The London Journal 2014

it’s harder to find affordable advice

>> SUBJECT clients come first TITLE TO GO HERE rising to the challenge

The million dollar round table

London – where ensure technology and difference is valued relationships work in harmony inside this issue Graham Clarke President

3 IIL – bigger & better: membership has grown Institute of London 40% in the past five years.Allison Potts, Institute Secretary, explains what’s been going on 4 Don’t forget the client: we must work with regulators to ensure that this principle is not lost, cautions Graham Clarke, CEO, Miller Insurance Services 5 Too much management, not enough risk: Welcome Stephen Riley, Executive Director, Global Aerospace argues for better risk management he objectives of the Insurance Institute of London are ‘to 6 The big interview I: Rising to the challenge T – Young member Andy James, Assistant raise the levels of professional knowledge of those working in Underwriter, Catlin interviews IIL member Inga Beale, CEO, Lloyd’s insurance and financial services in London and to assist our 8 Why leaders need mentors: Chris Beer, CEO, members in their career development’. Merrycks, explains 9 Never let up: is the advice of Chairman of the Financial Ombudsman Service Sir Nick These objectives are achieved I have been very encouraged by Montagu on why it makes business sense to be through a wide range of the support shown when raising diverse activities, which include a this topic in our industry and I 10 Working towards inclusion: IIL Diversity Champion Erik Johnson assesses the comprehensive lecture series, particularly wish to record my challenges in making the London Market diverse this annual journal, research thanks to everyone who spoke and inclusive 12 FAME: Ken Crerar, President and CEO of the studies, educational visits and and wrote on this topic. Council of Insurance Agents, discusses what an extensive professional and the UK could learn from the US social networking programme – Every year approximately 500 13 The Lloyd’s Market Association: Ben Baker, Head of the LMA Academy, describes its each activity carefully designed volunteers contribute their approach to technical education by members for members to expertise to create the London 14 Hot topics – leading members consider what enhance their professionalism. Institute’s lecture programme the future might hold for their business sectors 17 The value of relationships in the digital age: and they donate well over 2,300 Jonathan Mudd, PI Underwriter, Brit says we London is the largest of all the hours of their time on a pro bono must work to ensure technology and relationships sit in harmony local institutes. It strives to ensure basis. Their contributions have 18 Inspiration and aspiration in Lime Street: new that London maintains the highest been enjoyed by over 10,000 graduate Ronnie Tyler, Broker, Willis tells us standards of qualifications and attendees and a further 2,000 about his first year in the business professionalism and nurtures the who downloaded the podcasts. 19 Effective non-executive directors: Rolf Tolle examines the vital role NEDs play in the long-term talent of the future. I would like to thank everyone success of a company who participated. I hope you 20 UK exit from the EU? Lloyd’s Chief Risk Officer & General Counsel Sean McGovern It was with this in mind when I have enjoyed the Institute’s investigates the implications of withdrawal for the took office in 2013 programme of events and UK insurance industry I chose ‘the importance of activities. Please remember, this 22 The growing power of IAIS: Alastair Evans, Head of Government Policy and Affairs, Lloyd’s mentoring’ as my theme. This is your Institute and if there is describes how IAIS is shaping regulation has been addressed in both the more we can do to support you, 24 Cyber Liability: Dr Ina Ebert, expert on liability and , Munich Re, Institute’s lecture programme and we would welcome your ideas. describes why it’s here to stay and growing in this edition of the London Journal. importance 26 The big interview II: Former PFS President Robert Reid interviews IIL member Caroline Banks, the first woman outside North America to be installed as President of the Million Dollar Round Table 28 RDR – the story so far: Lord Deben, Chairman, Association of Professional Financial Advisers explains why it’s now harder for to find affordable financial advice 29 Pensions 101: more than 1,700 British people Insurance Institute of London, The Insurance Hall, Editor: Roger Jordan | Design: Laban Brown reach age 65 every day – Kim North, Head 20 Aldermanbury, London EC2V 7HY of Marketing, Syndaxi Chartered Financial The London Journal is the official magazine of the Planners, explains why the demand for 020 7600 1343 | www.iilondon.co.uk Insurance Institute of London. Views expressed by professional financial advice will increase contributors are not necessarily those of the IIL or the Officers: editorial team. The IIL will accept no responsibility for 30 The curse of short-termism: Keith Robertson, any loss occasioned to any person acting or refraining MD, Armstrong Financial, says markets now President: Graham Clarke President-elect: Stephen Riley from action as a result of the material included in this resemble an arena filled with bookies fighting to Deputy President-elect: Dominic Christian publication. The London Journal is online at make money off each other Treasurer: Jonathan Clark ACII www.iilondon.co.uk/publications 31 IIL programme preview Immediate Past President: Barnabas Hurst-Bannister ACII Institute Secretary: Allison Potts ISSN 2045-1636 | © Insurance Institute of London

2 | The London Journal 2014 Allison Potts Secretary Insurance Institute of London

Insurance Institute of London – bigger and better I n the 2013–14 season we commissioned 74 lectures, 18 educational visits and five major networking events.

Bigger membership Continuing professional CPD for young members Over the past five years membership development In addition to its ever popular of the Insurance Institute of London The London Institute generates networking event, our Young has grown by 40% and now stands at tremendously valuable CPD Members Committee hosted two well over 21,100 members. In the past opportunities, not only for London seminars specifically designed to year membership grew by 8.25%, and members, but also for all members of appeal to their age group. ‘Cyber notwithstanding the concerns about the CII Group around the world. Insurance – it’s going #viral!’ included the impact of changes following the The quality of our lecture programme a commentary from Sir Edward retail distribution review, the Personal is recognised by its CII CPD Garnier MP, QC a former Solicitor Finance section of our membership Accreditation status. General, and ‘Third party capital – the also grew, by 3%. In all, 4,097 new This year members benefited from end of insurance as we know it?’ was members joined us during the year, important lectures given by the Deputy addressed by Professor Alan Punter, many from firms that have achieved Head of the Prudential Regulatory Visiting Professor in Risk Financing, Chartered status. With 38% of our Authority; the Director of Supervision Cass Business School. If you missed members aged under 35, we are a of the Financial Conduct Authority any of our lectures, you can download thriving Institute. and the Chairman of the European podcasts and CPD certificates from Insurance and Occupational Pensions the CII Knowledge Services site. Strategy for success Authority. The strategic challenges Diversity In view of this rapid growth, the London faced by the market Institute’s Council decided to conduct were a key theme with highly popular In the 2012-13 season, we appointed a strategic review to ensure that: lectures by the Managing Principal, our first volunteer Diversity Champion, Nephila Capital; the Chief Economist, Erik Johnson, ACII. The role of the • the growing membership is Munich Re and the CEO, Renaissance Diversity Champion is to work with represented at all levels; Re. Tackling UK flood risk and the the London Institute and the London • our continuing professional growth in cyber attacks were two of Region of the PFS to uncover barriers development services meet the hottest topics of the session with to diversity and to work on solutions. members’ needs; important presentations by the ABI on A diversity and inclusion plan was the creation of Flood Re and the rising • governance is conducted in line with approved by the London Council tide of cyber attacks was illustrated by best practice; during the year which includes Kennedys. Greg Case, the President direct reports to Council; improving • communications are efficient; and and CEO, Aon plc, rounded off the information on the Institute’s website; session by discussing the importance • our networking events continue to working with other interested bodies to of London, Lloyd’s and risk advisers in be successful. host lectures and events; to investigate today’s global economy. the creation of an IIL committee to A Strategy Review Working Party drive London’s further work and CPD for PFS members too was established, led by the Institute’s contribute an article to this journal. Honorary Treasurer and which Reflecting the interests of the growing Erik is standing down from this role comprised members from a variety number of PFS members, IIL hosted at the end of the session and the of backgrounds – both general eight financial services lectures and Officers record their thanks to him for insurance and financial services – and forged closer links with the PFS his ground-breaking work. The Officers representing a range of ages and London Region and plans are in hand also thank those members who have experience. to co-host a course on critical thinking kindly volunteered to take on these Improvements suggested by that and a seminar on the implications duties. team are being introduced, and more of crowd-funding and peer-to-peer will follow over the coming months. lending, early in the new season.

The London Journal 2014 | 3 Graham Clarke CEO, Miller Insurance Services LLP President, Insurance Institute of London

Don’t forget the client O ur clients come first and we must work with regulators to ensure that this principle is not lost.

Our market is undergoing one the burden of compliance distracts more established global insurance of the most significant periods of us from our clients, it becomes companies. While there are many transformation since Lloyd’s launched detrimental. Where the burden drives examples of clients realising its mid-1990s Reconstruction and the lower quartiles of the broking and meaningful benefits from scale- Renewal project. The changes then underwriting markets to search for based schemes, this particular trend were to address a series of crises that more robust and better-capitalised will result in a move away from primarily affected the Lloyd’s Market; partners, it is promoting a strong and term-setting and custodianship by nearly twenty years later we are healthy market. But I believe we are specialised industry experts to the experiencing a structural shift in our in danger of paying too high a cost inevitably conflicted, broker-controlled industry as a result of the escalation for regulation – not only in terms of quota share arrangements becoming of regulatory burden, the increase money, but also in terms of the many more commonplace today. The result and breadth of sources of capital, the working hours now dedicated to will be an incongruous relationship shifting marketing tactics of global regulatory framework compliance; our between brokers and markets, one brokers, and changes in distribution clients come first and we must work that is deeply flawed and not in the channels. with regulators to ensure that this long-term best interests of our clients. principle is not lost. Understanding our clients Although new sources of capital Accessibility are a concern for those interested in Markets and brokers have several Change continues in our ever-evolving maintaining the status quo, the growth different and conflicting challenges; distribution model. Distribution is an of this alternative financial resource it is crucial that in addressing these emotive topic, and one that tends is a positive development for our issues that we do not lose sight of the to be rife with self-interest, by both market. Despite accusations of ‘hot reason we all exist and the one thing brokers and underwriters. My view is money’, this does not appear to be we all have in common – the service of that an easily accessible Lloyd’s and either unsophisticated or short term. our clients. London Market with strong expertise A strong, well-capitalised market is in Our clients value our understanding and service is the best way to ensure the best interests of our clients, so it is and appreciation of their individual the high standards for which it is crucial that no barriers prevent these industries, first-class security, renowned. If this expertise is diffused resources supporting our industry. reasonable pricing, market longevity to local markets, it is crucial that we The move by global brokers and resilience, process efficiency and protect the brand by insisting on to adopt quota share placement delivering on the promise to pay on the high levels of knowledge and arrangements has been the subject valid claims. transparency that are the lynchpins of While increased regulation protects of much commentary, particularly this marketplace. our clients and is thus a benefit, when because these have moved from The convergence of the factors regulation is escalated to the point that more opportunistic markets to I have described is set to have a widespread impact on the landscape – the promotion of modernisation and efficiency throughout the business, merger and acquisition activity and the diffusion of both sources of capital Markets and brokers have several different and and access to markets. Where we are acting in the best interests of our conflicting challenges; it is crucial that in addressing clients, all of these are positive; where these issues that we do not lose sight of the reason we are not, we put at risk 326 years of the service standards and culture of we all exist and the one thing we all have in excellence that have been at the heart common – the service of our clients. of the Lloyd’s and London markets.

4 | The London Journal 2014 Stephen Riley Executive Director, Global Aerospace President-elect, Insurance Institute of London

Too much management, not enough risk E ssentially modern risk management is a series of responses to a succession of corporate disasters or failures.

