How do struggling governments across the globe tackle stagnating economic growth?
According to Cristopher Croft, CEO of the London & International Insurance Brokers’ Association, the specialty broking sector is key to unlocking economic potential.
He tells Behind the Headlines that brokers are more than just transactional cogs in deals, they are risk management experts which help companies navigate the increasingly complex risk landscape.
However, despite Liiba’s lobbying he believes the sector is still underappreciated by governments, and regulated disproportionately.
Plus, Fiona Robertson explains the competitive landscape in the Funds at Lloyd’s auction process.
Episode transcript
Sam Casey: Hello and welcome to Behind the Headlines, brought to you by Insurance Insider. I'm Sam Casey and thanks for tuning in to the latest episode. Remember, you can subscribe to the podcast either on our website or on your podcast platform of choice. The subject of today's interview is All Things Broking. I'll be joined by Christopher Croft, who runs the London and International Insurance Brokers Association, known to everybody as LIBE. The representative and lobbying body counts about 98% of London's specialty broking community as members. So it goes without saying that Chris is highly attuned to the latest developments in the sector. Given that a large part of his job is communicating with governments and regulators, he has an informed view about how the insurance industry is viewed from the outside. He told me why he thinks that the role of the specialty broker is underappreciated, especially at a time when governments are trying and often failing to achieve economic growth.
Christopher Croft: Businesses that manage their risk effectively, which is what happens when you employ a leave a member to help you with your risk management, get access to cheaper financing, they're able to take more innovative decisions, and they become overall more productive players in an economy. So they drive economic growth. So I would argue that our members are certainly the engine room of growth in the insurance industry, but actually they are the engine room of growth across the economy.
Sam Casey: First, for our news discussion, I'm joined by Insurance Insider editor Fiona Robertson. Fiona, welcome back to the show.
Fiona Robertson: Thank you for having me.
Sam Casey: So the last fortnight you've been writing about the funds at Lloyd's market, people investing into Lloyd's. What is it that's been driving the increased discussion around that whole marketplace recently?
Fiona Robertson: Well, I think it's primarily the fact that Lloyd's has done really well the past two years. So that always draws investor interest, and there's always a little bit of a lag where you see good performance, people want in on it. That's what's happened this year. So there's been some new capital interest providers coming into the market. But Lloyd's, it does have opportunities to offer them. It is growing, but it's been a little bit of a case where the investor interest has somewhat outpaced the amount of capacity that insurers at Lloyds or syndicates want to take up. So from what we gather, it's been quite a competitive time trying to get all the deals placed.
Sam Casey: Is that what the state of play looks likely to be like as people line up their capital for this year? Lots of competition.
Fiona Robertson: Yes, I think generally if you um do have third-party capital as a Lloyd's insurer, you're sitting in a very good place to try and get that in quickly. You're probably having to sign people down from what we hear. There have been some syndicates where we were told brokers could have placed twice the amount of capital that the syndicates actually were looking for. So in that in itself, probably brings it slightly difficult dynamic to negotiate. But certainly if you were looking for that third-party capacity, it's a good place to be in as an insurer.
Sam Casey: And in terms of opportunity for those investors, we've seen lots of new syndicates launching in the last year or so. Quite a few of them are names back, the likes of Convex for Dayless. Is there opportunity for investors looking to grow their share in those types of companies?
Fiona Robertson: Yeah, so I think probably what has drawn some of the investors in are some of these new growth opportunities. Some of the big names, syndicates that have started up fairly recently, are still in their kind of early growth trajectories, so are growing quite significantly. Names like Convex and Stephen Catlin, who's the chair there, looking to grow more than double the stamp capacity that they had, or sorry, GWP that is, that they had this year for next year. Fidalis also looking to add another sort of 250 million GWP, so that will take them to above the billion dollar mark. So Richard Brindle, I'm sure, also would have name recognition among investors. There's growth opportunities, there's been new syndicates and a number of syndicates launching a second syndicate for next year. There's been a little bit of a renaissance and use of third-party capital or opportunities offered to third-party capital.
Sam Casey: And on the other hand, there are a number of long-established, well-regarded underwriting houses which have good performance, people always want to provide their capital for them. Is it is the feeling that there's going to be a lot of competition for those high-performing big names?
