuan Limited subsidiary

April Lloyd’s begins operating through reinsurance in China

August Beijing hosts the Olympic Games

March Lloyd’s office in Tokyo officially opens

2007 2008 2010

toasting the futureThe historic Raffles Hotel, Singapore, hosted Lloyd’s Asia’s 10th Anniversary celebrations on 25 October. The 360 Risk Insight Seminar on Globalisation opened proceedings, discussing the risks arising from a global economy and how businesses can manage new threats. Following the seminar, Lloyd’s Chairman Lord Levene hosted a drinks reception, celebrating the ten-year growth of Lloyd’s Asia.

to find out more about the Lloyd’s events programme, go to www.lloyds.com/events

syndicate profile

science & risk

Many researchers in the fields of natural sciences, maths, statistics and social sciences do not realise that their work is relevant to the insurance industry, explains

Dougal Goodman, Chief Executive of the Foundation

for Science and Technology and Chairman of the Lighthill Risk

Network. “We provide an environment in which the business and research worlds

can engage with each other,” he says. “This enables insurers to access the latest risk knowledge and can even help guide scientific research.”

“Scientists are not particularly good at translating their work into applications, and recipients can find it difficult to gain access to research,” says Steven Edwards. “The challenge has been for businesses to communicate their requirements and for science to turn this into research that is useful for businesses and insurers.”

“The key benefit of these partnerships is that the research is closely tied to businesses’ strategic and financial concerns,” says Michel. “For example, the impact of climate change on hurricane frequency is highly relevant to the offshore energy industry.” m

13www.lloyds.com12

advancements in science bring many benefits, but they are often accompanied by concerns, too.

Genetically modified crops, once denounced as Frankenstein foods, have

increased yields and reduced reliance on pesticides, while nanotechnology is being

used to clean up oil spills and develop energy-efficient products, despite the health and

environmental concerns that surround it.Insurers have a particular interest in identifying and

understanding science-related threats. For example, the underappreciation of asbestos-related health risks continues to cause several thousand deaths each year in the UK and has cost insurers billions of pounds in compensation claims.

Underwriters need an accurate view of the long-term risks that new technologies such as nanoscience pose to human health and the environment, according to Richard Ward, Lloyd’s Chief Executive.

“The global insurance industry needs to tap into the latest scientific research if underwriters are to quantify and price risk adequately and continue to provide cover to business and consumers,” says Ward, who has a scientific background in physical chemistry.

researching riskLloyd’s has been active in furthering knowledge of risk through its 360 Risk Insight initiative and its work with the Lighthill Risk Network, an insurer-funded body that connects researchers with the business community. The need to engage with the scientific world was behind the launch, early this year, of the Lloyd’s Science of Risk research prize, which rewards the best insurance-based research from young UK academics and attracted more than 80 entries.

In recent years, the insurance industry has formed a number of partnerships with academic and research bodies to gain a deeper knowledge of natural hazard threats such as hurricanes and earthquakes.

“By gaining a better understanding of a hazard, we can better quantify and price that risk,” says Dr Steven Edwards of the Aon Benfield University College London (UCL)

Closer ties are being forged between business and science, giving insurers a better understanding of risk and helping to meet new challenges

The risk

Hazard Research Centre. “And if by understanding a risk better, we realise that the exposure is greater than previously thought, we can take steps to reduce it.”

According to Edwards, the insurance sector is already pretty good at communicating risk to both governments and wider society. Research backed by the insurance industry has led to better building standards in hurricane-prone parts of the US and has supported demands for policy changes aimed at making UK flood exposures more insurable.

Increasingly, however, partnerships between insurers and science are facilitating further transfer of knowledge. Unlike the situation ten or 15 years ago, reinsurers now employ hazard scientists, and demand has increased among insurers wanting to study geophysical risk at institutions such as UCL’s Hazard Research Centre.

building partnershipsAnother body that is helping to bridge the gap between insurance and science is the Willis Research Network (WRN). Established in 2006 by broker Willis, WRN currently sponsors researchers and students at more than 30 universities and works with leading institutions such as the Met Office, the National Centre for Atmospheric Research in the US, the United Nations and the World Bank.