Modern risk management has been about what we are trying to achieve a largely reactive discipline based and recalibrate our approach. This on improving corporate governance, should be an essential task for any introducing new systems, controls, insurance business. We are, and have monitoring and reporting designed always been, in a risk management to limit the power of individuals to business. It is our bread and butter, act outside of a framework of rules, so we should know how to do it and We should start with the regulations, guidelines and cultural to do it better and ask ourselves the aspiration statements. questions that are really important. quality of the people Before all of this existed we relied we employ and their on a more limited form of government Quality people and training regulation, we had independent audit training – not only We should start with the quality of the and we had the full panoply of the law. people we employ and their training technical training but For the best part of two hundred years – not only technical training but also that worked well with periodic bouts of also how employees how employees learn to behave market ‘failure’ throwing up problems within an organisation and towards its learn to behave within and leading to new solutions, some customers. If we look at remuneration good, some bad. an organisation and policies today, in many companies far too much complexity has been towards its customers. Defences failed introduced. There are long-term and So did the growing risk management short-term plans, there are share industry, whether it be the internal grants and share options. company arm, a government regulator There is supposedly identity of interest or the army of external consultants, between the individual, the business of Solvency II given us apart from auditors and actuaries stop the and the interests of the shareholders large consultancy bills, big project greatest disaster to befall modern but what is important here is the exhaustion and endless policy capitalism during 2007–09? Well balancing of personal goals, business statements? Has this just created a obviously they didn’t. All three lines unit goals and organisation wide mania for compliance? Can we now of defence failed, totally missing what goals. I believe it is much better in a be confident that the new regime in was happening and perhaps even firm if the vast majority of rewards are place in the UK, the EU and globally compounding it by giving a false geared to the overall success of the ‘will do what it says on the tin’ – is sense of comfort to customers, to company rather than the actions of this all too much management and governments and to the organisations the individual, particularly for senior not enough focus on the ‘real’ themselves – not forgetting the dear people. Interests should be aligned risks? I believe much more needs old tax payers. Surely this is a case with the company that you work for to be done to make sure that the of too much management but not and ensuring that what benefits you people who work in financial service enough risk (management). benefits the company and vice versa. companies and customers both Risk management aspires to be Since the financial crisis, we have individual and corporate, understand predictive, to stop something from clearly travelled down the road the risk landscape in which they sit, happening. If it often fails to do this, towards more specific and more and understand what behaviour is should we merely consign it to the prescriptive regulation. But is it the desirable and expected from them. dismal science bucket along with right amount of regulation? What Then we might succeed in forestalling economics or should we think again have the design and implementation the next major crisis.

The London Journal 2014 | 5 Andy James, ACII Underwriting Assistant, Catlin

Rising to the challenge I nga Beale, ACII, Chief Executive Officer of Lloyd’s, was asked a series of questions about career development in the London Market by young member Andy James, ACII, Underwriting Assistant, Catlin. Reporter Terry Hayday, FCII, Optimum Consultants.

AJ: I joined Catlin in 2011 on its At Lloyd’s we have 12 apprentices graduate scheme. What route to joining our scheme in 2014. We target employment at Lloyd’s would you local London boroughs and are recommend? especially keen to tap into the talent of school-leavers from Tower Hamlets. IB: Graduate schemes are a great route into the London Market. The Lloyd’s three-stage rotational scheme AJ: You talk about diversifying the has several unique features. Graduates workplace. Can you tell me about spend time with the of the content and reasoning behind Lloyd’s, managing agents and with your Inclusion@Lloyd’s initiative? brokers. This gives them an overview of the market and helps them choose IB: Within our diversity and inclusion an area most suited to them. programmes we are looking to attract people with different ideas, AJ: What happens to applicants different backgrounds and different who don’t get selected for such experiences. A cultural mix generates schemes? genuinely diverse points of view which can benefit business. As Lloyd’s IB: Today, employers are much better develops internationally, we need at spotting those with potential. Many people who can better understand have sophisticated talent management specific cultures, procedures and how programmes. Don’t be afraid to start at business gets done outside of London. the bottom, because, if you are good, Recognise your best your abilities should be recognised competencies and and you may well be fast-tracked to AJ: How will you advertise career more senior positions. Everybody, in opportunities at Lloyd’s to people develop them as well making their career choices, should outside the UK? as you can. carry out due diligence on the quality IB: This year, we are launching our of the talent management schemes of virtual global development centre future employers. and opening up training for overseas visitors. We have 25 professionals from AJ: Lloyd’s is also championing China coming to Lloyd’s for a ten day apprenticeship schemes for school- programme to educate them about the encouraging managing agents to put leavers. Why? London Market. We are also becoming forward their perceived leaders of the more involved in European MBA fairs. future. Participants work alongside IB: I spent many years in Switzerland, Corporation staff on market projects to Germany and France. In continental help them develop requisite leadership AJ: Lloyd’s Vision 2025 and Strategy Europe, apprenticeship schemes are skills. 2014–2016 promise ‘an accelerated really popular. They have a completely We want managing agents and career path … for high achievers’. different standing and young people brokers to have their own high quality What does that mean? are really proud to participate in them. talent programmes. When I worked for In the UK, we are still developing IB: It’s about recognising talent early GE in Kansas, I saw how it managed such schemes, as employers are and promoting accordingly. We run people as robustly as it managed the recognising that it can be a great way our modular Developing Leaders at numbers. It had rigorous plans for its to harness talent and diversify the Lloyd’s programme in conjunction staff, which maximised opportunities workplace. with London Business School, for people. The flip-side is that people

6 | The London Journal 2014 have to have the courage to take the AJ: Do you think Lloyd’s should AJ: Does all this extra data actually opportunities that come their way; as I mandate that those in senior help an institution that is 326 did when moving to Kansas. positions should study for insurance years old and has been generally exams? successful?

AJ: Are you saying that aspiring IB: I love the idea of making insurance IB: We are in the risk business and leaders should seek opportunities as professional as it can be. I began the world is changing and becoming abroad? my career with the Prudential and much more sophisticated. Receiving, was expected to get my ACII. In our analysing and understanding data is IB: Clearly, I am not advocating market, mandating requirements is no essential. We simply cannot operate everybody having to leave London, substitute for encouraging competing as we did in the past. We also need to but there is something to be said firms to adopt best practice. At embrace the use of technology more. about gaining valuable leadership Lloyd’s, we recognise that having a Your generation is characterised by experience in another environment. professional cachet sends out such a its digital social world. The insurance positive message to those with whom industry needs to keep pace and AJ: Should the traditional career we do business. convert its practices to suit the way path on an underwriting box or as people are living their lives. a broker naturally lead to a senior AJ: What have been the key management role in Lloyd’s? changes in insurance during your AJ: Are you saying that the computer career? IB: It should depend upon the will replace the underwriter/broker individual. I started out that way. IB: As a young underwriter, I relied relationship? I got my ACII, but then wanted to heavily on personal relationships, but IB: No, because so much of the get involved in cross-team projects, didn’t use data in the way that it is business written in Lloyd’s is bespoke, from which a desire to lead soon manipulated today. Data analytics has highly complex and relationships are developed. Managing people, transformed our industry. still important. However, underlying especially in diverse teams, has been The regulatory landscape has also services have to be much quicker. We so valuable for me in my present changed dramatically. Increased know that people can do their banking position. However, not everybody capital requirements, allied to the from their smartphone or track Internet wants to be a CEO. If managing modelling work required, did not exist purchases at the press of a button. people is not right for you, don’t do when I began my career. The other We need to ensure that the insurance it. It’s important to do well or even major change has been the emphasis industry doesn’t get left behind. One excel in your chosen area of expertise. on the customer. There’s been a day, wouldn’t it be great to think that There’s no need to take an excellent huge shift in focus towards those who policyholders could track the progress underwriter, for example, and put them pay their premiums to us. In a digital of their claims and any payments due in a management role if they’re best age, we must always remember that to them? Again, it’s a question of really suited to underwriting. Recognise your customers have so much more access focusing on the customer. best competencies and develop them to information and that leads to greater as well as you can. choice of product, carrier and service. AJ: In your career, have you received any advice which has really helped you or had a mentor that has been particularly influential?

IB: I’ve had in-house mentors and those from outside the industry. They have been particularly helpful when I’ve had confidential career decisions Don’t be afraid to start at the bottom, because, to make. The most important people, if you are good, your abilities should be recognised though, have been those who’ve had the courage to back me and who have and you may well be fast-tracked to more senior instilled in me a confidence to help positions. me overcome any obstacles. For me, following my own instincts has been important and I’ve never been scared to take on challenges, especially those in the London Market.

The London Journal 2014 | 7 Chris Beer CEO, Merryck & Co

Why leaders need mentors I am fortunate to have worked with many extremely competent business leaders in some of the world’s biggest companies and am proud to have played a part in their success.

Leadership has never been easy, course and give people clear direction. mentor’s support is to enable a place and much has been written on what But in a VUCA world it is difficult, even of calm and reflection, where the main makes a good leader. However, a impossible, to lead in this way. priorities can be identified, and the large amount of the investment in It’s not surprising that the level in leader’s time and focus concentrate on people development is focused on senior leaders is higher than ever, the things that really make an impact. how to be a better manager rather and the neuroscience tells us that The leader’s success is less about than a great leader. Zenger-Folkman stress reduces cognitive ability. Focus, what he or she does but more about identified the 16 competencies that decision making, energy, action are how he or she leverages the talents truly differentiated ‘extraordinary all affected. This is why mentoring of those around them. How the leader leaders’. Topping the list were things is becoming a key tool for helping engages with others, the impact such as ‘inspire and motivate others’, successful, capable leaders perform they have on others, the values they ‘build relationships’ and ‘connect with at their best. hold, the behaviours they model, the the outside world’. How well are we consistency of their approach are all supporting our aspiring leaders in Peers working together visible measures of the impact the developing such skills? mentor will have on the leader. So what is mentoring? It is peers working together in a unique one-to- VUCA one relationship for the sole purpose And what about the particular of the client being as successful as challenges that leaders are facing they can be. today. The American military coined The experienced, impartial, objective the term ‘VUCA’ (Volatile, Uncertain, support that a mentor provides is a Complex, Ambiguous), which has vital ingredient in retaining perspective Mentoring is becoming been adopted to describe the – enabling greater strategic clarity, increasingly difficult environment in better decision making and the energy a key tool for helping which leaders find themselves. It is and enthusiasm to ensure committed successful, capable certain that this concept will resonate action. with many of us in our daily lives. The mentor has stood in the leaders perform at their The insurance industry is particularly mentee’s shoes and has directly best. aware of the Black Swan concept – experienced the challenges from the the event that is supposed to happen mentee’s perspective and this allows a once in a blue moon. We have had greater level of constructive challenge many more Black Swans to deal with and support that enables bigger and recently and this is likely to continue. quicker shifts. The pace of change is increasing So when might mentoring be and what was true yesterday might appropriate? not be true today. The ability to hold We usually find that mentoring can different possible futures in mind be most valuable at times of transition; and to deal with that ambiguity is a where the size and scope of the role key attribute that future leaders must that the individual is asked to take develop. on is beyond previous experience It’s pretty tough being a leader today. and where the interactions with other Historically, the leader was expected parts of the organisation are very to know the answers, chart a certain different in nature. A key part of the

8 | The London Journal 2014 Sir Nicholas Montagu Chairman, Financial Ombudsman Service

Never let up: Why the Financial Ombudsman Service became a leader in diversity O ur success lies in never letting up and mainstreaming diversity into everything we do.

