1. GENERAL INSURANCE MARKETS

2. Agenda Layout 01 02 03 04 05 06 The companies The London Market
Lloyd’s Syndicates 04
Self insuring groups 05
Non UK markets and non traditional markets 06
Marketing Strategies

3. The Companies

4. General Insurance Providers
Provide insurance for individuals and companies.
“Direct”: writes insurance directly for an insured person or company as opposed to reinsurance.
Active in “personal lines” insurance e.g. private motor, household, medical insurance or travel insurance.
 Direct insurers can be divided into:
Composite insurance companies - write both general and life insurance.
Insurance companies that specialise in writing business a few classes of general insurance (or just a single class).
Insurance companies that write all classes of general insurance
Direct Insurance Companies
Provide cover for insurance providers.
Some specialise in only writing some types of reinsurance, others write all types of reinsurance.
Some insurance groups write both direct insurance and reinsurance.
Reinsurance
General insurance companies may be:
Proprietary- owned by shareholders in order to make profit.
Mutual- owned by the policyholders.

5. Composite insurance companies
The risk-taking companies themselves will be pure life assurance/ pure general insurance.
A company can still provide its customers with both life and general insurance in the following ways:
It may establish itself as a life insurance company and write life insurance business, then set up an arrangement with a general insurer.
A company may prefer another company to underwrite its general insurance business because:
It does not need to establish itself as a general insurer
There is less need for specific general insurance expertise
Management can focus solely on life insurance risks
It may not be cost-effective to set up a general insurance operation
There may be tax or regulatory capital requirement advantages in this arrangement
Write general insurance but have its life insurance business underwritten by a life insurer.
Set itself up as a composite insurer so it can write both types of business
Composite insurance companies

6. London Market

7. London Market 55% 30% 15% What is The London Market?
That part of the insurance market in which insurance and reinsurance business is carried out on a face-to-face basis in the City of London
What is The London Market?
Large and/or international risks and reinsurance.
What is the major part of this insurance?
The larger direct insurance risks – both property and liability – that are beyond the capability of other direct insurance companies (for example, energy and aerospace risks)
International risks
Specialization
55%
30%
Lloyd’s syndicates
UK subsidiaries or branches of overseas insurance or reinsurance companies
Reinsurance departments of UK composite companies, or reinsurance subsidiaries of such companies
Small professional reinsurance companies set up by (or acquired by) large broking firms for the specific purpose of transacting London Market business
Captives
P&I Clubs
Companies owned by a group of insurance or reinsurance companies
Pools
Participants
15%

8. Lloyd’s Syndicates

9. Lloyd’s Syndicates
It is not an insurance company − it is a marketplace made of members who provide capital and accept liability for underwritten risks in return for their share of any profits earned on those risks.
Lloyd’s members conduct their insurance business in “syndicates”: groups of members who collectively co-insure risks.
Historically all members were individuals known as ‘Names’. They were subject to unlimited liability. Later, companies were allowed to become ‘Names’. Consequently, limited liability was allowed.
How it works?
Syndicates employ underwriters to write insurance business on behalf of the members.
Individual syndicates often specialize in particular types of insurance.
Each member belonging to a particular syndicate will contribute capital to that syndicate and will accept a portion of the insurance risks written by the syndicate; the share of each member being predetermined according to the amount of capital they have contributed.
The profit or loss made by the syndicate is then shared among its members in these proportions.
The member’s share of a syndicate is fixed during an underwriting year but may change from year to year.
Size of syndicate:
Lloyd’s members often spread their exposure by belonging to a number of different syndicates.
What is the key difference between an individual Name’s involvement in a syndicate and a shareholder’s involvement in an insurance company?
Access to global licenses (80 countries)

10. Self insuring Groups

11. Self Insuring Groups
This refers to the retention of risks, either by an individual or an organization as opposed to obtaining insurance cover.
1. Captives
A captive insurance company is an insurer that is entirely owned by an enterprise, either commercial or industrial and whose primary purpose is to provide insurance to the parent or associated group companies and retain the risks and premium within the enterprise.
In some cases, captive insurance companies may take on external risk for commercial purposes.
Reasons for setting up captives:
To manage the total costs spent on insurance of large companies.
To fill gaps in insurance cover that are not available in the traditional insurance market.
To focus on risk management by the company.
To be able to purchase reinsurance directly from the market as opposed to purchasing through direct insurers. (Limits the extent of self-insurance)
To gain legislative and regulatory advantages such as tax.
Open market captives: Captives that provide insurance to risks other than that of its parent (usually to its parent’s customers)
Areas being put through captives: Professional indemnity, mortgage indemnity, product liability etc. –-Growth of captives is strong in areas where traditional insurance is expensive and the cover is not provided e.g. pollution.
2015
2017

12. Self Insuring Groups
2. Protection and Indemnity (P & I) clubs
P & I’s are mutual associations of ship owners.
They were originally formed to cover certain types of marine risks such as marine liability that could not be covered (at an acceptable price) by commercial marine policies.
They still provide around 90% of the worlds coverage against marine liability claims.
They also offer technical assistance and advice on the shipping industry to their members.
3. Pools
A pool is an arrangement where the parties agree to share premiums and losses for specific insurance classes or types of cover in agreed proportions.
Specific pooling arrangements are sometimes used, particularly where the risks are very large or through mutual associations that cater for an industry.
Difference between pooling and using a conventional insurer: in conventional insurance the insured’s liability is limited to the premiums charged whereas in pooling, it is related to the insured’s share over total claims and other costs incurred.
2015
2017

