Competition makes Lloyd's of London put its house in order

Lloyd's of London, the centuries-old insurance market that made its American name by prompt settlements after the San Francisco earthquake in 1906, is redesigning its foundations after some recent internal tremors of its own.

A working party appointed by the 16-member Committee of Lloyd's last year to examine its self-regulatory procedures has recommended wide-ranging changes. Its findings, gathered under the guidance of Sir Henry Fisher, have been gracefully accepted by Peter Green, chairman of Lloyd's, and published in detail. They call for an expanded committee (to include non-Lloyd's members) with more flexible powers of discipline, under the aegis of a new act of Parliament.

The 18,000-member insurance marketplace, where 436 syndicates do business with 268 brokers for an annual premium income estimated at more than $:2 billion ($4.6 billion), now operates mainly under the Lloyd's Act of 1871. In those days, discipline was clubbish and avuncular. Underwriters who wrote more business than their syndicates had funds were called on the carpet and chastised. The rules of Lloyd's reigned supreme.

In the last decade, however, the major "broker barons" have become public companies, with ultimate responsibility not to Lloyd's but to their shareholders. Insurance has also become more competitive with more sellers than buyers and with new temptations to cut corners.

The now-famous Sasse syndicate case, in which inadequate regulations failed to limit the writing of poor-risk fire insurance in Canada and sparked subsequent battles over settlements, brought home the need for disciplinary measures unforeseen by the 1871 act.

Although Lloyd's international reputation has been shaken by such shocks, the Fisher report may trigger its own rumbles of discontent. It warns of the dangers in the cozy (and profitable) relationship between some brokers and the syndicates they control, which could interfere with free competition. At present, says the report, the eight largest brokers control the eight largest "broker- controlled" agencies -- and produce nearly three-fifths of Lloyd's total premium income. The cure: Brokers should divest themselves of their managing agencies within five years.

To an outsider it all looks esoteric. But to Lloyd's, the largest single contributor to Britain's invisible exports, the changes are crucial. Lloyd's is beginning to face serious competition: Recent years have seen the founding of the Lloyd's-modeled New York Insurance Exchange and of a similar $3 billion venture in the Arab world.

By choosing self-regulation (rather than control by the department of trade, to which it is ultimately responsible) and by moving swiftly toward the recommended changes, the committee hopes to restore confidence in its "my word is my bond" ethic and gain some earthquake-proofing for the future.