When I’m asked why I’m passionate together to talk about their shared problems need special help to enable about diversity, I point to it as a rare concerns and experiences. In a telling them to get a fair outcome to their coincidence of business, moral and moment recently, after a tremendously complaint. social imperatives. It makes obvious successful ‘Inclusion Week’, one That’s why we have such an business sense for any organisation person commented that every week active outreach programme and to attract high-calibre people of all should be just that – and we’ve really why we work nationally with many sorts, and to develop them to the taken that to heart. organisations, including a wide maximum of their potential, just as Our success lies in never letting range of disability and mental it does to reach the widest possible up and mainstreaming diversity health charities. They help us better range of customers or consumers, into everything we do. That’s why understand the special needs of our by understanding and meeting their we were recently accredited as consumers and, through them, we can needs. Morally, it’s wrong for people to Leaders in Diversity – one of only reassure those consumers that we are be excluded or held back because of three organisations in the country, here to help and that we understand irrelevant differences, and, socially, it’s and the only national one, to get that those needs. We are strong, internally desirable for an organisation to mirror recognition. and externally, on gender equality, the society it serves. At the Financial Ombudsman Service, where I have been Chairman since 2012, my major aim is to get diversity recognised as an intrinsic part of what we do, not as an add-on. I’m immensely proud of what we have achieved there, and of how we have Knowledge is treated as a resource to be shared, achieved it. We have a head start because the not a source of individual power, and people take Service is the most values-driven pride in and celebrate each other’s achievements. organisation I’ve ever worked in. Wherever I go, people respect their colleagues for what they are and in the fullest sense – and that’s almost a definition of how diversity works internally. Knowledge is treated as a resource to be shared, not a source That mainstreaming applies to both featuring three of our leading female of individual power, and people take our external and internal faces. As a ombudsmen (or should that be pride in and celebrate each other’s service, we want anyone in any section “ombudswomen”?) in the official guide achievements. of the community who might have a to International Women’s Week. There’s a lot to celebrate and a huge problem with their financial supplier Diversity really is at the heart of range of people doing the achieving, to know about us and come to us. everything we do and of all our in terms of age, ethnicity, sexuality, That means reaching out to different successes. But we are not resting religion and all the other things that communities and groups all around on our laurels – if there’s one thing create that rich diversity which is the UK. Young people may have a diversity work has taught me, it’s that our strength. We have numerous different grasp from older people; you need to run to stay still. We don’t employee-led networks reflecting some minority communities may be want to stay still – we’re always looking these differences, and I’m delighted less at ease dealing with big financial to do better – so for us the race will by the way that separate groups come institutions; people with mental health always be on.

The London Journal 2014 | 9 Erik Johnson, ACII IIL Diversity Champion and Representative’s Committee and Assistant Vice President, Allied World

Working towards inclusion H ow to make the London market a diverse and inclusive environment, where difference is valued and inclusion leads to innovation and opportunities.

Much has happened in the Diversity & Diversity & Inclusion has become Imagine a black female law student, Inclusion (D&I) space in the London more important to industry leaders, Jen, in her final year of studies. She is market in the past year: but what is driving this interest? Based considering a career in law or liability • The IIL Council adopted a D&I on data, demographic forces might be insurance. Her uncle is an underwriter strategy responsible. in the United States. He encouraged The population of London is her to consider insurance as a career. • The IIL Young Members’ Committee changing along with the mix of Jen does some web research and hosted a ‘Dive into Diversity’ lecture graduates. However, the London locates the Law Society’s Ethnic • The LMA and Corporation of Lloyd’s Market appears to be missing out Minority Lawyers Division and the formed the Inclusion@Lloyd’s group on talent that is increasingly diverse. multicultural networks of a few large • The LGBT Insurance Network hosted Where might this diverse talent be law firms. She notices that many ‘The Pursuit of Inclusion: Strategies going? law firms prominently publicise D&I that Work’ lecture credentials. Looking at careers in insurance, Jen spots the Women’s Insurance Network but finds little else in the way of D&I materials credentials. 60% She decides to attend her university’s 56% 50% career fair to learn more. 50% London (1) Jen visits stands from several of 40% the ‘Magic Circle’ law firms that are 38% 38% University Students (2) 30% 36% 32% 33% IIL Members (3) manned by staff from senior partner to 28% associate. Luckily, she meets a female 20% Managing Agents (4) 20% partner who explains the opportunities 10% available for all new graduates, the n/a 10% n/a 0% networking and support offered by Women Non-White Under 35 her firm’s various D&I employee networks, and the increasingly Sources: (1) 2011 UK Census; includes only people classified as employed; (2) Higher Education Statistics Agency; gender data are for all students; ethnicity data are for first-year diverse partner pool where 30% of students; (3) IIL; data on ethnicity are not available; (4) LMA; data are based on median partners are women. Jen manages results from a voluntary survey. to find one insurer stand, where she

It is vital to ensure that Lloyd’s remains as relevant to our clients and other stakeholders in the future as it has been in the past. As we develop Lloyd’s presence in existing markets and as new high-growth markets open up, Lloyd’s needs a workforce that is not only of the highest possible calibre, but also can quickly establish strong relationships with new clients and understand their needs, to be able to work creatively collaboratively with them, regardless of their diversity characteristics. Diversity throughout our workforce can help identify opportunities and build these relationships more quickly.

Paul Jardine, COO, Catlin Group Ltd and member of the Inclusion@Lloyd’s Group

10 | The London Journal 2014 discovers that they don’t have any D&I networks and only 5% of their senior underwriters are female. Armed with her good degree and leadership experience gained running Across the Lloyd’s market we have started to focus on D&I to ensure her university’s debate team, Jen that we attract and retain the best people to support the growth of our decides to apply to three law firms. business. Lloyd’s managing agents, brokers, the Corporation of Lloyd’s She can see herself being successful and Lloyd’s Market Association are collaborating to raise awareness in the legal sector based on the and share best practice so that our workplace is highly inclusive and external D&I messaging she saw from Law Society and law firms and delivers the talent and innovation required for continued success. the role models she met through Dominic Christian, CEO, Aon UK Ltd and Chairman of the Inclusion@Lloyd’s Group the career fair. After a few interviews Deputy President-elect, Insurance Institute of London and assessment centre days, Jen accepts a job with a London law firm’s insurance litigation team. What can the insurance industry learn from Jen’s story? Basically, it needs to be much more active and We are in a professional services business and our visible in relation to D&I. There are staff is absolutely the most valuable asset we have. four areas on which the sector should focus to achieve this: Staff members are employed for their skills, attitude • Communicate our commitment to and value/contribution they can make to ongoing D&I, outlining the importance of D&I business success. A diverse workforce is a must and plans for change. because it makes ‘commercial business sense’. • Get D&I onto board agendas and demonstrate tangible results, giving Additionally, the quality of debate at senior/board level is enriched credibility to D&I work. by contributions from all levels and we actively encourage and invite • Encourage D&I networks to provide a cross-section of staff to boardroom lunches to give a view from their role models, support, guidance, perspective and to challenge the board on any relevant issues. and networking opportunities for Transparency is key in everything we do and having an inclusive D&I communities, companies, and the wider industry. workforce that understands why we do what we do, makes it a healthy and harmonious environment. • Educate employees and leaders on the importance of D&I so Ashwin Mistry, OBE, ACII, Chairman, Brokerbility and CII President that they understand the impact of unconscious bias on themselves and others; changing attitudes, cultures, and working practices in the process.

With 82%1 of Lloyd’s business We are too casual about diversity in insurance. I believe it is one of the originating from outside of the UK, we need to speak the language and most inclusive and welcoming environments to work in but we tend to conduct business in ways that meet take for granted that outsiders are aware of that. They almost certainly our customer needs. Making progress aren’t and we are missing a trick. Let’s face it, insurance is largely the on D&I is a business imperative. While preserve of white males and in this day and age, that is quite frankly change requires focus, time, and embarrassing. We have certainly made progress in recent years but resources, the benefits are worth it. We we must do more with greater confidence and get past the gender can’t afford to miss out on the diverse talent pool that will drive the innovation issue. We need to consider the full range of diversity – gender, race, and change that we need for a thriving age, sexual orientation, social and economic background – and make industry, now and in the future. it clear both in theory and practice that everyone, with the requisite For further information please talent and drive, can make a great career for themselves in insurance. contact me at iildiversitychampion@ cii.co.uk or visit the IIL’s D&I webpage. Amanda Blanc, ACII, Executive Director, AXA and CII Past President

1 Lloyd’s Annual Report, 2013 The London Journal 2014 | 11 Ken Crerar President and CEO Council of Insurance Agents & Brokers

FAME – a model for the UK? T he Foundation for Agency Management Excellence (FAME) was established by brokers in the US to indentify and promote talented people from non-traditional backgrounds. Could a similar initiative in the UK increase diversity and help boost innovation?

Katelin Robertson was a single mother scholarship helped defer the college FAME has opened doors to new trying to juggle school, work and life tuition expenses he never planned opportunities for many students while with a toddler. Bryan Fuller was a US on having, and put him on a path to helping address one of the industry’s Army veteran and a father of two. They excel in the business after graduation. most critical issues: recruiting were non-traditional students with non- ‘FAME helped me distinguish myself talent. Today, about two-thirds of traditional careers in mind: commercial as a top candidate for the positions I FAME scholars go on to work in the insurance broking. was applying for.’ insurance industry and in 2013, 25 They were perfect for FAME. Stories such as these kept coming FAME scholars were hired at insurance FAME (Foundation for Agency – and thanks to strong CIAB member broking firms following graduation. Management Excellence), is a non- support – so did the funds. These are hardworking students profit organisation established by The FAME scholarship programme who have everything it takes to excel the Washington, DC-based Council has awarded nearly 180 scholarships in our industry except the funds to of Insurance Agents & Brokers. totalling $885,000, and has get through school. FAME gives them It has long worked to promote partnerships with 21 universities in the the peace of mind to concentrate on leadership and excellence in the United States and one in France. what’s important and allows them to agent/broker community and has pursue their career goals with less funded publications on important financial worry. It’s a programme that industry issues. Recent topics include breeds a “pay it forward” attitude and producer licensing, insurer insolvency, we’re excited for what’s in store. advantages and disadvantages of Following graduation, Robertson the employer-based became an assistant account system, and how to develop and These are hardworking manager, while Fuller landed a job as implement an effective intern students who have an employee benefits adviser. They programme. are among a distinguished group of The FAME scholarship programme everything it takes to FAME scholars that the CIAB is proud was started in 2006 on an experimental excel in our industry to call ‘family’. basis with four scholarships of $5,000 Founded in 1913, the Council of each. Its mission was to make a except the funds to get Insurance Agents & Brokers is an positive impact on the future of the through school. association of top regional, national commercial insurance broking industry and international commercial by identifying dean’s list-level risk insurance and employee benefits management and insurance students intermediaries worldwide. Council who demonstrated financial need and members are market leaders that who wanted to work in the industry. place 85% of US commercial property/ Now in its twentieth year, FAME has ‘Insurance was a field I knew nothing premiums and made a difference in the lives of about, but once I was introduced administer billions of dollars in Robertson, Fuller and dozens like to professionals in the business employee benefits accounts. With them. and heard their success stories, I expansive international reach, ‘Receiving a FAME scholarship knew it was the major for me’, said the Council fosters industry-wide led to industry exposure I wouldn’t Latwanna Singleton, a past FAME relationships by engaging lawmakers, have experienced elsewhere’, said scholar at the CIAB’s 2012 Insurance regulators and stakeholders to Brian Wingfield, a past FAME scholar, Leadership Forum, the world’s premier promote the interests of its members who saw his athletic scholarships commercial property/casualty meeting. and the valuable role they play in the rescinded after suffering a freak injury ‘The FAME Scholarship helped take mitigation of risk for their clients. weeks before his freshman year was my focus off financial matters and to begin. Wingfield said his FAME concentrate on my academic goals.’

