London market insurers and brokers need to put aside their rivalries and work together to help counter the growing competitive threat posed by global and regional players, says Sasa Brcerevic, Chief Operating Officer of Hiscox London Market. “The problem is our competitive nature stops us from focusing on how a collective market approach can deliver a much greater result worth far more than a sum of our parts,” Brcerevic says.
Report’s stark warning
Brcerevics’s comments follow the publication of a report by the Boston Consulting Group, on behalf of the London Market Group (LMG), which highlights four main challenges to London’s dominance:
- It could lose 30-40% of its premiums (equivalent to between £12 billion and £16 billion in revenue) to local or regional insurance hubs.
- London has a weak position in emerging markets, which saw it take only 0.5% of the absolute growth in premiums from these regions between 2010 and 2013.
- It is losing market share in reinsurance, from 15% in 2010 to 13% in 2013.
- London’s higher expense ratio, caused by higher acquisition costs and regulatory burdens, is putting it at an increasing competitive disadvantage.
Marketing muscle
The various insurance operators based within a few minutes’ walk of the Lloyd’s building should work together to promote the market as a global brand that rivals the world’s biggest players. Brcerevic says: “The London Market is effectively a £60 billion company, but do we pack the same collective marketing punch as a single entity of the same size? We want clients around the world to demand that London plays a role in mitigating their risks. We won’t get there if we persist in marketing ourselves as separate entities.”
Collective R&D
London insurers also need to pool their creative resources to develop new products, rather than compete to take a bigger share of a shrinking premium pie, adds Brcerevic. “At the moment we all work on our own innovation, although we ultimately only compete on price. So why not work together to research and develop new products to bring to market? We must innovate to start making inroads into the 90% of uncovered risk that is out there, and open up new areas of coverage. Better to put our collective energies into premium growth in new areas, rather than simply churning existing premium.”
Tackle higher costs
Firms in London must also work together to help tackle the cost differential that is harming the market’s competitiveness. The LMG report states that in 2013 London’s expense ratios were nine percentage points higher than its rivals.
Brcerevic says: “We must revisit the idea of tackling transaction processing in a more collaborative and efficient way. It’s not as though this is a new ambition, but a recurring theme has been a failure to identify what exactly it is that the customer needs at the outset of a project, and then work to meet that need rather than solely focusing on the needs of the market participants.”
Collaboration, he says, will ensure that London maintains its pre-eminence in the global risk market. “Now we have an opportunity to collaborate in three key areas while maintaining healthy competition.”
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