A life less ordinary

Lloyd's was nigh on a closed shop for the best part of 300 years. Previously, high street brokers and IFAs could only access its underwriters via Lloyd's brokers and Lloyd's service companies. But times are changing fast with the advent of GISC and new measures enabling direct access for many classes of business.

Breaking with distribution tradition inevitably creates new challenges, but also new opportunities. Such radical distribution change has forced many Lloyd's syndicates to review their customer value proposition and some have created an entirely new experience for IFAs, and one that is worthy of further investigation.

Those syndicates that have re- engineered their businesses have been able to create a radically new paradigm. Where else in the market can you get the trickiest of risks on cover in under an hour? Where else can you can speak directly to an underwriter empowered to make an instant decision ' yet still secure a competitive price and processes that replicate the best IFA practices of the leading mutual and proprietary offices? Some have extended their processes to offer fully automated initial underwriting, fully automated correspondence and developed customer service call centres delivering a degree of responsiveness unparalleled by much of the traditional sector of our industry.

Lloyd's financial strength is also worth considering as best advice principles do dictate that an IFA should consider this factor. The recent and tragic demise of a leading insurer has perhaps created even greater customer focus on this issue. The Lloyd's chain of security comprises of four components. Based upon the latest published figures, the Premiums Trust Fund exceeds £7,874m, capital held at Lloyd's exceeds £6,586m, members other declared assets exceed £560m and finally the Lloyd's Central Fund, available to meet any portion of any members liabilities that he is unable to meet in full, exceeds £212m. However, the Central Fund alone is now additionally reinsured by six of the world's top insurers giving it access to mutualised resources of over £1.3bn ' and that is just the long stop fund.

No wonder leading financial rating agencies endorse the market's financial strength as 'excellent' and its financial size as the 'largest.' Some syndicates are now 100% capitalised entirely by corporate funds and have taken on the characteristics of a large proprietary office. What single mutual or proprietary office has access to such immense capital resources? Lloyd's syndicates have suddenly found themselves at the cutting edge of progress and it is a large and valuable market that IFAs should definitely not ignore.

Lloyd's life syndicates only transact term assurance generally not exceeding 10 years. Some now offer rider products like critical illness and disability exceeding the Association of British Insurers' (ABI) code of conduct standards. This might sound boring but such products have a minimum term of one day, and coupled with fast, responsive underwriting open up an entirely new dimension of customer satisfaction.

For example, you have made an application to a long-term product provider and it is held up by the need for medical evidence, and the customer cannot exchange contracts on his property purchase without life cover being in place.

Bridging the gap

A short-term bridging policy from a Lloyd's syndicate could resolve this problem. Similarly, the client might be between jobs and has temporarily lost his death in service cover. A management buy-out might be delayed until key individuals are insured ' often a last minute requirement. A Lloyd's syndicate can usually respond with temporary cover lasting a few days, months or years.

Lloyd's syndicates are perhaps best known for flexible underwriting. There is no magic formula, it is simply a case of ensuring that correctly empowered decision-makers are always on hand. How often has one of your medically impaired clients been sent for a medical examination yet the ultimate premium loading was less than the cost of doctor's report? Sausage machine processes inevitably mean that most companies have to stick by the book. By contrast, a Lloyd's underwriter can use their discretion and common sense. Take the enquiry of a client climbing to base camp Everest. This was declined by over 30 traditional offices before a Lloyd's underwriter asked to see the itinerary as they realised you can backpack to base camp. What was perceived by many as an extreme climbing risk was no more than a holiday hike. Lloyd's underwriters do, however, consider genuinely hazardous risks and seriously medically impaired lives. For example, we have seen an individual having incurred five heart by-pass operations be accepted and also a low flying oil and gas exploration engineer operating in Kazakhstan placed on risk.

Business to business

The area where IFAs are most likely to encounter a need for short-term covers is business protection, for example, key-person and shareholder compensation. Lloyd's syndicates have recently been carving out a reputation for excellence in this sector. Most IFAs will realise that typical corporate protection cases are written on lives exceeding age 40, where at least one of the partners might be expected to have a medical impairment. Health statistics suggest that one in three business persons will probably die or suffer a critical illness before age 65, so a Lloyd's syndicate's slick underwriting is invaluable to enable such cases to proceed quickly, avoiding the frustrations often encountered with most product providers.

Business protection also often entails large sums assured. The average term assurance sum assured lies around £75,000 when you view the market as a whole. That is not surprising when one considers that the majority is mortgage protection and average house prices do not exceed £100,000. By contrast, a typical syndicate's average sum assured might exceed £500,000 and it might retain 10 times the risk held by most product providers which frees them from constraints placed upon them by reassurance. The inherent market strength of Lloyd's is an invaluable component. If you are dealing with large sums assured and potentially medically impaired lives, there is a wealth of experience and resource offered by Lloyd's life syndicates that is rarely mimicked in the traditional market, and if we are talking huge sums assured ' we have seen £20m insured across a multiplicity of syndicates and reassurers ' a Lloyd's syndicate is likely to be the only sensible port of call.

The most innovative of Lloyd's syndicates are now polarising their businesses into retail and wholesale units. Retail deals with traditional IFA business and offers the best traditions of Lloyd's, now coupled with processes that an IFA will feel comfortable with. Wholesale opens up an entirely new raft of bespoke products for IFA's. The best known is group schemes, where a Lloyd's syndicate's flexible underwriting can assist by offering simple medical requirements such as an actively at work declaration or even no underwriting if the scheme is large enough to avoid the selection risk. While much of this activity is UK death in service covers, Lloyd's syndicates operate upon a global scale ' with few unacceptable territories and then, any limitations are mainly due to local authorisation issues. Policies are often written in many international currencies. Wholesale offers the ultimate in bespoke services. If you need a policy with an irregular sum assured profile it can usually be written. If you need an unusual contingency clause it might be available. If you need an entirely bespoke policy wording, it might be drafted.

Perhaps the least well known wholesale service is confidential life, which a few syndicates are prepared to write. This type of policy enables one individual to insure another's life without the insured life's consent or any medical evidence. Take, for example, a court case that has entered its tenth month and a re-trial has been ordered because the judge died. If the plaintiff had an insurable financial interest the judge's life, the policy would pay out providing a form of compensation, even though the judge had no knowledge of the policy's existence.

Expanding markets

Much of what is said about the flexibility of life assurance from Lloyd's syndicates is repeated in the field of accident, sickness and unemployment covers ' a sector rapidly growing in popularity. Lloyd's syndicates transacting ASU may even be prepared to offer a bordereaux, where the intermediary locally issues the certificate and handles premium accounting. For intermediaries specialising in the house purchase sector, such facilities can be invaluable.

Kidnap and ransom cover might be desirable for key executives operating in certain territories. However, the most innovative area to have emerged recently is the development of 'after the event' legal expenses covers and now complete corporate management and risk assessment programmes. Intermediaries operating in the corporate sector should explore such opportunities, as the future surely demands total customer solutions.

While Lloyd's is still often surrounded in mystique due to its reputation for handling the largest and sometimes the most hazardous of risks, some syndicates have opened their doors to allow IFAs to participate in this most exciting of markets. Lloyd's life syndicates will consistently dominate the best price tables for short-term risks as traditional providers are not geared up to handle them with sufficient efficiency. Learning more about what they can offer will pay dividends.