Out-Law News | 24 Nov 2008 | 12:30 pm | 2 min. read
Members of the Lloyd's of London insurance market carry out business in syndicates, each of which is run by a managing agent. Managing agents do not generally deal directly with policyholders, but via intermediaries.
Until the rule change, however, they were only allowed to do business with Lloyd's brokers, who had gone through a special Lloyd's admission process in addition to being authorised by the Financial Services Authority (FSA). The restriction, unique to Lloyd's, was felt to put the market at a competitive disadvantage.
Now managing agents will be able to deal with any intermediary, whether a Lloyd's broker or not, increasing the scope for new business to come into Lloyd's. The designation 'Lloyd's broker' will be retained, however, and Lloyd's will be able to set the standards to be met by non-Lloyd's brokers wishing to do business in the market.
The new rules, which came into force on 19th November, also mean that there is no longer a ban on Lloyd's brokers and managing agents owning stakes in each other.
The prohibition was introduced by the Lloyd's Act 1982 to prevent conflicts of interest, such as brokers placing business with a particular managing agent because of a business connection, rather than because it was in the policyholder's best interests to choose that syndicate.
Since then, however, the FSA has taken over the statutory regulation of insurance, including Lloyd's, and has made it a principle of business that firms manage conflicts of interest fairly. Detailed FSA rules and guidance on conflicts of interest has rendered the 1982 provision out of date.
To ensure transparency, managing agents will have to disclose any interests they have in broker firms in their syndicate accounts.
The reforms also update some of Lloyd's governance provisions to make them more flexible. For instance, it will no longer be necessary for the chairman and deputy chairman of Lloyd's to be elected only from the working members of the Lloyd's Council.
The changes have been introduced by a legislative reform order amending the 1982 Lloyd's Act. Following a consultation exercise earlier this year, the order has been approved by both Houses of Parliament.
Welcoming the reforms, Financial Services Secretary to the Treasury Paul Myners said:
"Maintaining the City’s competitiveness is a key priority for the Government. These changes will help Lloyd’s to maintain and enhance its position in the global insurance market. I am delighted that the Government’s proposals have received such widespread support."
A spokesman for Lloyd's said: "We are delighted that Parliament has approved the LRO. Lloyd’s has changed significantly since 1982 and this package of measures, developed by the Government as part of its commitment to maintain the City’s competitiveness, will help support Lloyd’s drive to become more modern, transparent and efficient."