12 | The London Journal 2014 Benjamin Baker, Cert CII Head of LMA Academy Lloyd’s Market Association

The LMA Academy’s approach to technical education in the Lloyd’s Market E xperience shows that there is demand for continuous, interactive and properly planned education linked with effective mentoring.

Ask people in the Lloyd’s Market for accredited by the Chartered Insurance out what support they would like. Of their criticisms of technical training, Institute (CII) and attendees receive the 440 respondents, almost 70% said and you’ll probably hear that it tends CPD hours. they would like more networking and to be focused in silos, lacks a clear Foundation programmes are mentoring opportunities in addition to progression and should not come individually assessed by the CII and the programmes already run by the to a halt after the achievement of a are submitted for the CII kite mark for LMA Academy. Lloyd’s began piloting degree or ACII qualification. The desire technical quality. The LMA Academy a mentoring scheme for the market in for a mentor is also expressed fairly syndicate business plan programme mid-2013 involving over forty market regularly. was the first to be accredited. practitioners which has so far proved The good news is that help is Further programmes covering risk to be very beneficial and it is hoped on the way as many experienced management, the role of the actuary, that this will be an ongoing scheme in insurance professionals at Lloyd’s claims foundation and insurance the market. This is an issue also being are actively engaged in working contract wordings will follow this year addressed by a number of young towards addressing the needs of their and next, and will be delivered on the professional groups and highlights colleagues in the shape of the Lloyd’s same basis. how important these networks are for Market Association’s LMA Academy. Masterclasses and workshops cover young professionals in the market. The LMA Academy believes that key, immediate issues that affect Experience shows that there is education is a continuous process. In the market. These have included demand for continuous, interactive June 2012, it structured its activities wordings, cyber risks and weather and properly planned education to recognise that individuals want to issues. linked with effective mentoring. make the best of every opportunity, The philosophy of the Academy is whatever level they may be in their Inspirational leaders quality over quantity with a desire to career, to enhance their prospects deliver professional and integrated Advanced level programmes are for through further technical insurance educational programmes for LMA senior managers. The Inspirational education. By working at the heart of members. Leadership Programme, run in the LMA, the Academy identifies key partnership with Saïd Business areas where additional knowledge is School, University of Oxford, required. Where there is a gap, the addresses leadership in the context Academy seeks to fill it. of the individual. A new programme on sustainability leadership, being Three key areas developed with the University of The Academy’s new structure Cambridge, will examine the role In 2013, the LMA concentrates on three key areas: of insurance leaders by developing foundation, technical/practical and and testing strategic views in the Academy ran 43 events advanced. Each programme is context of global challenges. Practical attended by over 3,000 designed to have a clear learning programmes at this level include a outcome and link to other events claims transformation programme with people. run by the Academy and the LMA. In EY and a week in New York looking 2013, the LMA Academy ran 43 events at the practicalities of living with US attended by over 3,000 people. litigation. In order to ensure that programmes At the beginning of the year, the LMA are recognised at a professional surveyed young professionals in the level, the Academy has become fully Lloyd’s and London markets to find

The London Journal 2014 | 13 Hot topics 2014–2015 L ondon Institute lecture committee leaders highlight some key issues in their sectors.

Aviation Committee Claims Committee David Sales, FCII, Cooper Gay Jonathan Clark, ACII, SCOR The airline industry as a whole In the year that Lloyd’s implements remains on track to deliver a second the new market approach to handling consecutive year of improved claims with the latest step of the profitability in 2014 and, for the first Claims Transformation programme, time for a while, airlines all over the it is clear that effective claims handling world seem to be building for growth. is the name of the game. For brokers and risk managers there is an increased focus on benchmarking The industry does, however, still continue to face significant claims performance and on speed of response. challenges. In an immensely competitive environment, airlines have to try to both satisfy demand and operate profitably. But it is not just about speed of response – the claims teams Aircraft manufacturers face difficulties meeting order in London must deliver high-quality decisions and stay up to backlogs. Fuel charges represent a significant element of an date with a wide variety of claims case law and practice. airlines costs and, with the political turmoil in the Middle East The 2014 claims programme of the IIL is directed towards region, any hope of obtaining cheaper aviation fuel in this objective. the near future seems to be unrealistic. The Lloyd’s Vision 2025 is about providing world-class Security is an ever present issue, with cyber attacks claims management to a subscription market focusing against critical infrastructure becoming a growing threat. on specialist property and casualty business. The claims Environmental matters are also a continued challenge. community will play a key role in developing the trust that It is not just biofuel development and the impact on the underpins this strategy. Distribution through brokers, environment – airlines will have to cope with legislation that coverholders and service companies requires us to continue would tax them on carbon emissions. to embrace the wide range of technology tools that can In the next aviation lecture programme, we hope to include, assist the claims operation. We will need to be ever more as speakers, senior executives and experts from across the imaginative in the use of mobile technology, satellites sector to give us their thoughts on some of these issues, and drones, for example, to review claims in far flung or which we hope will both entertain and educate our audiences. inaccessible locations. We also intend to include a lecture on space exploration But we need to continue to develop and encourage a new technologies and Alan Beacock, Head of Aviation generation of claims adjusters and external claims service Reinsurance, Swiss Re will discuss the issues facing the providers to keep London at the forefront of top quality claims market itself, as overcapacity continues to handling. As others have remarked, ‘claims’ is one of two threaten profitability. things you need to do well to succeed in insurance, the other is underwriting.

Financial Services Committee at retirement proposed from April 2015; Roger Sanders, OBE, Cert PFS, the accelerating roll-out of automatic enrolment for workplace pensions and Lighthouse Group Employee Benefits the impending capacity crunch. Eighteen months after the implementation of the The good news is that all sectors are in Retail Distribution Review (RDR), providers and a period of rapid innovation, with new intermediaries are battling with another ‘perfect storm’ routes to market being explored and new products in development; the of more intrusive and costly regulation, legislative background context is of innovation marginalising established surprises, margin pressure and structural challenges to products and businesses and challenging entrenched market business models; in other words, constant and growing positions – what Schumpeter called ‘creative destruction’. disruptive change. All of this, in the long term, should be good for customers, clients and consumers, not to mention those businesses The Mortgage Market Review (MMR) is adding three hours that embrace change, by increasing competition, reducing to the time taken to transact mortgage applications; fund barriers to entry for new businesses and enabling new ways managers are struggling to achieve acceptable levels of of doing business. The phrase ‘a paradigm shift’, for once, is transparency of charges; ditto for platform providers; the entirely apposite. overnight ending of UK life insurers’ reliance on the pensions annuity market and the total liberalisation of DC pension pots

14 | The London Journal 2014 International Committee emerging markets will also continue to Alastair Evans, ACII, Lloyd’s evolve as they grapple with their new responsibilities on macro-prudential and There is no sign of the pace of regulatory change ongoing micro-prudential duties, including slowing up. In the next year, the final elements of the conduct issues, shaped by the lessons of Solvency II regime will be put into place, with the the financial crisis. Hopefully, these various adoption of delegated acts and implementing emerging rules will evolve coherently and regulatory and technical standards, prior to the consistently, although that cannot be regime’s entry into force in 2016. taken for granted and the industry will need to continue to lobby vigorously to secure such an outcome. These and other interesting and important topics, including At the same time, the IAIS will continue to intensify its global underinsurance, the fight against protectionism work on the development of global capital standards worldwide, the referendum on UK membership of the EU, (the basic capital requirement and the insurance capital the Singapore and Asean markets and the UK’s efforts to standard), the Common Framework for Internationally promote inward investment, will be among the various Active Insurance Groups (ComFrame), the identification international themes, which will be addressed by senior of Globally Systemically Important Insurers, higher loss speakers in the IIL’s next lecture programme series. absorbency standards for such GSIIs and other issues. Regulatory and supervisory regimes in the major and

Lloyd’s and Market Issues Committee what it is that makes a successful financial David Gittings, LMA centre capable of delivering high quality customer service. And then we need to At its best the London Market provides a unique determine which of those elements we and unrivalled service to its customers. We provide need to improve upon if we are to retain solutions to their problems in a way that no other our position. As a result of this, LMG is to insurance centre or capital market can. We provide expand its remit to ensure it provides this help when they most need it. But there is increasing service to the market. It has agreed with evidence that London’s position in the global industry the association boards enhanced terms of reference to enshrine this and has identified a series of initiatives to take is slipping. So the London Market Group (LMG) want this forward. to use the unique cross-market vehicle that is LMG to understand why that is, to understand our customers’ These market-wide initiatives will include work to: needs better and then do something about the issues • develop talent and promote diversity; we have. • co-ordinate a common voice for the market in its dealings While we must not lose our focus on operational reform, we with government and regulators; and need to accept that, although this is very important, it cannot • commission research to better understand our customer be the whole solution. We need to be talking about the major base and identify ways to make the London Market more influences that can sustain or even grow London’s position attractive to them. in the global marketplace. To do that we need to understand

Property Committee for insurers to recover residential flood Andy Brooks, FCII, Allied World losses from a pool funded by general taxation, thus encouraging continued The recent winter flooding in parts of the UK, mainly availability of this cover. This is inevitably in Somerset and the Thames Valley, highlights how a complex structure with much debate important insurance is to the life of the nation. Insurers about the boundaries of the scheme, but are now in the spotlight, both as claims handlers and it also prompts some questions as to the as they get to grips with the challenges of providing future of general flood defence. Recent future cover in vulnerable flood-prone areas. flooding in Somerset, and previously Hull in 2007, may at least in part be attributed to man-made factors – principally failure to maintain culverts and ditches, to dredge rivers and Flood on a worldwide scale is not always provided by private to operate pumping stations. So far the government believes sector insurers. A systemic risk with high frequency and the market for commercial flood insurance operates properly, massive aggregate exposure, is, in some countries provided but as information and modelling tools become more via a government scheme (for example, in the United States) sophisticated, insurers of commercial property are likely or is simply not widely available (for example, in The to re-evaluate the cover and price of their UK natural perils Netherlands). exposure. Much of the focus of attention in the UK is on the recently announced government-sponsored Flood Re, a mechanism

The London Journal 2014 | 15 Hot topics 2014–2015 L ondon Institute lecture committee leaders highlight some key issues in their sectors.

Property Investors Committee an ever-changing and already crowded Anna Whitfield, ACII, AXA cityscape in central London. European investment remains an area The hot topics for the property investors segment of of interest with investment remaining the London Market continue to be influenced by the strong in western and northern Europe economy and legislation. with signs of recovery in parts of southern Europe. Bank finance agreements are a Losses emanating from vacant properties and recycling risks corollary of capital-raising and the continue to present an issue for both insurer and client loss provisos of these continue to challenge ratios. Recycling risks also continue to pose a challenge from all stakeholders within the market place. an underwriting perspective and capacity is limited. Pressure Finally, provision of residential is on rate influenced by an increased focus on profit by insurers expected to continue the trend of the past 12 months, with is expected to continue; demand for office space and insurers having a reduced appetite for residentially biased residential accommodation continues to grow as reflected by portfolios.

