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Sunday
May162010

It’s All About Risk

DateSunday, May 16, 2010
By Martin Crotty | 26.05.10 Business Ireland

I'm sure the Lloyd's story, well told by CEO Richard Ward to a Chamber Business Lunch recently, was most interesting to the many insurance industry professionals present. From my brand management perspective it was fascinating. Though one of the strongest brands in insurance today Lloyds has not had an easy ride or an unblemished record.

Lloyd's is not an insurance company but a market where independent underwriters come together to insure and reinsure risk. Like any market, Lloyd's brings together those with something to sell underwriters, who provide insurance coverage, with those who want to buy brokers, working on behalf of their clients who are seeking insurance. Business coming into Lloyd's through brokers originates from more than 200 countries and territories. It includes 88 per cent of FTSE 100, 97 per cent of Dow Jones companies, 86 per cent of the world's top banks and 84 per cent of the world's top airlines listed in the Fortune 500 companies. It also includes celebrity cover Lloyd's paid out for Rolling Stones guitarist Keith Richards's injured his finger in the 1990s and it provide hole-in-one insurance, which protects golf tournament organisers against the rare event of a player hitting such a shot and claiming the large prize often offered! But Lloyd's had humble beginnings and, on several occasions, came close to disaster itself.

300 years to build a brand!

In 1688 the eponymous Lloyd's coffee house in London became recognised as a place for obtaining marine insurance. Lloyd's market was incorporated by Act of Parliament in 1871 and began moving into non-marine cover in 1887. The ability to pay out on claims arising from the 1906 San Francisco earthquake helped establish its reputation in the United States. By then Lloyd's brand had become well established.

Strong brands require constant maintenance and, like the businesses they reflect, they are in constant danger of sustaining damage, sometimes fatal. In more recent times Lloyd's has come close to disaster on more than one occasion and has suffered major reputational damage to its brand.

In the late 1980s and early 90s involvement in a series of major losses with claims totalling $15 billion Piper Alpha, Exxon Valdez and asbestosis, among others brought the insurance giant to its knees and ruined many ‘Names', those members and syndicates who ultimately carry the insured risk.

Major surgery was required to save Lloyds. In a classic "good bank - bad bank" solution all outstanding liabilities on policies written from the 1930s up to and including 1992 were moved into newly formed Equitas a "bad bank", allowing Lloyds to redevelop its business, and its reputation.

Lloyds quickly recovered

The cleaned up Lloyds quickly recovered but had not learned from near-disaster. Lloyd's had done what many brands do when in trouble remove the immediate problem and enhance the brand promise, but fail to take the systemic strategic change necessary to ensure delivery on that new promise.
And the result? Claims resulting from the 9/11 attack on the World Trade Centre in 2001 nearly brought the organisation to insolvency again.

Lloyd's reckon that it took 10 to 15 years to rebuild brand reputation following the damage in the early 1990s and they almost lost it again along the way, in a day!

This prompted an entirely new approach to pricing risk supported by a policy of avoiding overexposure to any one sector and a new capital adequacy requirement that now stands at 72% cash above premium income.
The new strategy greatly strengthened Lloyd's and enabled the payment of $16 billion on claims from Hurricane Katrina in 2005. This finally put the organisation on the road to becoming the strong and rejuvenated brand it is today.

Based on renewed core values and supported by a refreshed and well-implemented corporate brand identity introduced in 2009 Lloyds were recently ranked as one of the UK's leading business brands. The 2010 Business Superbrands survey rated Lloyd's first in the insurance sector and 40th overall an achievement of which Ward is justly proud! "We won't take any risks with our brand going forward" Ward says.

The Irish market

Ward also had some interesting observations on the Irish market and on our economy. "It's all about risk" he says, and clearly he is not enthusiastic about our approach to risk management in banking or in insurance.
In the Irish insurance market there is an unsustainable approach to low pricing of risk. A combination of under-assessed risk generally, and predatory pricing by an Irish company, has made this market less attractive in recent years and accounts for Lloyd's writing only €200 million of business in Ireland today compared to €350 million three years ago.

This approach to low pricing of risk is unsustainable, he believes. It is based on either insuring at a low level with the objective of making money on investment income and/or on going in low in order to build market share. His message is clear—don't undercut, it's not a sustainable business model.

Ward also gave his view from the UK on the Irish economy. Based on a recent Irish government bond issue being 3.1 times oversubscribed he believes that markets indicate that Ireland is doing well. Further adjustments may be needed but there are many worse economies out there. Some small comfort, I suppose!

—
This article was originally published in Business Ireland in May 2010.
—
Martin Crotty is Managing Director of BFK, the brand communications specialists.
AuthorAiden Kenny | Comment3 Comments | | | Print ArticlePrint Article
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