At Lloyd's of London, change buffets tradition

On Dec. 6, RCA Corporation launched a commercial satellite from Cape Canaveral. Four days later something was clearly wrong: Failing to enter its orbit, the satellite vanished from contact, presumably hurtling into space. Insured value: $77 -- much of it covered by Lloyd's of London.

When proof of loss is legally established, it will be the largest single-hull loss in Lloyd's history.

For Ian Findlay, Lloyd's former chairman, who stepped down Dec. 31 after two years of overseeing something of a change in Lloyd's own orbit, the loss was yet another challenge. It was one of what he calls "the particular problems at Lloyd's which have jumped up and bitten us and which we've had to try to deal with."

In an interview with the Monitor, Mr. Findlay summed up the chairmanship -- which until recently has been a largely titular position bestowed with honors on a retiring magnate -- in six quick words: "It certainly wasn't what I anticipated."

In his paneled, chandeliered office above the world's most prestigious insurance market, he touched on the problems that have bitten him. These include the widely publicized difficulties of the Sasse syndicate in meeting claims it incurred after writing, astonishingly, fire insurance in the Bronyx, and some equally unfortunate losses, pegged at $340 million, in computer leasing.

Mr. Findlay, a tall, loyal Scotsman in impeccably dark-suited City attire, speaks energetically. Now and then the complex electronic boxes on his credenza funnel through a call, and once the red-liveried footman brings in a scrawled note. But most of the hour is given over to his most pressing concern: how best to regulate the 400-odd companies, or syndicates, whose representatives still do business much as it was done at Edward Lloyd's coffeehouse more than two centuries ago.

Business at Lloyd's is transacted, the former insurance broker says, by "man-to-man discussions" based on a "relationship of trust." Brokers, representing the needs of their clients, approach the underwriters on the market floor, explain the nature of the risk, and agree upon a premium and policy terms. "That's how markets work," he says simply. "People know people."

He worries about what he calls "a growing problem of falling standards," however. In a business where the ethic of "my word is my bond" is central, any failure to keep that word -- to pay up promptly and fully once proof of loss is established -- is insupportable. He is compassionate about the pressures on an expanding market, which has grown from 2,422 members in 1948 to over 18,000 today. He identifies the pressure as "terrific competition, terrific scrambling after business, too much capacity chasing too little good insurance business, the temptation to cut corners, the have-nots desperately trying to become haves and willing to take risks to get there." But he adds: "If high standards are not observed generally, then our way of doing business would fail. It's as important as that."

The problems of discipline and regulation came into focus during his administration with what he calls "the butter mountain loss," settled in 1978. Some L7 million ($15.4 million) worth of butter went up in flames in a European warehouse.

Individual underwriters had written policies on separate, L1 million sendings. somehow, as he explains, "Seven of these sendings got put into one warehouse in the course of transit at the same time. So the underwriters said, 'Heavens me, when I wrote this risk I thought that my maximum exposure was a million pounds, not L7 million. What's gone wrong here? Why wasn't I told?

The situation led to an inquiry, with Lloyd's trying to discipline recalcitrant members under regulations laid down in 1871. These, along with some others embodied in the Lloyd's Act of 1911, were simply too cumbersome -- and, if actually put into force, far too damaging to members -- to be effective.

The result: a wholesale rethinking of Lloyd's self-regulatory system, engineered at Mr. Findlay's urging under the leadership of Sir Henry Fisher and known as the Fisher working party. Sir Henry's charge: to recommend such changes as will fit Lloyd's for the challenges it will encounter during its next decades. These recommendations, due about Easter, should spark a new act of Parliament (Lloyd's is self-governed under the loose supervision of the Department of Trade), providing the committee of Lloyd's with a tighter grip.

Why, after 200 successful years, are changes now needed? One reason has to do with changes within the Lloyd's brokerage firms -- the only ones allowed onto the floor to do business with the underwriters.

"We have seen what is really nothing short of a revolution in the structure of brokers since the war," Mr. Findlay says. In the past the small private company predominated. Discipline was easier, often simply a matter of a few words between chairman and broker. But during the '60s, faced with death duties , A tremendous international expansion, and the desire among non-Lloyd's brokerage firms to gain access to the market, many became public companies. Still loyal to the Lloyd's traditions, but suddenly faced with new demands from stockholders, the companies were much less amenable to discipline.

This shift conspired with two other forces to make the late '70s a time of trial. First, membership grew as non-Britons were allowed into the market -- an option popular especially in the United States, where Lloyd's does 45 percent of its business. then, too, the volume of business increased, as jumbo jets, billion-dollar oil rigs, half-million-ton tankers, satellites, and computers jacked up individual policy limits to unprecedented levels.

The upshot of the Fisher recommendations, Mr. findlay says, should be a market re-equipped to deal with the future. "One of the main attributes of Lloyd's has been the quickness with which it is able to adjust to new demands," he says. "Each underwriter of each syndicate does have an extraordinary amount of freedom to use his intelligence and skill and expertise . . . and a great freedom of from having to comply with stated forms of wordings and rules." In the past, that flexibility has fostered an impressive string of firsts: The first household comprehensive policies, use and occupancy policies, and automobile policies were written here.

Even computer-leasing coverage (which he admits "looks like a somewhat nasty mistake") at least reflects an entrepreneurial spirit, he feels. "This is Lloyd's," he affirms, thumping the lustrous wooden desk top for emphasis. "This is the guts of the market, the ability to respond quickly to the changing demands of technology."

He clearly has the buoyancy to come through these problems smiling. A close associate calls it "resilience," noting that "he's never downhearted for long. If we are going through a difficult time," the colleague adds, "I couldn't think of anyone I'd rather have gone through it with." Several years of bad press have , it appears, simply spurred a shake-up that may ultimately improve the system.

And the country as a whole? "I'm a very strong supporter of [Prime Minister Margaret] Thatcher's philosophy," Mr. Findlay says. "After the second war, I think we really lost our way. I think the majority of people in this country thought to themselves. 'Well, we've won the war -- at elast we've come out on the winning side -- and rally OK. Now we're owed a living by the world.' I think we've got unused to the idea of earning our own living."

In such a condition, he offers, "something like Thatcher had to come along." He watches industrial relations carefully for signs that the country is beginning to turn around, and is encouraged by recent realistic settlements with the unions at BL Ltd. (formerly British Leyland, the automakers) and in the coal industry. In any case, the City of London (the financial center of the nation and of much of the world) will continue in a strong position, he feels, even if all the satellites don't go into orbit. . . .

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