Reinsurance Committee So, what is the solution? With the Adrian Clark, ACII, formerly Aon Benfield utilisation of data and analytical tools, we can identify areas where capital can The key issue in today’s industry is how we utilise be put to use, whether it be at the capital. Over the past few years, a large amount of new insurance or reinsurance level, or even capital has entered the reinsurance space, because the corporate level. In most major sectors when investors examine possibilities in the insurance there are exposures that the insurance sector as a whole, reinsurance is often seen as one of industry has some reluctance to cover, the easier entry points. either through negative past experiences, or through a perceived lack of modelling. These risks are often retained by the original client, or are dealt with by governments. Our It is estimated that at the end of 2013, global reinsurance skills as reinsurance intermediaries extend to match capital capital had reached record levels of around USD 540 billion supply with capital demand, and in this context we are – a 7% increase over 2012, and a 19% increase over 2011. making moves to increase the insurability of certain key risks, When considering that capital levels have risen so sharply through innovative product development and through using during a period of relatively low loss experience and lower- our global insight into the insurance and reinsurance markets than-average investment returns, it can be readily seen that to identify areas where capital can be put to use. achieving profitable growth in today’s environment is more of a challenge for insurers and reinsurers than was perhaps the case five years ago.

For a preview of the new programme see inside the back cover or go to www.iilondon.co.uk

16 | The London Journal 2014 Jonathan Mudd, ACII USPI Class Underwriter, Brit Global Specialty

The value of relationships in the digital age W e must work to ensure technology and relationships sit in harmony alongside one another.

In today’s cyber- and tech-savvy true face-to-face human interaction. business risk and allowing them to world, you could live through an entire Sitting down with the broker and more freely conduct their day-to-day week or even month and have no client adds tremendous colour to activities. immediate need to interact face to assessment of risks and assists and Clients wish to understand more face with another human being. Most brings to life an underwriting proposal about our industry’s inner workings. banking, shopping and meter reading to help with risk analysis. In certain We can talk about how we view their submissions can be done online, business lines, getting a thorough business risk, feed back lessons purchase petrol at the pump, top up and true understanding of exposures learned to assist them with their own your Oyster card at a machine – the is still only possible by personal risk mitigation, discuss insurance list goes on and on. In the work place interactions or a site visit. Internally, industry challenges and discuss how people also can all too easily hide also in today’s working office culture, London claims handling operates and behind computer screens with minimal two colleagues can too easily choose continues to outperform its peers. personal interaction. Smart phones to email one another rather than Such information exchange is from now sit on bedside tables as simple walking to one another’s desks to experience much better relayed face alarm clocks, act as office extensions have a conversation. The simple to face, in which the forum allows an for remote working and are one of the investment of time to form a personal open exchange with each party having few essentials required to conduct and social working relationship with true eye-to-eye contact. day-to-day business activities. a client, broker or co-worker will pay Reliance on essential technology long-term dividends and ultimately can be damaging. Desks are cluttered lead to better scenarios and results with I-phones or Blackberrys (quite for all parties. How many market often both!) pinging email and texts, ‘snippets’ and opportunities are some desktop monitors now have picked up from friendly discussions instant messaging, desk phones are that would otherwise never be raised ringing – not to mention the general Some clients see a in email exchanges? In essence, office hum in open plan work space. personal relationship ensuring that there is a personal side It is still vital that on occasion one gets and partnership to any transaction or way from these daily distractions and with their underwriters contract will time and time again prove invests regular and worthwhile time as a true value add to be beneficial. with brokers and/or clients face to face in order to focus solely on the job/risk and something not Win-win in hand. commonly found Partnerships promote goodwill, Building relationships outside of London cultivate better negotiation, assist with mutual understanding and ultimately We must work to ensure technology might ease a difficult or uncomfortable and relationships sit in harmony situation. They engender a win-win alongside one another. London market Improved technology has atmosphere. Further, as our industry underwriting is not about making transformed the way our business becomes naturally more transactional a ‘quick buck’ but rather ensuring operates and continues to be essential with automation, it is important that strong, consistent and stable results to our success. It has assisted for certain business classes retaining year after year and to achieve this tremendously with information our personal relationships really is a we must know and understand the flow, communication, expense differentiator for a sophisticated client faces, personalities and behaviour management, research, pricing base. Some clients see a personal patterns of whoever we are dealing techniques and has served to stabilise relationship with their underwriters as with. Insurance in its rawest form volatility and improve results. a true value add and something not is a transaction but building and However, while technology is commonly found outside of London. fostering a relationship around these important we must remain cautious of A sophisticated client will acknowledge transactions creates a type of longevity the seemingly limited requirements of that we are underpinning their unparalleled in many other industries.

The London Journal 2014 | 17 Ronnie Tyler, Cert CII Broker, Willis

Inspiration and aspiration in Lime Street R onnie Tyler, who joined the Willis graduate scheme in 2013, describes his first year at work.

When I was growing up, I always team, no matter how senior, being qualification relatively quickly. I am wanted a job in the City, but like many very helpful and spending time with also continuing with my employer’s people, I never initially considered a me to ensure that I understood what I internal learning and development career in insurance. With aspirations was doing. I have begun some market programme. to get a job in London, I studied a work, having been initially taken Willis has been a fantastic place for business management degree at the round with some of the young brokers me to begin my career. Everyone in University of Nottingham, graduating in my team who introduced me to my department and the organisation with a 2.1. underwriters in the market. Since as a whole has been very friendly While at university, I was fortunate then, I have actually been ‘broking’ and welcoming. The graduate team enough to undertake three weeks with various slips and endorsements; programme has been very good work experience at the Lloyd’s constantly learning and picking things with regard to its structured two-year Market Association. I spent time up. I have also started working on scheme that includes an assigned learning about the fundamentals several important accounts – making mentor and access to the Willis Re of insurance, about the London presentations, benchmarking and Academy. Market and about the importance of analysing data – all of which has been I have thoroughly enjoyed the social Lloyd’s and its history. I also enjoyed very valuable. In a short space of time, side to insurance – having attended several days on various underwriting I have gained a lot from this hands-on recent Under 35s events and a few boxes – Kiln, Pembroke, MAP and learning. Graduate Insurance Network lectures Advent – as well as meeting a Willis I am currently studying towards my and networking sessions. It has been Re broker, Christopher Hayday. This ACII qualification, which I am aiming very good to get to know people of a experience gave me a real flavour of to complete within the next year. I similar age in the market, as we are all the uniqueness of the Lloyd’s Market have just finished my insurance law in the same boat. and the importance of relationships studies and sat the CII examination My first year in insurance has between brokers and underwriters. It in April. Because I have a business been fantastic and has exceeded was also hinted to me that there would management degree, I was awarded my expectations. I am now looking be the occasional lunch and drink several credit exemptions by the forward to the next year and the rest involved, which didn’t seem too bad CII, which has certainly accelerated of my career in the London insurance at all! my ability to acquire a professional market. After my work experience, I decided that I wanted to pursue a career in insurance and that the broking side appealed to me most. I applied to Willis and successfully got through the application process, choosing reinsurance as my favoured option. I subsequently joined Willis, in September 2013, on its graduate The graduate team programme has been very training programme and became part of the Marine and Energy Reinsurance good with regard to its structured two-year scheme team. that includes an assigned mentor and access to My time at Willis started with a three week induction programme with my the Willis Re Academy. fellow graduates, learning all about various different business units and basic compliance matters. Following this, I joined my team and began learning about reinsurance and the market – with all members of my

18 | The London Journal 2014 Rolf Tolle Non-executive director

Effective non-executive directors N EDs have the responsibility to work for the long-term success of the company.

‘The UK Corporate Governance information. Good management through regular contact between NEDs Code’ as developed by the Financial information (MI) is a prerequisite of and regulator if wished for by the latter. Reporting Council and published in providing NEDs with the necessary Effectiveness in the context of September 2012, gives an indication understanding of the business they are NED’s work for insurance/reinsurance of the expected role of non-executive supposed to control, challenge and entities in the widest sense demands directors (NEDs): ‘As part of their support. that there is an optimal composition role as unitary board members, In the world of Solvency II (S of the group of NEDs on the board, non-executive directors should II), regulators expect that such in which everyone has particular constructively challenge and help committees operate at an acceptable strength covering respectively the develop proposals on strategy.’ It level and that the MI produced for areas of risk management, audit, then states, among other things, that these, and for board presentation, is governance, finance and all aspects of NEDs should scrutinise performance of high quality, timely and relevant. underwriting. management; satisfy themselves of Let me again stress that this in no way This collegium of experts is not in the integrity of financial information, replaces the work of the executive and any way another layer of executives! and talks about robust and information it needs in order to run It should, however, have a good, defensible financial controls and risk the business on a day-to-day basis. open and, if necessary, critical and management systems. In S II, it is ‘Own Risk and Solvency challenging relationship with the Assessment’ (ORSA) that should cover executive, because only together can Ensuring long-term success all of the important topics and should the right ethics and culture be nurtured give a proper exhaustive overview of and developed. In my view, NEDs have the where the company stands. It is by far responsibility to work for the long- the most important document enabling term success of the company and do NEDs to do their job. this through control, challenge and support. However, in order to do this, Trust an understanding of the matter that is to be controlled, challenged and Besides having the necessary supported is of utmost importance. background information it is also In S II, it is ‘Own Risk and This demands that NEDs have important for the NED to have a good the respective knowledge and/or relationship with executives, not only Solvency Assessment’ background in order to discharge at board meetings but also through (ORSA) that should their duties. regular meetings on a one-to-one While in no way in an executive basis. This would help develop a cover all of the function, it is still necessary that sufficient understanding of the matters important topics and a NED, when requested, takes an at hand and fostering the necessary should give a proper appropriately firm position as part of trust between executives and NEDs in their remit and it might be one of the order to efficiently fulfil their role. exhaustive overview of biggest challenges to develop the trust They should also embrace contact where the company necessary in order to create a well- with the regulator in order to create an functioning board in the relationship open and constructive relationship, stands. It is by far between NEDs and executives. which hopefully can reassure that a the most important Audit and risk committees – or for NED is striving to achieve the goals smaller organisations a combined set by the PRA and the FCA when document enabling audit and risk committee – and a regulating our business. In particular, NEDs to do their job. nominations and remunerations the requirement by the FCA to strive committee, would do much of the to have an impeccable culture in preparatory work so that NEDs on the organisations and an ethical behaviour board can act on solid, well-prepared of excellent standing can be supported

The London Journal 2014 | 19 Sean McGovern Chief Risk Officer and General Counsel, Lloyd’s

UK exit from the EU – possible implications for the UK insurance industry T he voice of business will be a powerful influence on public opinion.

The political context agenda shifts to focus on supporting Lloyd’s, like many London Market and encouraging economic growth firms, writes business from all EU The debate on whether the United and ensuring that it gives EU-based Member States by way of freedom of Kingdom should remain within the businesses the best possible chance services and is established in many European Union and on what terms to compete in the global market. Member States, which enables local is intensifying. The most significant It is, however, too easy to focus on underwriting through coverholders and trigger for the current debate was the imperfections – there are material service companies. the Prime Minister’s January 2013 advantages to remaining in the EU. The London Market premium income announcement promising British Membership of the EU gives UK- from other European markets exceeds citizens an ‘in/out’ referendum if the headquartered insurers and reinsurers £6 billion and covers a wide range of Conservative Party wins next year’s efficient access to a single insurance commercial non-life risks including General Election. This referendum market in 28 countries with over 500 property, liability, marine, aviation would fall during the second half of million people. and transport and reinsurance, 2017 – all the more interesting given Access to this single market occurs intermediated by London Market that the UK is scheduled to hold the on the basis of the ‘single passport’, brokers. EU presidency at that time. an agreed regulatory system founded Europe’s largest economies (notably The Prime Minister’s initiative has on the principle of Home State France, Germany, Italy and Poland), prompted the UK’s other major exclusive prudential supervision of (re) represent important sources of political parties to set out their insurers and the right of such firms insurance and reinsurance of business views on whether, and in what to trade freely through the whole EU, to London. It follows that any loss circumstances, they might support a both by way of freedom of services or reduced access to those markets referendum on EU membership. It has and establishment. would be damaging to London Market also led to more public discussion of This single market has brought commercial interests. Indeed, the the issue through the newspapers, unquestionable benefits to firms in period of uncertainty leading up to any public statements by business the UK insurance market, and London referendum could itself do damage to organisations (generally strongly in in particular. Customers have also the flow of business. favour of continued EU membership), benefited through increased choice. a series of surveys on public opinion and recent television debates.