WRN targets its research so that it is relevant to current insurance industry concerns, such as the impact of climate change on extreme weather events and research into risks linked with emerging markets. Projects currently include plans for a global earthquake model, work to reduce uncertainties in catastrophe modelling, research to increase the understanding of typhoon cyclone risk and a study into the vulnerability of infrastructure.

The research is designed to help businesses, insurers, governments and public policy institutions to identify and quantify their exposure to extreme events, as well as assisting in the risk management decision-making process, according to Gero Michel, WRN Managing Director. “The research benefits insurers, businesses and the wider industry because it generates knowledge of risk that did not previously exist,” he says, “and because history is no longer a reliable guide to the risks society will face in the future.”

equation

The better we understand a hazard, the better we can quantify and price that risk

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www.lloyds.com14 15market//issue One//2008

Since its launch last year, the Exchange has taken off, and the key now is to embed it into the market’s working practices

encouraging the lloyd’s market to embrace the digital age is a challenging task. But Sue Langley is used to high-pressure situations – as well as being Lloyd’s Director of Market Operations, she is a Non-Executive Director of Northern Rock. The keen musician, who relaxes by playing her grand piano, is now orchestrating efforts among the Lloyd’s market’s 52 managing agents and 176 brokers to transmit information electronically through the Exchange.

In a nutshell, the Exchange is an electronic support system for the market. “It offers one standard and one means of connection between brokers and underwriters, and also IT providers,” Langley says.

The Exchange’s goal is to reduce costs and offer a better service to the market’s customers by speeding up procedures. By making the process more efficient, it can save the market money and cut down on simple mistakes.

taking away the fear factorLangley is quick to emphasise that the Exchange will support the face-to-face relationship between broker and underwriter. “The issue does create quite a bit of emotion,” she acknowledges. “People worry that the new electronic trading platform will shut down the Underwriting Room, but that isn’t the intention at all.

“If you’re negotiating a complex space or energy risk, or any risk in fact, you’re not going to do that by email or a trading screen – you’re going to talk to the other

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party. The Exchange simply supports those negotiations. It means all the information will already be on both the underwriter’s and the broker’s computer screens, rather than carried around in huge leather wallets. It allows the meeting to be about adding value.”

Since its launch last May, the Exchange has proven attractive to market players thanks to its simplicity. The Exchange was set up with the modest aim of getting 20% of the market signed up by April 2010. Instead, 80% joined by that time. In June, the entire market went live, with all managing agents on board. That was crucial, as brokers would only give the initiative their full support if they didn’t have to adopt separate processes for different managing agents.

“It’s a great achievement,” Langley says. “I like to think it’s because everyone can see the benefits of having this tiny piece of kit. All it does is open a message, ensure it meets the standard and then passes that on to the recipient. It doesn’t force people to change the way they work. When it was set up, we told the market: ‘Operate how you want, but the one common denominator throughout the market is information – we’ll standardise that.’”

simple idea, simple stepsHowever, to fully reap the cost savings on offer, the Exchange must become a part of the everyday working lives of Lloyd’s practitioners. To this end, a pilot project kicked off across the London market in June whereby all endorsements for marine

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It doesn’t force people to change the way they work

hull, cargo, war and liability policies will be submitted and agreed electronically using ACORD messaging. The pilot will eventually be rolled out to other classes of business with the hope that, in time, all endorsements will be agreed electronically.

The aim, says Langley, is to free up underwriters and brokers so that they have more time to discuss the important matters: negotiating coverage for complex risks. “Many endorsements, such as changing the name of a ship, are simple. This project means brokers don’t have to walk to Lloyd’s and queue up to see an underwriter to get those simple things done. They can do it by email.”

Lloyd’s is also working with a handful of brokers to use iPads – Apple’s iconic tablet computer – to conduct their business, but with the twist that it will be concluded electronically rather than using ink and paper. “They can download the slip on to the iPad and carry it into the Underwriting Room before sitting down with the underwriter. If they want to change anything, they can use the stylus to annotate it on screen and then email it to the underwriter,” says Langley.