Fiona Robertson: Yes, I think there will be. So with this sort of oversupply or oversubscriptions in some case, that will obviously come down to some slightly difficult negotiations. And it's probably a good place to be in because a few years ago there it was a bit harder to get the funds at Lloyd's capacity from third parties that brokers were looking for, but now with a lot more interest from one hard place to another. But uh it's a good problem to have, I would say. But yes, I do think there might be some syndicates where the demand is quite high. And I think there were some syndicates in the auctions that did trade for quite high prices in a very busy first auction.
Sam Casey: Well, it seems like this is a a vote of confidence in the market. People think that that's uh somewhere where they can make some decent returns.
Fiona Robertson: Yes. Well, when you look at the sort of 20 plus percent returns from the last couple of years, uh, you can see why people are trying to get in. And Lloyd's has been, I think, fairly clear on their messaging around trying to uphold discipline and that in itself is sort of an appealing message, I think, to investors. And that's also another reason why, in some cases, you know, there might be that pressure on subscriptions, because while there are new syndicates coming in or those who are still growing, there's obviously other ones who aren't planning to grow as much. And so there might not be as many new opportunities to participate.
Sam Casey: Well, Fiona, thanks for sharing your thoughts. You're welcome. Running Libre makes Chris Croft one of the best connected market figures in the world of London broking. He knows what is vexing senior brokers, the regulatory hurdles holding them back, as well as how the perception of the sector is amongst those who regulate it. At a time when governments are under huge pressure to achieve economic growth, he is convinced that brokers have an important role to play. To discuss all this, I'm delighted to be joined by Chris now. Chris, thanks for coming on the show. No, great to be here. To begin with, could you tell us a bit more about the organisation you run here, LIBE? You're a representative body, and I think the vast majority of the specialist London brokers are all signed up.
Christopher Croft: Yeah, so we are the London and International Insurance Brokers Association, which is why we tend to just call it Libre. And we are the Trade Association for Lloyd's accredited insurance brokers. So you have to be a Lloyd's broker to be a member of our association. Slightly distressingly, you don't have to be a member of our association to be a Lloyd's broker. But that said, about 98% of the specialty broking community is a member of Libre. We've been around in various guises since 1910. So quite a lot of history. And we're a traditional trade association. So our role is to represent members' interests to regulators and governments, and obviously in London to be the voice of the broker and the voice of the client in the broker for the brokers between the industry and regulators. Yes.
Sam Casey: A tiny bit about yourself. How did you come to be running this organisation?
Christopher Croft: Mainly by accident. So left university with no real idea of what I wanted to do. I spent a year as an economist at the Department of Transport privatizing trains, a slightly unedifying existence. And then about ten years in financial services regulation. So I worked for the Personal Investment Authority, which was a forerunner of the Financial Services Authority. And then I did a couple of years of consultancy, which touched on the London market. We had a couple of London market clients. I'd also been slightly involved in the FCA's assuming responsibility for regulating insurance brokers just before I left. So I was aware of the London market. And then I was in Santa Fe in New Mexico the morning after the 2006 midterm elections. The phone went off about seven o'clock in the morning. I was going to ignore it. And then at the last minute I answered it, and it was a recruitment consultant seeing if I was interested in the job, which was in the what was then the market reform programme office, which over the course of time morphed into the London Market Group where I was there for nine years. And the one job when I was working for LMG that I always really coveted was the chief executive of LIBA, because I always went on the basis that market modernization and market discussions, in most instances, are a game of two halves, at the end of which the brokers win. So I fancy being on the winning team. And when David Huff decided to retire, he offered it to me. Quite lucky, really. So I saw Amdenarden said yes.
Sam Casey: And you've been busy recently producing a major piece of thought leadership here at LIBE on really the broking industry's role in economic growth. What was it that was the driving force behind producing this report in the first place? And what were the key findings that came out of it?
Christopher Croft: So come in January, I'll have been doing this job for 10 years, slightly odd sake, so I still think of it as my new job. But I would say throughout that time, the one thing that's always been clear is that the role of specialty brokers in particular is completely misunderstood by governments and regulators around the world. And I'd include our own government in that, who tend to think that what our members do is just they're just transactional purchases of insurance on behalf of their clients and have no idea of the wide range of risk management expertise and services. Yeah. So they'll look at a distribution chain with more than one intermediary in it and assume that must be bad value. So what we wanted to do was to produce a piece of work that highlighted that actually there's an enormous amount of things that our members do on behalf of their clients around risk identification and building data models and modelling risk so you understand how to mitigate it and how to price it, and vast things, amounts of things that happen before you get to the conversation about whether you're going to buy some insurance or not. And that that is a role that can solve a lot of the big problems facing society. So we have told the story in the context of emerging protection gaps, because that is something regulators are aware of and are concerned about. And we think that our members have got and the industry as a whole has got a big role to play in addressing those.