The single market The EU is not without its flaws and many valid criticisms can be directed against it. It has become cumbersome and its enthusiasm to legislate and regulate in pursuit of the single market Membership of the EU gives UK-headquartered means that it risks allowing perfection insurers and reinsurers efficient access to a single to be the enemy of the good. The Prime Minister’s and others’ insurance market in 28 countries with over 500 wish to see substantial improvements million people. in aspects of the EU’s operation is entirely understandable. It is particularly important that in future its

20 | The London Journal 2014 Implications of a possible Lloyd’s view on these issues exit from the EU We strongly believe that it is in our There is much speculation regarding market’s and the London Market’s possible scenarios associated with an commercial interests for the UK to exit but the truth is that nobody really remain within the EU for all of the knows what would happen. reasons stated above. It is possible that the UK could Exit will diminish and undermine choose to leave the European Union Exit from the EU would London’s position as a global and yet maintain access to the EU’s reduce significantly, if insurance and reinsurance centre. single insurance market under a Many international firms see London negotiated settlement with other not eliminate altogether, as a platform for trading into the EU’s Member States. However, such a UK influence over EU single market and will inevitably review settlement is far from a certainty rules that impact our their commitment to London if that and may be a concession that other access is denied or made significantly Member States are reluctant to grant if industry. more difficult. In turn, this may affect the UK decides to go its own way. not only inward investment and the If no such settlement is achieved, the size of the insurance and reinsurance UK would become, in EU parlance, a industry located here, but also impact ‘third country’ without automatic rights the broking sector and associated of access under EU law to EU Member professional services providers in States’ insurance and reinsurance London. markets. The UK’s access to such markets would then depend on the to shape the EU’s agenda in seeking The ongoing debate extent to which individual European liberalising free-trade agreements, The debate will continue. The national markets are willing to allow such as the current Transatlantic Trade government’s ongoing examination business to be written by non-EU and Investment Partnership with the of the legal competences balance insurers and reinsurers: several United States, or the faster-growing between the UK and the EU has European countries do not have fully economies of the world in which been underway for a couple of years open markets in this regard and adopt Lloyd’s is looking for growth. and has already afforded industry an a restrictive approach. Would an exit rid us of onerous opportunity to comment on the impact Being a ‘third country’ will impact UK EU insurance regulation? The short of EU law making in areas such as insurance firms differently depending answer is ‘no’. The EU has for many financial services and trade. on how they organise their business years been the primary source of Following surveys of members’ operations. Some UK insurers already UK insurance rules. This might views, TheCityUK, the CBI and other have one or more subsidiaries tempt some to believe that, being business organisations have been established in other EU Member States outside of the EU would ‘liberate’ UK particularly vocal on the benefits seen and may be relatively unaffected by insurers from the need to comply in continuing EU membership. a UK outside of the EU. However, with the requirements of Solvency The voice of business will be firms without such subsidiaries may II and other EU rules affecting our a powerful influence on public find business opportunities materially sector. Such a proposition assumes opinion and I would encourage reduced unless they take steps to that UK regulatory authorities would UK and London Market insurers to locate business operations within the be minded to lessen the rigour and contribute to the unfolding debate on EU. intensity of national oversight of membership so that the views of our Exit from the EU would reduce insurers’ operations if the UK left the sector are heard. significantly, if not eliminate altogether, EU. The PRA has shown itself willing UK influence over EU rules that impact to go further than EU rules when it our industry. The extraterritorial nature feels it is necessary and the current of some of these rules means that FCA agenda of robust oversight of we could not escape their reach but customer outcomes is an entirely would have no real say in influencing domestically driven initiative – not their contents. Nor would we be able something driven from Brussels.

TheThe London London Journal Journal 2014 2014 | | 21 X Alastair Evans, ACII Head of Government Policy and Affairs, Lloyd’s Chairman, IIL International Committee

The growing power of the International Association of Insurance Supervisors in shaping insurance regulations and rules T he financial crisis has brought about far-reaching change in the regulatory architecture and substance of rules affecting the insurance and reinsurance sector

Understandably, UK industry attention has focused in recent years on domestic changes and debates (with the abolition of the FSA and its replacement by the PRA and FCA) and by the seemingly ceaseless flow of rules emerging from Brussels, spearheaded by Solvency II. While The aim of this work is to address the ‘too big to fail’ there is little prospect of immediate problem identified by the financial crisis with the respite in the EU production line of new rules, we seem to be entering global economy seen as being too vulnerable to the final phase of Solvency II rule severe damage by the possible failure of certain making as the Commission and EIOPA complete their legislative and key financial firms. supervisory arrangements for the regime, due to enter into force in 2016.

Global standards The above picture of rule making From humble beginnings, it That work continues but it has is, however, partial and incomplete. has grown into an organisation been supplemented in recent years Radical changes have been occurring representing jurisdictions in nearly by intense activity in a number of in other jurisdictions outside the EU. 140 countries and over 130 observers, new areas, notably global capital Perhaps the most significant change including many insurance sector standards, systemic risk and has been the emergence of the representatives. the preparation of a group-wide IAIS on the international regulatory Its objectives are straightforward: supervisory and regulatory framework landscape as the author of several for Internationally Active Insurance • To promote effective and globally new, major global rules. Its recent Groups (IAIGs). This work, still consistent supervision of the activity has been largely a response to insurance industry in order to ongoing, is being undertaken under the lessons drawn from the financial develop and maintain fair, safe the direction of the FSB, under an crisis and the expectations placed on it and stable insurance markets for agenda largely determined by the by the Financial Stability Board (FSB) the benefit of policyholders; and G20. to step up to the plate, fulfil its role as the global standard-setting body • To contribute to global financial Capital standards for the insurance sector and promote stability. globally consistent supervision of the Each of these three areas merits insurance industry. During its early years, it sought to comment. The project to develop This has been a challenging task achieve its objectives by progressive global insurance capital standards for the IAIS. It is still a relatively young preparation of a set of high-level, is very ambitious, both in terms of body. It was established in 1994 and in principles-based supervisory material, content and timetable. The IAIS wishes October 2014 celebrates its coming of comprising Insurance Core Principles, to develop a Basic Capital Standard age with its 21st annual conference. Standards and Guidance. (BCR) before the end of this year,

22 | The London Journal 2014 higher loss absorbency (HLA) rules globally consistent regulation and is to say that, in the fullness of time, by the end of 2015, and an Insurance supervision of insurance groups these rules may not also apply, for Capital Standard (ICS) by the end of by laying down common capital competitive playing field or other 2016. The BCR will apply to Globally standards, corporate governance rules reasons, to a broader community Systemically Important Insurers (GSIIs) and reporting obligations for insurance of insurers or reinsurers? The IAIS’s and the ICS will apply to GSIIs and groups. It also stipulates the standards activities also raise other questions, IAIGs. HLA is one of the measures that of supervision to be exercised in particularly for EU insurers. What may apply to GSIIs. To complete all relation to these groups. happens if, say, the IAIS develops this global work by 2016 will require The above highlights the IAIS’s rules which are inconsistent or consent and support from many main current areas of activities. It is by contradict those of Solvency II? Is parties. It is a formidable challenge no means a comprehensive list. For it possible that, just as the industry especially when it is recalled how long those minded to delve deeper, the IAIS appears to be on the verge of finally it has taken to develop Solvency II’s Annual Report for 2012–13, available having a settled set of rules under rules for EU insurers. As you will have on its website, gives more detail. Solvency II, some of these may be gathered, the IAIS’s work is adding The IAIS rules are not legally binding ‘trumped’ by the work of the IAIS? And significantly to the lexicon of insurance on member supervisors, but they are could these emerging IAIS rules lead acronyms. hugely influential, particularly where to higher levels of regulatory capital, they give effect to the G20 and FSB’s further significant transition costs for System risk agreed agenda of remedial measures EU insurers from Solvency II to these to be taken in light of the financial The second area of IAIS work worth international standards, and disruption crisis. It is clear that no self-respecting highlighting relates to systemic risk. insurance supervisor can simply of current patterns of institutional The industry has been highly active for disregard IAIS standards. Indeed, investment? Such outcomes must be several years in contributing thoughts national supervisors are periodically avoided. on this issue to the IAIS via bodies assessed for the extent of their There are many lessons to be such as the Geneva Association. compliance with such standards by learned from the emergence of the The IAIS developed last year a the World Bank and the IMF under IAIS as a critical standard-setter on methodology for the identification of their Financial Services Assessment the global stage. Perhaps the principal GSIIs (and promptly identified nine Programme. one is that the industry needs to firms under this methodology) and The reach of some of these IAIS continue to monitor closely and seek published a list of possible measures rules in the industry may appear to influence both the direction of travel for supervisors to apply to GSIIs, restricted, to the extent that they only and the growing and important output including more intensive supervision, apply to GSIIs and IAIGs. But who of this increasingly self-confident body. requiring such firms to prepare recovery and resolution plans and in due course the possible imposition of the aforementioned HLA. The aim of this work is to address the ‘too big to fail’ problem identified by the financial crisis, with the global economy seen as being too vulnerable to severe damage by the possible failure of certain key financial firms. Is it possible that, just as the industry appears to be on the verge of finally having a settled set of rules ComFrame under Solvency II, some of these may be ‘trumped’ The third area of major IAIS activity relates to the development of a by the work of the IAIS? Common Framework for Internationally Active Insurance Groups (ComFrame). ComFrame is intended to promote

The London Journal 2014 | 23 Dr Ina Ebert Expert on Liability and Insurance Law, Munich Re

Cyber liability C yber liability is not only here to stay, it is also bound to increase in importance.

The Internet has a central position in European level, any attempts in this the private and working life of many direction in the foreseeable future will people. It is a source of information, a be very limited. way to purchase goods and services, to communicate and to pursue social Causality and cloud relations. This comes at a price. It computing requires us to give away sensitive It is impossible to In the cyberworld, it is difficult to information and to depend on a completely delete data system we can hardly control. This attribute certain actions to a specific not only opens the door for cyber once these are posted. originator. The content of web pages can easily be changed. This makes crime but also to many new forms of Legal disputes are negligently caused losses and thus it almost impossible to establish who to cyber liability. therefore increasingly knew of the content of a web page concerned with cyber at a particular time. Authors regularly A new dimension for old risks use virtual identities to prevent liability. identification. Cloud computing Not all varieties of cyber liability and the increasingly widespread concern risks that are really new. mobile use of the Internet (WLAN, Loss and abuse of data, copyright smartphones) complicate matters infringements, libel, bullying and further. invasion of personal privacy all happen in the real world as well. matters even more. Questions of Safety standards However, through the Internet, liability, however, are governed by such torts can assume completely national law. Which law applies? The technical options of Internet use different proportions. Data posted on Which courts have jurisdiction? How are developing quickly and new types the Internet are instantly accessible can verdicts be enforced? Courts will of risks are constantly emerging. The throughout the world. It is impossible look for connections between the case means by which users can protect to completely delete data once and their national legal systems, such themselves against such risks are these are posted. Legal disputes are as language, target group or the data also improving. However, firewalls, therefore increasingly concerned content. National legal systems often passwords and virus scanners with cyber liability. At the same time, differ considerably. Sometimes they must be updated regularly. This is traditional tort law does not always are even contradictory. It is possible expensive and time-consuming. Large seem to be an appropriate way to that under one jurisdiction employers companies can be expected to do cope with such litigation. have the duty to monitor their this. For private users, this would be employees’ use of the Internet, while asking too much. But where should Cyberworld and national law others would treat this as an invasion the line be drawn? When negligence As the name indicates, the World of the employees´ privacy rights that is at stake, it has to be established Wide Web can be accessed globally. could trigger claims for damages. This whether someone did what could National boundaries do not exist in is particularly common when United be reasonably expected of him at cyberspace. Companies are frequently States law clashes with continental that time. How well should he have transferring the processing of data, European law. There is little hope for protected his data and his passwords? including highly-sensitive customer any worldwide standardisation of the How often should he have checked data, to countries with lower income law to be applied in the cyber liability the content of a linked page? How levels. Cloud computing complicates context anytime soon. Even on the quickly should he have deleted it?