The next step will be to offer a Lloyd’s application on the iPad that allows all brokers to go over a slip with an underwriter on the iPad’s screen. When they both agree on it and the broker hits ‘send’, it will deliver the message in ACORD standards.

“In that way, the use of the Exchange can evolve naturally,” Langley says. “It allows people to use technology to replicate how they work now.” m

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the risks posed by space weather are only beginning to be understood by businesses and governments. Communications systems, power grids, planes and other forms of transport are all under threat from activity occurring millions of miles away. The dangers are very real. For example, the Australian Transport Safety Bureau (ATSB) is conducting an ongoing enquiry into an incident in October 2008 on an Airbus A330. A suspected failure of various onboard systems caused the plane to make a series of nosedives, the most serious of which was an 8.4-degree descent of 650ft, followed by a further 400ft drop five minutes later. The ATSB continues to evaluate and consider cosmic and solar radiation’s potential as a cause of these incidents.

“It’s something that can’t be ruled out,” says Mike Hapgood, Head of Space Environment at the Science and Technology Facilities Council’s (STFC) Rutherford Appleton Laboratory. “Aircraft design needs to be robust against these things as we put more and more electronics into planes.”

Hapgood has compiled a report, Space Weather: It’s Impact on Earth and Implications for Business, in conjunction with the 360 Risk Insight team, and has been researching the phenomenon of space weather for more than 30 years. The report outlines the potentially huge disturbances to the transport, aviation and power sectors that space weather could cause. The effect on the world economy if, for example, space weather knocked out a major power grid for a few hours, would be severe.

WHat is space WeatHer?Despite existing in a vacuum, the environment of space varies, and the sun creates phenomena that can influence our lives on earth. “Space weather is caused by activity that can include solar flares that influence the earth’s magnetic field,” Hapgood says.

This is a serious threat, says Neil Smith, Manager of Lloyd’s 360 Risk Insight programme. “We want to make businesses more aware of the potential risks to terrestrial systems posed by space weather and help them to plan and prepare for possible eventualities,” he says.

In September this year, London hosted the first annual Electric Infrastructure Security Summit to address the threat of ‘severe, century-class solar flares’. “The US Government has expressed the belief that there is a tangible risk to business and public services,” says Smith. “The report acknowledges this potential impact on utilities

A new Lloyd’s 360 Risk Insight report highlights an extraterrestrial phenomenon that could disrupt life as we know it here on earth

360 Risk Insight report: www.lloyds.com/space

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space weather

infrastructure, transport, aviation and communication. We believe that, with a greater understanding about how space weather can affect physical assets, businesses can make more informed decisions about risk management in the future.”

VulnerabilitySpace weather poses a clear threat to the electrical power grid, as one incident in Canada more than 20 years ago reveals. “The HydroQuebec Blackout of March 1989 involved a transformer failure on one of the main power transmission lines in the system, which precipitated a catastrophic collapse of the entire power grid,” Hapgood

says. The transformer failure was a direct consequence of ground-induced currents from a magnetic storm high in the atmosphere. Six million people lost electrical power for about nine hours. “Risks like these are significant not only because the lights go out but also in terms of refrigeration of the food and medicine supply,” adds Hapgood. “A cascade failure of such vital

infrastructure could be devastating.”The increased use of wireless communications provides

another area in which space weather can pose a threat. The sun can produce intense bursts of radio noise and, with the growth of Wi-Fi and GPS, the low-intensity radio signals used to transfer data could be affected by interference from space weather.

This could have systemic effects should communications break down simultaneously. “A cascade issue might lead to the system itself failing,” Hapgood says. “For example, if a network relying entirely on wireless control is knocked out for five minutes, how do you reboot and resynchronise the system, and what redundancy do you put in place to cope?”