Sam Casey: To jump on on that protection gap piece, what were what were the main findings you you had on that? I mean, it seems common consensus is the protection gap is growing and it's also shifting.
Christopher Croft: Yes. Well, what the report highlights is that the nature of risk is changing and changing very rapidly from solid physical things that we can all sort of conceive and understand to some quite more ethereal stuff. So you see increased digital dependency amongst firms, which is massively increasing cyber exposure. You see the increasing extreme weather events, which may or may not be the biggest con job ever purported on humanity, but in the opinion of some people, but the data tends to suggest is real. Increasing geopolitical risk. We're seeing every day, it's looking at quite worrying and turbulent times. And it's over 90% of Fortune 500 assets are intangible assets now. So you've seen the huge growth of things like brand and intellectual property as being at the basis of firms' value. And they're all things that we're not used to insuring. We're used to insuring buildings and stuff.
Sam Casey: Well, I think there's been so many instances recently where you can see this playing out in action. On the cyber front, we've had all these cyber attacks against Jaguar, for example, and they're not insured at all, or the amount of insurance they're buying compared to the losses they rack up is minuscule.
Christopher Croft: Yes, I mean the co-op weren't insured at all despite being run by a former chief operating officer of Lloyds of London, which is a slightly ironic position. And that what that highlights as well is that is another. And one of the things we wanted to do in the report is to talk about solutions because it's not all about products anymore. And cyber's a very good example of that. Cyber is as much about prevention and containment as it is about writing a checkout to anybody at any given point.
Sam Casey: And do you think that's a case of the role of the broker shifting slightly and becoming more of a risk manager actively?
Christopher Croft: Yeah, I mean, it's a process that's been happening for a long time, but I think it needs to increase in its rapidity because this is a risk management service. You're not just popping out to buy some insurance on behalf of someone, you're helping them manage the entire gamut of risks facing their business. And in some ways, and I sometimes say this with governments and regulators, is almost it's getting to the point where the job of our members is to persuade their clients not to buy insurance because they've found a cleverer way of mitigating the risks that they face.
Sam Casey: And another point which came up in the report is that, and this lays in far wider than just broking, but to the type of broker, that the specialist brokers that you represent are burdened by the same regulation as more vanilla sorts of insurance providers, which doesn't appreciate what they do. Is that a fair takeaway?
Christopher Croft: I mean, that's a discussion we've had certainly domestically for a long time, is that certainly the FCA up until now, and this happens in other countries. I'm a board member of the European Federation of Insurance Intermediaries and sit on the executive committee of the World Federation. So I get quite a good insight into how regulation works around the world. And I think this is a fairly common problem, is that regulators don't make a distinction between specialty commercial business and people who sell motor and home insurance to members of the general public. And yet they are completely different risks to a regulator that has the overall objective of consumer protection, should be concentrating more on people who are selling policies to members of the general public and maybe being slightly more proportionate in the way they deal with people who don't deal with the people.
Sam Casey: And I think the other trend we've seen on the regulation front, certainly in rhetoric, is them having a mandate towards competitiveness and making Britain a more competitive place to do business globally. Is that something which is proving successful from your point of view, or is there more work to do?
Christopher Croft: I think there will always be more work to do. I think we've seen the government and regulators here making good noises about it. Have we seen anything in practice that's making a difference yet? I'm not sure. The FCA is in the process of finalising its policy statement on its simplification of insurance rules, which at least in theory will make a distinction between consumer business and commercial business, but we have to see what that difference means in practice before you can really think that the dial's shifted.
Sam Casey: And what would be on the top of your list of priorities on the regulation front if you could wave a magic wand almost?