24 | The London Journal 2014 Security breach information The loss or abuse of sensitive data is the most obvious cyber risk. The focus is usually on customer data of banks, credit card data or confidential The use of electronically stored data as evidence healthcare data. Claims are mostly based on invasion of privacy rights, in court, has become a major element in liability as well as pure economic loss due litigation, especially in the United States. to employment- or insurance-related disadvantages. Companies must inform their customers immediately if third parties acquire knowledge of customer data as a result of data breaches (‘security breach information’). This is now a statutory Cyber bullying mobs or parties organised through requirement in many legal systems. social networks, can go out of control, The more important online social Compliance is not only expensive, but causing substantial damage in the real contacts become, the more are also is connected with reputational world. people vulnerable to cyber bullying. risks. Further breaches of duty can In addition to psychological damage, arise if the possibility of abusing data E-discovery this can result in substantial economic is only brought to the attention of third loss, e.g. if the victim is subsequently E-discovery, the use of electronically parties by the published warnings or unable to work or if business people stored data as evidence in court, has if the required warnings are issued suffer a loss of income due to being become a major element in liability too late. Hundreds of thousands of boycotted. litigation, especially in the United customers worldwide can easily be States. This can directly result in affected. Liability risks for employers liability, for example if the outcome of a compensation claim depends on the Liability risks for employers usually Violation of privacy rights availability of certain data that have arise out of four scenarios: An Liability for the violation of privacy been deleted – or not deleted – by employer uses the Internet for unlawful rights is always complicated. However, third parties. supervision of his employees or it gets worse when traditional tort law screening of job applicants, he does has to deal with the liability for links Summary and outlook not adequately protect his employees’ to web pages with offensive content. personal data, he does not sufficiently By using the Internet, it is easy to Decisive here is whether the party control employees’ use of the Internet, cause considerable damage, very linking to the offensive page has or he does not adequately train quickly and worldwide. The potential sufficiently disclaimed responsibility employees to minimise the risk of consequences resulting from a breach for it or gives the impression that it physically losing mobile data media. of duty are more difficult to foresee identifies with its content. Even if the when acting online than when acting provider disclaimed responsibility, he Social networks and liability in the real world. The legal framework might be held liable if he fails to delete for coping with cyber risks, however, is the link within a reasonable time after Still not everyone who uses social still in an early stage of development. acquiring knowledge of the unlawful networks such as Facebook is This has caused considerable legal content or if he could have been aware sufficiently aware of the associated uncertainty, giving the term ‘risk of of the unlawful content. This liability risk. User data might be inadequately change’ a whole new dimension. risk is increased considerably by the protected or unlawfully disclosed by Cyber liability is not only here to fact that the content of the linked page the provider of the social network, stay, it is also bound to increase in can change anytime. Similar problems employers might use the information importance. arise for the providers of blogs and available to screen job applicants and other platforms. employees and activities such as flash

The London Journal 2014 | 25 Robert Reid, ACII, APFS Director, Syndaxi Chartered Financial Planners

The million dollar round table C aroline Banks, APFS, is a former director of the Personal Finance Society and a member of the Insurance Institute of London. She was installed as President of the Million Dollar Round Table (MDRT) in June and takes office in September. She is the first woman from outside of North America to hold this office. She tells Robert Reid how she got there and why MDRT has been such a benefit to her and her company.

RR: When did you join MDRT? among members worldwide to share cutting-edge ideas with one another, CB: I joined in 1990. I had only been particularly during the annual meeting, in our profession for a little over three has had a profound impact on my years and with the 1987 stock market career. Every year that I attend, I take crash happening so early in my career away tips and insights from bright it provided the perfect impetus to professionals in our business and absorb as much knowledge as I could which I can readily apply to my own to support my objective of providing practice, enabling and supporting me holistic solutions. to consistently deliver the exceptional service my clients have come to RR: So what first attracted you to the expect. Million Dollar Round Table?

CB: I had joined the RR: What made you decide to Association (LIA), which was a body get more involved with the actual that owed its very existence to MDRT running of the organisation? because those attending from the UK CB: One of MDRT’s unique features is included individuals who set up the LIA the leadership opportunities it gives its on their return. Those early pioneers members from an early stage of their told me of the networking opportunities membership. From the time when I available to MDRT members and I was first got involved with MDRT in the UK, keen to try it for myself. it provided me with the experience of It was its seemingly unlimited access working in a team environment and it We all need to build to career-shaping resources such as enabled me to better manage my time. informative articles, talks on practice Subsequently I was asked to serve on consumer trust and management, client servicing tips, a committee, which consists of groups their appreciation by and not forgetting those networking of members that come together to opportunities. Most importantly at better educating and develop opportunities to broaden MDRT, I found people that were willing other members’ expertise. Through inspiring both new and to help me learn and grow. this process fellow members are experienced advisers. educated to better serve their clients. My involvement helped me grow both RR: If you could sum up one personally and professionally, which particular thing that kept you coming was the catalyst to get more involved. back to those meetings, what was it? It is these leadership experiences that CB: The knowledge sharing within have allowed my business and me MDRT is invaluable. The willingness personally to benefit.

26 | The London Journal 2014 RR: When did you first realise that you had the opportunity to be the first UK female President of MDRT worldwide?

CB: It was only when I was phoned to determine if I would accept the nomination that I realised that the MDRT recognise the importance of ethics being opportunity was open to me. It had central to how professionals are developed and simply never been in my thoughts remains committed to work with all associations that I would be asked to take on such a huge responsibility. The fact that we that share that view. are chosen by fellow members is what makes it so very special. When I reflected that all members who serve on committees are assessed, I was even more honoured given the number of talented professionals that RR: How do you envisage MDRT can always important to run a structured were considered. work alongside the PFS and the CII well-rounded team that delivers great in building consumer trust and an results for its members. Serving on any appreciation of the value the adviser board takes dedication, commitment RR: If you had to sum up MDRT in 40 currently delivers to clients in the and passion. words or less in a format that would UK? Working as a non-executive helps make the deepest cynic consider an one to think strategically and act CB: Financial associations are well application for membership, what decisively and quickly, which has positioned to motivate and positively would you say? lent itself well in the variety of board shape professionals by continuing to positions that I have held. CB: MDRT brings great minds in the deliver exceptional resources across global financial service profession all aspects of our business and lives. together and provides access to the We all need to build consumer trust RR: If someone was asked to vital cutting-edge resources we all and their appreciation by better write a short paragraph on your need if we are to take our businesses educating and inspiring both new and contribution to MDRT following your to the next level. experienced advisers. The public is presidency, what would you like under-served, so I feel it is MDRTs duty them to say? to inspire as well as inform through our RR: Of all the speakers you have events that help us develop improved CB: I would want them to seen perform at a variety of MDRT skills utilising a variety of resources, acknowledge the team effort that meetings, which speaker has had while at the same time, the PFS/CII goes into an MDRT presidency. The the biggest impact on you and why? can continue to shape professionals executive committee strives to create a with its educational programme succession of global leaders through CB: The speaker that had the biggest underpinned by its ethical code. MDRT offering opportunities for its members impact on me would have to be recognise the importance of ethics to broaden their expertise and grow De Witt Jones, who was a National being central to how professionals are their businesses. We are supported Geographic photographer. He talked developed and remains committed to by a great CEO and staff. The great about when you use an alternative work with all associations that share collaboration and the knowledge share lens and change the focus, there will that view. among leaders through to members always be another right answer – helps ensure MDRT remains a which left a lasting impression on me thriving association, and its members personally and professionally. With RR: Having served on the PFS and passionate, successful professionals. this approach, I feel that I have been a MDRT boards, how would you better leader and a better team player compare and contrast them? in any situation that at first glance seems insurmountable. I know there CB: I don’t believe there is a significant has to be another right answer – I just difference serving on different need to find it! association boards. On any board, it’s

The London Journal 2014 | 27 Lord Deben Chairman, Association of Professional Financial Advisers (APFA)

RDR – The story so far W hile professional standards and transparency have increased, it is harder for those with more modest incomes to find affordable financial advice.

The Retail Distribution Review (RDR) driven by a combination of factors. The looking to financial advisers to provide has been in force for 18 months and costs of preparing for RDR have now help to people to make good financial we’re now seeing a picture emerging passed. Also, advisers have looked decisions. of its effect on the profession and its more closely at the costs of serving So, what next? We’ve not seen the clients. their clients and focused resources end of the changes driven by the RDR. on more profitable activities. Over Firms will be under pressure from Fewer advisers the past couple of years, many firms clients to continue to demonstrate have overhauled their business and value and some will struggle to make First, it is well documented that adviser their working practices, and this has their business model work. I expect numbers fell in the run up to RDR left many of them in a much better more mergers and acquisition of firms, (from about 26,000 to 21,000) as shape to deliver a good service to their leading to more consolidation in the those that chose not to take the new clients. However, aggregate figures sector. There is a challenge to develop qualification left the market. There conceal as much as they reveal. There the talent for the next generation of has been a recovery since the RDR is a polarisation between those doing advisers and to develop new ways of started as some passed their final well and those that are struggling. The delivering advice at a lower cost. examinations or staff from the banks impact on the businesses of those While professional standards and joined advice firms. who haven’t got their model right will transparency have increased, it is become more apparent over the next harder for those with more modest year or so and we are likely to see a incomes to find affordable financial second wave of exits from the industry. advice. This shows the need for the regulator to look at the cost of Advice gap regulation and to reduce it. APFA Last, there is the question of access has called for action on reducing There is a challenge to to advice, or ‘the advice gap’. Now, reporting requirements, fees, the develop the talent for it’s not the case that prior to RDR introduction of a longstop on adviser the whole population had a financial liability and a reduction in the volume the next generation of adviser. But, with fewer advisers the of the handbook. We have seen some advisers and to develop supply of advice is less than it was. movement from the FCA, but more needs to be done if they are going new ways of delivering A further impact comes from the increased focus of advisers on the to meet the challenge government advice at a lower cost. type of clients that are of interest to has set them in the pensions reform them. This means that some will be of reducing the cost of regulation to unprofitable or that advisers will feel make financial advice more affordable they can’t justify a fee that covers to more consumers. their costs in respect of the service Profits improving sought. This is highlighted by the Second, it seems that those that 60,000 clients APFA has estimated stayed in the market have done well. were turned away by financial advisers Turnover in financial advice firms was in 2013. This is especially relevant in slightly up (by 1%) in 2013 compared the context of government policies on to 2012, but profits improved (from a choice at retirement and long-term relatively low level). I believe that this is care, for which the government is

28 | The London Journal 2014 Kim North Head of Marketing, Syndaxi Chartered Financial Planners

Pensions 101 M ore than 1,700 British people reach age 65 every day, and demand for professional financial advice will increase.