Communications and power networks are getting better at installing mitigation practices in case of space weather interference, but more could be done. In particular, businesses need to increase their ability to differentiate between the risks posed by major magnetic storms and the cumulative build up of minor damage from smaller storms. Mitigation usually requires keeping a back-up system, which adds to operational costs. The report’s message is a powerful one. The transport, aviation and power industries need to protect themselves against the effects of solar activity. What happens on the surface of the sun might seem distant to us, but the consequences of businesses not dealing with space weather could be very serious indeed. m

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A cascade failure of vital infrastructure could be devastating

19www.lloyds.com18 market Issue Four 2010

INDIvIDuALS FROM THE Lloyd’s market were consulted last year to gauge opinion on the future direction and activities of the Lloyd’s Charities Trust. Based on the review’s findings, the trust is now focusing on key areas that reflect the market’s unique

character and business, as well as maximising influence. Lloyd’s is proud to be one of London’s great historic institutions, and

the new strategy ensures that donations are made in two ways at a local level. First, the trust will support charitable projects within London that tackle disadvantage and foster opportunity, through the Brighter Futures for Londoners project.

Secondly, the Lloyd’s Market Charity Awards Scheme allows those working in the market to apply for a donation to a charity or community organisation in which they are actively involved. up to 30 awards of £1,000 will be made to such charities in December 2010.

Brighter Futures for Londoners, though, is the main project: a new three-year partnership with two charities – the Prince’s Trust and Bromley by Bow Centre – that will make a real difference to the lives of some of London’s most disadvantaged people (as you can see in the case studies opposite).

London is a great city, but while it creates opportunities for many, huge disparities exist. The projects will provide advice, training and support to help young people and the long-term unemployed overcome the challenges and opportunities they face.

With East London at a point of great opportunity thanks to the 2012 Olympics and regeneration projects, the scheme will help equip local people, particularly parents, to make the most of these opportunities. It will also help improve prospects for their families.

During the three-year Brighter Futures partnerships, Lloyd’s Charities Trust will be donating more than £350,000 to the two charities and encouraging those working in the market to get involved either through volunteering or fundraising support.

Lloyd’s Charities Trust also continues to respond to disasters and emergencies around the world. Donations are made in response to these situations both in countries where Lloyd’s does business and in those where people can’t afford the safeguard of insurance.

For more information on the Prince’s Trust and Bromley by Bow Centre, see the case studies on the opposite page.

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Bromley by Bow Centre

Partner charitiesannounced A 2009 review into the Lloyd’s Charities Trust’s giving strategy produced a new mission statement, revised funding priorities and bold partnerships

operating in one of the most deprived wards in the UK, Bromley by Bow Centre works to help families, young people and adults learn new skills and transform their lives.

The Success for Life project, which is sponsored by Lloyd’s, will help people break the cycle of poverty by moving into sustainable employment.

“Lloyd’s has a rich heritage of community engagement in east London,” says Rob Trimble, CEO of Bromley by Bow Centre, “and we are delighted to be working on a programme that will both break the pattern of worklessness and low aspirations, and create a better life for children and their families.”> more

www.lloyds.com/brighterfutures

The partnership will help families like Layla and her seven-year-old daughter Georgia. Layla came to Tower Hamlets and moved into homeless accommodation after fleeing a violent relationship in Sheffield.

She was desperate to work, and was put in touch with Rachel from the Centre’s employment team. When Rachel first met Layla the young mother made no eye contact and was very untrusting.

Rachel worked to build Layla’s confidence, undertake job searches and apply for positions in health and social care. Thanks to both the support she received and her own dedication, Layla secured a part-time job at a local care home for the elderly. In April, Layla and Georgia moved into their own flat and Layla has started full-time hours. She is passionate about her work and stays in close contact with Rachel. Georgia would now like to be a nurse when she grows up “so I can be like my mummy”.

> morewww.princes-trust.org.uk

> more www.bbbc.org.uk

30 novemberPromotional and networking event, Viennavienna is an important gateway to a number of regional markets including Hungary, the Czech Republic, Slovenia and the Balkans. This event is aimed at raising the profile of the Lloyd’s market regionally and will be supported by local speakers and guests from London.

