How the cargo market has evolved

28 November 2016

By Nick Peck, Retiring Cargo Chairman at JLT Specialty

I was asked to summarise the above, which I find hard to fully get my mind around, given my career covers 38 years, starting on Monday 30th October, when I sat in the Ibex House Coffee shop in the Minories, waiting for my “arrival time” of 09:45, and wondering what the world of insurance, especially for those carrying the title “marine clerk”, held in store.

The story can continue, however to set the scene, the “cargo market” was, and remains, that unique physical trading entity comprising of cargo underwriters, and, as we used to be called, “Lloyd’s brokers”. So any comments made apply to that unique group, which even, many years on, remains unparalleled anywhere in the world. 

Other centres of insurance have, in the past, and as they do now, tried to reproduce the unique tension and dynamic of the market – and have failed to reach anything of like scale. As I started my career, the “New York Exchange” had opened, and was to close within a few years. Now the press talks often about the Singapore Exchange, and the Dubai Hub, not to mention Miami, but does anyone think the true aim of these vital hubs is really to usurp London as the epicentre of the international wholesale market place, or to duplicate, or improve upon, the technical knowledge and innovation which exists in London? I think not. 

I will not be attempting to grab numbers, or to validate or justify my views through statistics etc. because they can tell a different story depending on the intended conclusions, so these are just my recollections and observations, for the reader to take or to leave, as they will.

Change in the market

I will, however, give the background that over the period of my career, the market has moved from a wholly entrepreneurial, undisciplined, light data, largely unregulated, entirely relationship driven business network, comprising of a large number of firms and traders, into a large corporate, data driven, highly regulated and disciplined, major insurer and broker dominated network.

The market has gone through significant upheaval, caused by excessive losses, especially the overhang of asbestosis and pollution claims, and especially in the case of Lloyd’s, the very real danger of shut down, had not both Lloyd’s Underwriters and Lloyd’s Brokers worked hard and in an unprecedented way to satisfy the NAIC, led by a friendly chap from Georgia, that Lloyd’s could recapitalise, continue to pay its claims, and remain a key component of the US surplus lines marketplace. Had Sir David Rowland failed to pull that off, and successfully launched “reconstruction and renewal”, I doubt few if any of us would have enjoyed our careers. 

Lloyd’s has transformed from a market where its capital was solely derived from its “names” individual funds, with unlimited liability, into a limited liability capital market structure. What of company underwriters? When I started, company names included Iron Trades, The Royal, The Sun Insurance, the Orion and Commercial Union, to name a few. For a time, there were so many companies trading that an alternative to Lloyd’s, called the Institute of London Underwriters (ILU), was set up in its own trading building near Lloyd’s. A cargo broker could easily place all his or her business into the ILU market, without setting foot into Lloyd’s!

The market, following R&R and a mass withdrawal of company support from the ILU due to very poor losses, then crystallised during the 90s into a largely Lloyd’s dominated scene, with major underwriting groups, such as the CU, setting up their own Lloyd’s syndicate, or alternatively, major companies like Allianz, AXA, Royal & Sun Alliance and AIG leaving the ILU, rebranding in their own “global insurer” colours, and joined by emerging Bermuda players, namely ACE and XL, both set up initially to provide excess US pollution capacity. The early 2000s were dominated by deteriorating losses due, once again, to depressed rates and a lack of discipline, and the shockwave which followed the tragic events of 9/11, which set the scene for the market we enjoy today, some 15 years or so later.

Travelling broker

So let me go back to 1978, and please remember, as a reference point, that there were no, repeat no, computers on brokers desks until at least 1994! The typing pool ladies had word processors, eventually, but in the early days, golf ball typewriters, and tippex! All instructions and enquiries from clients and prospects arrived in the office by letter, phone call, business lunch, telex or the “just emerging” fax. The other way was via the travelling broker, who would phone in, or cable, exciting news of a new opportunity from the road.

The “technician”, by now I was one of those, would seek guidance from the manager, and would be referred to a previous “slip” of a similar nature. There were no templates, but there was no MRC. The slips were several panels, and with a mix of common sense and knowledge gleaned from the witherby’s clause book and helpful/unhelpful colleagues, a slip would be generated. The broker would then take the slip, listen to the story, and then return, usually sometime after lunch, with the terms, and ask the technician to put together a quote telex – all by hand – which would then be given to the telex operator to type up, and then, before being sent, to be checked again by said technician. 

It all sounds slow and clunky, but, believe me, it was the norm, and the phones were ringing non-stop with enquiries, requests for (100% manually produced) certificates, invoices, cover notes, bank requests etc. That will sound familiar in several ways to the reader, I am sure. Then there were the (manual) signing slips, debit notes and so on, and the need to remain popular with members of the typing pool, which was excellent training for a young aspiring broker! Jumping forward, the second best decision I made was in 1982, to join Sedgwick Cargo Limited, working under the leadership of Ken Carter (later to be CEO of JLT Group) and where I forged my friendships and market relationships, which flowed through, naturally, to following Ken to Lloyd Thompson Limited, and of course the company evolution through to JLT Specialty as it is today.

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Retiring Cargo Chairman, JLT Specialty Limited