Here’s a question.
If Lloyd’s goes for a really lean revamped model where lead syndicates lead and follow syndicates almost blindly follow, where does this leave the broker?
After all, it doesn’t take much negotiating skill to convince a blind follower to follow, does it?
That wouldn’t exactly be a hard broke – more a question of hitting a couple of buttons on a keyboard.
And might it not be beyond the wit of leaders to marshal and pre-package some of this following capacity themselves? Lloyd’s has been home to consortia for decades, so lead syndicates should be able to bind massive pre-arranged lines behind every commitment they make.
They might even spend some of their generous new lead fees on hiring in-house intermediaries to set up and manage these facilitised relationships on their behalf.
But will brokers stand for any of this? Might they take it as a challenge to their role?
And what about the possible loss of all the market-derived income they have been making through all the facilities they have been manufacturing?
Could the whole set-up make them want to go and place business elsewhere?
It is a fascinating thought but a very unlikely one.
The days of wandering around London picking up scores of tiddly following lines have been well and truly over for a very long time. And, in any case, that was never where the value was added.
The smartest brokers have always been the ones able to boast about never wasting time and shoe leather walking up and down Lime Street filling orders.
The best brokers always go where the cover, skill, speed and service is best. Being able to access large, highly responsive entrepreneurial lead lines will be too compelling an offering for them to ignore.
Any loss of work will be more than compensated by the huge increase in the volumes of business that broking teams will be able to transact because of the vastly improved speed of getting orders placed.
Just look at the market turbulence currently being caused by the recalibration of AIG’s book to see what I am talking about. Brokers like the convenience and covet the huge operational efficiency of big lines, especially if they are being wielded by skilful and savvy underwriters.
Under the brave new Lloyd’s model, brokers will become much more productive and broking profits will continue to rise, even if the lion’s share of the efficiencies are competed away and given back to the original client.
And faced with the potential loss of market-derived income if consortia rise to take a larger slice of the pie, the best brokers will do what they always do – compete.
For a start, they are prime candidates to do the broking to create the consortia – these don’t have to be brokered in-house by the leaders.
Secondly, their own facilities can still keep a relevant place if they are efficient and a value-for-money way of accessing the right business for their backers.
And third, and most importantly, there should be nothing to stop brokers setting up their own following syndicates backed by trade or other capital. They should make plenty of market-derived fee income that way.
Some are bound to complain, but they should be ignored.
The best brokers will seize this opportunity with both hands.