Following radical changes to the approaching retirement so they can treatment of pension funds as make an informed choice of the announced in the 2014 Budget, we options available. This is expected to are now in a place where those taking be telephone based and will be basic pension benefits may fear to tread. guidance. There will be benefits in Pensions legislation has a raft of delaying the purchase of annuities changes that need to be understood. because rates increase as we get From April 2015, an individual can older and underwritten annuities will choose what they want to do with their be become popular to secure impaired The average retirement defined contribution pension fund. If life higher annuity income rates. It they want to take their entire pension needs to be monitored if pension annual income is £8,774 fund as cash they can – 25% will be providers tell people to delay buying and is almost 25% less free of tax, with the balance taxed as an annuity or not to buy one at all. income for that tax year. This has not than the minimum been allowed before and care needs Standard of guidance wage. to be taken that anyone with a pension pot of more than £40,000 would be The general guidance provided will not most unwise to draw all the money at be at the level of advice provided by a once because they face the possibility whole-of-market independent financial that some of this will be taxed at the adviser, who is best positioned to highest income tax rate. At the very give retirement advice. Why is this least, by phasing the crystallisation so? On average people change jobs points, people can ensure they stay in 11 times during their working life The average retirement annual the lower tax rate bands. and accrue different pension pots income is £8,774 and is almost 25% There are benefits in using part of a from each employer. Pension income less than the minimum wage. Average pension fund to buy an annuity and is taxable and it makes sense to life expectancy for a healthy 65-year- having the balance in a drawdown arrange personal financial affairs so old woman is 21 years and 18 for a solution, for which there will be no that the least amount of tax is paid in man. This is a long time to live off minimum income level limit. Currently, retirement. pension income. there is cap on the maximum amount Before anyone can take his or her More than 1,700 British people reach that can be taken to ensure the fund pension, they obviously need to age 65 every day, and the demand is not drawn down too quickly. The build a pension fund. Over 30,000 for professional financial advice will cap no longer applies from April 2015 companies, many of which are without increase. Next April’s pension changes because drawdown can be as simple an existing employee pension scheme, may result in some people burning as investing in funds, or in cash with need to put in place a qualifying auto through their pension fund, but this banks or building societies. enrolment pension scheme during would not be sensible because the 2014. Although in principle a good average pension fund is around Free, impartial guidance idea, many in the pensions industry £37,000. In order to offer assistance, pension are far from optimistic that auto This is the time for financial services providers and pension trustees will enrolment alongside a flat-rate state companies to make the topic of be required to provide free and pension will give workers sufficient pensions a dinner table conversation impartial guidance to everyone on which to retire. and not left on the back of the shelf.

The London Journal 2014 | 29 Keith Robertson, FPFS Managing Director, Armstrong Financial Ltd Chairman, London Region, Personal Finance Society

The curse of short-termism M arkets now resemble an arena filled with professional bookies fighting to make money off each other.

Investment is about hitching a free The answer is that the function and orders are usually automatically ride on the back of global economic functioning of markets have changed, cancelled and reset at new levels, growth by providing the capital to fuel as has usage by market operators. influenced by information gained from economically productive activities. the trade. Orders across the market Establishing and growing businesses High frequency trading can last for just milliseconds before takes time, and this suggests investing being withdrawn. The lengths to which Market operators have always would be a long-term activity. From operators will go to gain a couple of run house books, as well as their the earliest merchant venturers to the millionths-of-a-second advantage, and commission-earning intermediation monolithic insurance companies of their appalling treatment of clients, are activities, but this was historically the twentieth century this has been entertainingly described in Michael just an add-on based on inter-dealer the case. Good businesses typically Lewis’s new book, Flash Boys. speculative trading, such as the continue to grow and consolidate traditional front-running against their over decades, even centuries, and Flash crashes clients. With the advent of computing investors can reasonably expect to power, expansion of derivatives and Since ‘Big Bang’, the stock and bond receive increasing future dividend emergence of hedge funds, the scale markets have been utterly dominated flows and capital growth if they are of these activities has exploded and by the dealing of banks, insurance patient. However, investment selection, has reached its current zenith in the companies, investment houses and economic and market cycles, and guise of high-frequency (low-duration) hedge funds – the sell-side. Most investor behaviour can frustrate this trading (HFT). It typically involves of their activities have been purely paradigm. proprietary computer algorithms speculative, reflected in massive Investment selection risk can be setting simultaneous (often small) buy- profits and bonuses. Private investors, covered by manager skill, if such a and-sell orders across many shares, to our clients, have not benefited. persistent phenomenon exists, or by be automatically filled when any bid/ Proponents of HFT and sell-side diversification, up to buying the entire offer price is triggered. All remaining speculative activities claim that liquidity market. Economic and market cycles is improved for private investors. are largely ignored by the sell-side However, the nature of HFT means because under their business model that the apparently ubiquitous liquidity and in the absence of any public is so transient as to be a false market interest test, for the final investor every by any other name. It is hard to see day is a good day to buy (although how these ultra-short-term behaviours clients should not believe this). This can do other than add to risk for also explains why, on average, most In the late 1950s the retail investors; there have already investors underperform the market been several extreme ‘flash crashes’. over the long term. That leaves the average holding period Markets now resemble an arena filled psychological and technical aspects of of a stock on the LSE with professional bookies fighting to market dealing. make money off each other, and where In the late 1950s the average holding was over four years; any punter stupid enough to place an period of a stock on the LSE was today it is under 20 order will be ripped off. over four years; today it is under 20 By definition, long-term investors seconds. Why has it shrunk to one six- seconds. cannot avoid short-term market millionth of the time seen as sensible volatility but, if they select their entry a couple of generations ago while, point into asset price cycles rationally curiously, the long-term holders such and hold their positions, they can still as insurers and pension funds still generate above-average returns. Ask buy the blue chips to hold for ever? Warren Buffett.

30 | The London Journal 2014 The London Institute Programme Preview Here is just a taster of some of the events coming up in our 2014-15 programme. More lectures are being added all the time so please check our website www.iilondon.co.uk for the full details of venue, time, and registration process. If we have your email address we will send you weekly updates. Go to www.cii.co.uk and click on My CII to update your email address.

Date Event type Subject Speaker Venue Chairman

2014

Mon 08 Revision How to study and increase your chances of Chris Paine, Dip CII and Len Wilkins, FCII Lloyd’s Michael Howard, FCII, Chairman, Sep passing the CII exams IIL Representatives Group Mon 29 AGM Notice is hereby given that the Annual General Graham Clarke, President, IIL and Stephen Riley, Insurance Graham Clarke, President, IIL Sep Meeting of the Insurance Institute of London President-elect Hall will be held at 5.45pm Thu 02 Financial London vs the rest: How to win the battle for Sue Langley, CEO, Financial Services Investment Lloyd’s Roger Sanders, OBE, Oct Services inward investment and what the Financial Services Organisation Cert PFS, MD, Lighthouse Trade and Investment Organisation can do to help Fri 03 Marine Issues and challenges for the International Grantley Berkeley, Group Chairman, IGA Lloyd’s Graham Clarke, CEO, Miller Oct Group Insurance Services Tue 07 Accident PPOs: the dynamics of the financials Peter Gilbert, Claims Executive, Gen Re Lloyd’s TBA Oct Wed 08 Lloyd’s & Selecting Risk Charles Mathias, CRO, Lancashire Lloyd’s Francis de Zulueta, Chairman, Oct Market Issues Endeavour Insurance Services Ltd Thu 09 Accident 3D printing: What lines of insurance does it Ingrid Hobbs, Partner, Mayer Brown Lloyd’s Andrew Keefe, ACII, Casualty Oct impact? Broker, Marsh UK Tue 14 Lloyd’s & Lloyd’s and Market Issues Lecture Andrew Kendrick, Chairman & CEO, ACE Lloyd’s Malcolm Rutter, ACII, London Oct Market Issues Market Development Manager, ACE Mon 20 Marine Marine Lecture The Rt Hon The Lord Phillips of Worth Matravers Lloyd’s TBA Oct Thu 23 International EU Referendum: In or out what’s best for Mark Boleat, Chairman of the Policy & Lloyd’s Stephen Riley, Executive Oct the City and the Insurance Industry Resources Committee, Corporation of London Director, Global Aerospace Mon 03 Lloyd’s & Lloyd’s and Market Issues Lecture Branko Bjelobaba, FCII, Regulation & Insurance TBA Nov Market Issues Compliance Consultant Hall Tue 04 Financial Alternative Investments – financing the creative Edward Grant, FPFS, Investment Director, Lloyd’s TBA Nov Services industries Ingenious Wed 05 Lloyd’s & Recovering sums from fraudsters for insurers Marko Stamenkovic, Member, Subrogation and Lloyd’s Andrew Tobin, Member, Cozen Nov Market Issues Recovery, Cozen O’Connor O’Connor Thu 06 Reinsurance How do you model un-modelled risk? Trevor Maynard, Head, Exposure Management Lloyd’s Dougal Goodman, OBE, CEO, Nov and Reinsurance team, Lloyd’s Foundation for Science & Technology Mon 10 Aviation Can the aviation insurance market survive Alan Beacock, Head of Aviation Reinsurance, Lloyd’s TBA Nov in its current form? Swiss Re Tue 11 Fin. Services Crowd-funding Seminar TBA Insurance TBA Nov & PFS Hall Wed 12 Lloyd’s & Data Breach – why should you care? Paul Bantick, Head of Media, Technology & Lloyd’s TBA Nov Market Issues Business Services, Beazley Thu 13 Lloyd’s & The competitiveness of London Steve Hearn, Chair, London Market Group Lloyd’s David Gittings, Chief Executive, Nov Market Issues LMA Tue 18 Lloyd’s & Political Risk – Recoveries against Sovereigns Martin Gusy, Chair, International Arbitration Lloyd’s Charles Berry, FCII, Chairman, Nov Market Issues Practice Group, Cozen O’Connor BPL Wed 19 Accident Contractual Risk: follow up to IUA Financial Stuart White, Partner, RPC Lloyd’s Roger Nash, ACII, Nov Loss Report Underwriter, Faraday Thu 20 Fin. Services Helping consumers understand risk Sue Lewis, Chair, Consumer Panel Lloyd’s David Thomson, Director of Nov Policy and Public Affairs, CII Wed 26 Lloyd’s & Diversity and inclusion (with reference to issues Karen Green, CEO, Aspen UK Lloyd’s Steve Hearn, Deputy CEO, Nov Market Issues such as quotas of female board members, etc.) Willis Group Fri 28 Young Winter Ball N/A Old N/A Nov Members Billingsgate Mon 01 Property Homeowner contract works Bill Wilson, Head of Private Clients, Lloyd’s Sian Williams, ACII, Regional Dec Cunningham Lindsey Manager, London & SE, HSB Engineering Insurance Tue 02 Reinsurance Reinsurance Lecture Christian Mumenthaler, CEO, Swiss Re Lloyd’s Dominic Christian, CEO, Aon UK Dec Wed 03 Lloyd’s & MGAs - Not just another bite of the cherry Peter Staddon, Managing Director, Managing Insurance TBA Dec Market Issues General Agents’ Association Hall Thu 04 Claims What is world class in claims? Jonathan Clark ACII, Head of Business Solutions Lloyd’s David Lang, Head of Claims, Dec and Syndicate Claims Management, SCOR Lloyd’s

Please note that speakers and subjects are subject to late notice changes. For the full list of IIL lectures go to www.iilondon.co.uk.

The London Journal 2014 | 31 Get more from your membership

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