Christopher Croft: Domestically, what we'd like to see is a world where if you accept that the FCA's fundamental objective is to protect consumers, our members don't deal with consumers. So they could have very little to do with us, quite reasonably. And that should mean you know filling in a financial return once a year and probably providing a bit of complaints data so they can pick systemic issues in the economy. Um, and other than that, we should never really see them. So that would be our sort of ideal. And then more globally, is looking at the way global licensing works, because if you have a broker in a country where the client is located, who owns the client relationship and owns the responsibility for delivering a compliance service to that firm, you don't gain anything by making other intermediaries in the distribution chain become licensed in that territory as well. It just adds double regulation and doubles the cost. And we'd like to see more territories work to that principle, which is effectively how the US Access and Surplus Lions market works. And whilst I know people active in that will can produce your whole list of foibles about the ENS market, it's as close to a poster child for global licensing as as we come to.
Sam Casey: I should emphasize it's not you getting uh arrested there, Chris.
Christopher Croft: Not yet.
Sam Casey: So I guess the role is very global, reflective of the amount of global business which is being attracted here to London.
Christopher Croft: Yeah, no, absolutely. I mean, 75% of market business comes from somewhere else, and most of our members are active in all sorts of different countries. And yeah, interesting, we have 150 odd groups of firms who are members. Only 18 of them employ more than 100 people. So we have a lot of specialist small businesses, and they have expertise either in particular lines of business or in particular parts of the world, and they just understand how to develop business there.
Sam Casey: Is there a general alignment in terms of requirements between those small brokers and you've got many of the biggest in the market in your organization as well? Do they their priorities in terms of regulation, what they need, align, or is it quite different?
Christopher Croft: I would say that in general, we have a consensus around what our agenda is at any given point. I think what's interesting is the way that they look at things can be very different. And you get this particularly around the big market modernization projects, where you will have our larger members who are eyeing up genuinely significant operational cost savings that they might make if the central services were more efficient. Whereas a lot of our smaller members are just sitting there thinking, how can I afford this? Because it's going to involve me investing in my IT architecture and my IT estate. And they are businesses that struggle to find that level of investment sometimes. Not that they're not very successful, but it's just smaller scale.
Sam Casey: Yeah. Well, for those firms, if there's more of a market-wide solution, it just unlocks them to focus on what they're good at.
Christopher Croft: Yeah, absolutely.
Sam Casey: We talked at the start of you saying that you still didn't feel the specialty broken market was really understood by governments enough. And another thing you said in your report is how you can open a newspaper at the moment, and every government across the globe is talking about wanting to achieve economic growth and in many cases failing. Is part of your job when you're speaking to governments and regulators trying to articulate how insurance broking can help unlock companies to do things which ultimately contribute to growth of the economy?
Christopher Croft: Yeah, no, absolutely. So, I mean, that's a point we try and get across, and I think again, is underappreciated is businesses that manage their risk effectively, which is what happens when you employ a leave a member to help you with your risk management, get access to cheaper financing, they're able to take more innovative decisions, and they become overall more productive players in an economy. So they drive economic growth. So I would argue that our members are certainly the engine room of growth in the insurance industry, but actually they are the engine room of growth across the economy because of that impact that they have on their clients.
Sam Casey: And how important is your role and the role of broking more broadly in terms of engaging with the insurance partners? How can they work together to do that?
Christopher Croft: And that was something we really wanted to bring out in the report. I mean, obviously, it is in part an advert for the broking community. That was one of the core reasons why we did it. But we're not suggesting that we are the sole answer to some of the questions that the report poses. And we do see that there's scope for a lot more collaboration with our insurer partners to develop the right solutions for clients. And I think one of the things, and if there is a controversial element of the report, I don't think it's massively controversial, but we do call for more data sharing. So one of the analogies we draw is that our industry, interestingly, is structured very similar to the technology industry. In the technology industry, you have big cloud service providers and a lot of solutions providers and systems integrators providing innovative solutions to their clients that are built on that foundation. Insurance, you have big capital providers and a lot of intermediaries developing innovative solutions building on that foundation. What's interesting about the technology industry is they do share a lot and everything is open source. And maybe we need to be closer to that around our use of data within the city.
Sam Casey: Do you get much pushed back when you suggest that?
Christopher Croft: Um, it was interesting. So obviously, as a representative of the broking industry, I was nervous about this as a proposal. But we had an expert group that was made up of some of our board members and other people around the community, and then they were very comfortable with the suggestion. And obviously, we are suggesting things that I don't think will interfere with anybody's current business models in this area, but it's an important statement of our willingness to collaborate and drive more innovative answers.
Sam Casey: More on that subject of collaboration in our scene. We write all the time about brokers winning accounts from one another, battles over teams of talent, all that kind of thing. Yeah, running Libra, you get everyone to sit down on this big table, arch competitors, and try and work together. How do you manage some of those competing egos and uh, you know, still make things happen?