13. Non Traditional markets
Non UK markets
And
Non Traditional markets

14. Non-UK Markets
All insurance markets tend to comprise of the same participants: mutual and joint stock insurance companies.
Markets tend to differ in:
concentration of market share of major insurers
whether business is written directly with policyholders or through brokers
the importance of mutual companies
whether or not composite companies are permitted
The most developed insurance markets tend to have largely developed economies. They USA, Japan, Canada, France, Italy and Spain.
Reinsurance; though many markets have reinsurance, reinsurance is more likely to be placed internationally than direct business. Notable reinsurance markets: USA, Germany and Switzerland.
Bermuda: Bermuda has become a major international centre for insurance and reinsurance despite not being a large economy.
The Insurance and reinsurance companies are not limited to one market and can operate in multiple markets.

15. Non-traditional markets
Securitisation: Transfer of insurance risk to the banking and capital markets.
Capital markets are increasingly involved in taking insurance risk through Industry Loss Warranties (ILW), catastrophe bonds,” sidecars” and traditional reinsurance contracts. These often need more complex legal arrangements than traditional insurance products.
ILW is a type of reinsurance/derivative contract through which one party will purchase protection based on the total loss arising from an event to the entire insurance industry rather than their own losses.
A Sidecar is a financial structure created to allow investors to take on the risk of a group of insurance policies.
It is a means of allowing investors exposure to the reinsurance market without having to invest in existing reinsurance companies which may have losses from previous years. A sidecar acts like a reinsurance company but it only reinsurers one cedant and investors need to place sufficient funds in the entity to ensure that it can meet any claims that arise.

16. Marketing Strategies

17. Non-London Market Business1 2
Staff directly employed by provider
Intermediaries 3 3
Tied agents:
e.g banks and building societies
tied to a particular insurer and sell their products alongside their own.
paid by commission.
may also act as brokers or have an insurance-broking subsidiary: some banks own insurance companies that write some lines (e.g property and creditor), but act as broker or tied agent for other lines (e.g. motor).
Sale of a particular line of business through a tied agent is exclusive to a particular insurer.
Brokers:
Intermediaries between seller & buyer of insurance/reinsurance contract.
Not tied to either party.
Likely to be paid by commission (brokerage) from insurer, but when placing business legally (under the “law of agency”) they are the agent of the insured.
May also carry out some functions on behalf of insurers (e.g operating binding authorities / line slips), legally making them the agents of the insurer.
Simple PowerPoint
May be paid a fixed salary, or entirely by commission, or, more usually, by a mixture of these two methods. 3
Direct Marketing
Some insurers employ staff in direct sales, where potential policyholders are
invited, through advertising, to make proposals by telephone (telesales) or the internet, or are attracted through cold-call selling by post or telephone.

18. Non-London Market Business2
Staff directly employed Methods used
All acquisition methods are used to some extent across most lines of business, but the main method varies by country and type of insurance.
Personal lines and small commercial lines of insurance: Mass advertising in the media.
Larger commercial risks: personal contact through the insurer’s sales force or specialist insurance & reinsurance brokers
Buildings insurance and mortgage guarantee insurance: much of the business is sold through the building society/ bank that supplied the mortgage for the house purchase.
Travel insurance: the travel agent who arranges the travel will often sell the insurance.
To improve profitability, insurers constantly review their methods of selling business e.g. attempts to sell insurance directly to the public, avoiding the intermediaries altogether. 2 3

19. London Market Business
The London Market insurance providers, including Lloyd’s, have traditionally
acquired business through specialist brokers and, in particular, international
brokers using the slip/subscription system.
Historically, Lloyd’s syndicates could only write risks that they received through
Lloyd’s brokers.
However, for certain standard proposals in personal lines a syndicate
may now deal directly with the insured or a non-Lloyd’s broker.

20. London Market Business
Under the slip system in the subscription market:
The insured approaches a London Market broker.
The broker prepares a slip that shows the main features of the risk to be insured.
The broker shows the slip to one or more quoting underwriters, who quote a premium.
The cedant (with the broker’s advice) will then select a lead underwriter and a “firm order” price for the broker with which to approach the market. This firm order price may be below any of the quoted prices.
The lead underwriter accepts a share of the risk by stamping and signing the slip.
The broker then approaches other underwriters to accept the risk on the same terms. These underwriters indicate the share that they are willing to take by stamping and signing the slip under the lead underwriter line. All the underwriters act as coinsurers with several liability.
The broker continues until he or she has finished placing the risk
If the written lines exceed 100% then, in agreement with the insured, they are reduced so that the signed lines total 100%.
If it is not possible to find capacity to place 100% of the risk, an additional shortfall cover may need to be placed at different terms.

21. London Market Business
If the risk is over-placed, the firm order price was probably too high.
If it is not fully placed, the firm order price was probably too low.
Not placing the full risk, unless intentional, is usually a bigger issue for the insured and the broker.
In general, all (re)insurers on the slip receive the same terms.
However, there are some markets where the lead underwriter may receive a higher rate to reflect the additional work that they carry out on behalf of the following market.

22. THANK YOU