1 december360 risk insight Event on Digital risks, San FranciscoExpert speakers from business, media and academia will debate digital risks and how businesses can manage them. www.lloyds.com/events

lloyd’s news – translationsThree Lloyd’s publications have been translated, explaining the market and how it works in more languages than ever before. The Key Fact sheet is now available in 14 languages, and the Quick Guide has been translated into 13. There is also a uS version. Lloyd’s Highlights – a summary of operations and performance – can now be read in nine languages. www.lloyds.com/publishing

lloyd’s shopOrder your Lloyd’s Diary and Christmas gifts now at the Lloyd’s Shop. www.lloydsshop.com

the prince’s trust aims to help young people who have the potential to succeed and build a better future for themselves despite disadvantage. The Progression Mentoring Programme, which Lloyd’s Charities Trust is supporting in London will ensure that young people leaving the Prince’s Trust programmes are given the best chance of accessing education, training or employment.

After she got into trouble at school, Pennie’s parents sent her to live with her uncle in Africa when she was 11 years old. She returned to the UK with just a single GCSE in English and little confidence. “When I came back, I was really shy,” she says. “I wasn’t working and didn’t have any plans for the future.”

Through a social worker, Pennie joined the Prince’s Trust Team programme, which helps unemployed 16- to 25-year-olds move into work, education or further training through building confidence and motivation.

“After I finished the programme, I was assigned a progression mentor called Val to help me look at my options,” Pennie says. “I see her regularly and, when I start to feel like I don’t want to go out or speak to anyone, she will help me feel more positive.

“After the course, I decided that I wanted to go to college to study Health and Social Care. With Val’s help, I am now working as a healthcare assistant and studying to be a nurse.”

More young people in London will be able to benefit from the same mentoring Pennie

received thanks to Lloyd’s Charities Trust’s support. “This programme will enable us to offer young people the best possible chance of moving forward with their lives and accessing work, education or training,” says Martina Milburn, Prince’s Trust Chief Executive.

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The pictures here are from the official

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The trust will tackle disadvantage and foster opportunity in London

The Prince’s Trust

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The average time taken for each party to respond on the Electronic Claims File has improved by 32% for standard claims

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Claims handling efficiency is a long-standing pillar of Lloyd’s reputation

The CTP pilot will continue in 2011, but our work on improving claims handling must not stop there. The next phase of the programme will be to set clear targets to be met on all claims and to adopt controls and procedures so that we can monitor lead performance.

As such, we will shortly issue proposed performance targets and revised Minimum Standards. This will be followed by a three month consultation period. Then, in the second quarter of 2011, we will be measuring managing agents’ claims performance, and all entities handling Lloyd’s claims will be expected to meet our standards.

This is not a ‘nice to have’. Bringing claims handling in line with our outstanding reputation for underwriting will enhance the appeal of doing business with Lloyd’s, deliver a competitive advantage and help ensure we remain the market of choice. Therefore, it is essential that all market participants take an active interest in this programme.

one of the great stories from Lloyd’s history is that, following the 1906 San Francisco earthquake, underwriters were instructed to “pay all of our policyholders in full, irrespective of the terms of their policies”, so people could begin rebuilding their businesses and livelihoods as quickly as possible. It was a move that gave Lloyd’s a strong reputation for fast and fair payment of claims.

More than 100 years on, we value our reputation around claims just as highly.

That’s why we are currently setting out Lloyd’s Claims Vision, supported by the Claims Transformation Programme (CTP), a three-to-five year programme of activity which will deliver significantly enhanced claims performance.

At the heart of this work is a pilot, which has run throughout 2010, to test a new claims agreement framework based on segmentation and choice. So far, it has achieved significantly faster claims processing. Of the 2,000 claims processed through the pilot to date, the average time taken for each party to respond on the Electronic Claims File has improved by 32% for standard claims and 39% for mid and complex claims. File reviews conducted in the summer have shown that the quality of claims handling has also improved under the pilot.

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richard wardLloyd’s Chief Executive

more>For full details of Lloyd’s Claims vision and the Claims Transformation Programme, visit www.lloyds.com/CTP