Christopher Croft: One of the joys of this job is actually the people that we draw on for our board and our committees are really good at parking their egos and their individual interests at the door when they come in. We have had a number of instances that I can think of over the last few years where we've reached decisions. There's a Libre board, which a number of the directors would say if they were strictly representing their firm's interests, they probably wouldn't have agreed with necessarily, but recognised it was the consensus of the community as a whole and they were prepared to support that. So we are blessed with some reasonably altruistic people. And then they go outside, presumably, and punch each other. I don't know.
Sam Casey: And what's your feeling about how the London broke market at the moment in general is faring? It's certainly a very active space at the moment. There's lots of quite interesting dynamics at play in terms of expanding into the US, the whole trading relationships. Do you still feel like it's uh the center of world insurance?
Christopher Croft: Yes, I think so. And I was at the CIAB conference in Colorado Springs a couple of weeks ago, which I see your colleague Adam McNestry has described as the Davos of specialty insurance. So did it feel like that? Well, the weather's much nicer. Does it feel like a gathering of the great and the good of the international insurance industry? Absolutely. And I've been a few times, and I would say that the sense of that was even greater this time. And there were lots of people from London there looking for new business opportunities in the States and elsewhere. So I would say at the moment, challenging times, softening markets, if you're generally remunerated by a percentage of the price, a softening market can be a challenge to a broking firm, but you know, it's a cycle they've been through before. But touched on at the beginning, you know, the changing nature of risk and the growing, growing emergence of new risks. We live in challenging, risky times, which genuinely should be seen as an opportunity for the purveyors of risk management products. The more risk there is, the more opportunity there is to mitigate.
Sam Casey: Taking almost the bear case, you know, as you say, some people look at the broker and they think inevitably there's an extra mouthfeed and the chain of connecting risk with capital, and a key part of creating value in the industry could be eroding that. What's your rebuttal of that school of thought?
Christopher Croft: Those are the sorts of people who need to read our report because they need to understand that actually that matching of demand and supply of capital doesn't happen without the specialist intermediary who is able to actually express what the risk is and present it in a way that would allow someone to take a decision around how you price it. So it's back to the point I made at the beginning. These aren't people who just pop in to buy a bit of insurance. They've done an enormous amount of work to identify how you might provide insurance for those particular risks. So they are the most vital part of the value chain, in my view, and will be around for a long time. And one of the things we highlight in the report is a challenge for the industry is all that work tends to get almost dismissed as distribution cost, and because as a cost, people try and minimize it. And actually, what that means is we're underinvesting as an industry in the RD function. That is what happens in the relationship between a broker and their client.
Sam Casey: In the UK, we're coming up towards a budget time, it's attracting a lot of attention. I'm sure insurance breaking is not going to be the the headlines come away from the day, but more generally, do you feel like the current government in the UK is receptive of the breaking industry and have have some plans which are conducive to its growth?
Christopher Croft: I'd like to say yes. I think that we've done a lot of work, both as Libre and through the London Market Group over the last 10 years, that has made government more aware of insurance in general. But I have to say we were pretty disappointed in the financial services strategy because described broking as a related service, which I think is quite an odd understanding of how commerce works. If the customer in a market is dismissed as a related service. And as a consequence, I think they've come up with a series of proposals that are very insurer focused and don't really do a whole lot for our community. And as I said earlier, we're the engine rooms of growth. And if they want to grow the industry and the economy, they really need to talk to us a bit more.
Sam Casey: Well, on that note, Chris, it's been a pleasure speaking to you today. Thank you very much for coming on the show. Thank you. It's been really enjoyable. Finally, here are some of the top stories of the past fortnight. The MA cycle continues to rumble on in Lloyd's, and IQUW is the latest syndicate from the class of 2020 to announce a deal. US Carrier Star has agreed to acquire the business for an undisclosed sum. Meanwhile, AIG has struck a deal to acquire a $2 billion book of insurance business from Everest, as the Bermudion looks to focus its insurance operations on US Excess and surplus lines and the London market. And Insurance Insider reported that US wholesale brokers such as Amwins and CRC are the latest cohort of firms to reduce their flow of business into Howden's London wholesale arm, following Howden's entry into the US retail market. That's all for today, but do tune in again in a fortnight's time.