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Lloyd's Minimum Standards

In this article, we choose to focus on internal regulation impacting the world’s oldest insurance market, Lloyd’s of London.

All Managing Agents must be compliant with Lloyd’s Minimum Standards around Conduct Risk by the beginning of 2015. With unprecedented focus from the FCA, Lloyd’s businesses must ensure they assess, mitigate and oversee Conduct Risk and must establish a proportionate, risk-based approach to ensure fair customer outcomes. Lloyd’s businesses need to ensure The Standards are appropriately interpreted and applied to create specific solutions that work for each independent business.  Whilst the Standards aim to increase consistency across the market, firms are at varying stages of achieving this which has led to considerable challenge in some quarters.

The key demands for firms in achieving compliance have included; 

  • A focus on Product Risk Assessments – how is a Product defined? 
  • Customer centric processes, controls and governance throughout key stages of the product life cycle – how can the 2nd and 3rd lines of defence provide assurance over this?
  • Placing reliance on market counterparties - What is the most efficient way to obtain assurance for Managing Agents?

Whilst these demands have long been poignant for retail insurers in the wider sector, the FCA’s focus on wholesale insurance and the subsequent questions posed by Minimum Standards bring this into sharper focus for the Lloyd’s Market where the concept of Conduct in the complex distribution chain of customer, broking and reinsurance chains has now been clarified.  Although the Lloyd’s Regulator has taken a little while longer to define their response to Conduct Risk and build a solution that works for Lloyd’s which has obviously had a knock on effect for firms in the market, we have recently seen a number of permanent and interim positions created which give a remit to define and develop a firm’s longer term approach to Conduct Risk and also the more pressing challenges specific to Lloyd’s Minimum standards.  

Our view is that this should work in Managing Agent’s and Broker’s favour from a talent perspective provided they are open to using the expertise from the wider insurance sector.  Many firms in the wider retail insurance sector have spent much time understanding and tweaking what Conduct Risk means to their business and have had to create Conduct experts from existing Compliance team members as well as take significant guidance from consultancies.  Lloyd’s firms are now well-positioned to take advantage of the hard yards that other GI and Life businesses have been through and use the prevalence of Conduct expertise and the salient lessons of the wider market to help them not only deliver against the immediacy of Lloyd’s Minimum Standards but also to build a fit for purpose Conduct Risk framework for now and beyond.  Whilst hiring from General Insurance or Life sectors has historically been a last resort for many firms, as the war for talent has become more competitive this view is slowly changing but as always, the key challenge for new talent entering the Lloyd’s Market for the first time and the firms that hire these people is to ensure that they adapt the lessons gained in the retail market to the unique and complex nature of the Lloyd’s Market.