Lloyd’s of London’s Performance Management Director, Jon Hancock, highlighted the increasing shift towards a principles based approach in the management of Lloyd’s market oversight in a recent speech to the Insurance Institute of London.
“I believe in a principles based approach, where individuals are left to run their businesses as they see fit within the framework Lloyd’s sets, leaving them to manage the day-to-day performance of their businesses.
“My role is to ensure the framework is fit for purpose, and to ensure that everyone is operating to the high standards Lloyd’s sets.
“The objective of good regulation should be to encourage strong, sustainable businesses to thrive, prevent economic bubbles and protect customers should things go wrong.
“Good oversight of the Lloyd’s market should encourage the same, ensuring we provide a secure capital environment for investors and customers and deliver insurance products to our policyholders around the world in a way that supports our brand values. Good oversight and good regulation drive good performance, said Hancock.
Changes brought about as a result of Lloyd’s principle based market oversight approach include; the reduction of minimum standards reviews from 530 to 280, portfolio review classes reduced from 220 to 150, and coordinated coverholder audits cut by 50%.
Hancock said the keys to a principles based approach are to set in place broader guidance lines, rather than rules.
“I often describe it in terms of the difference of building with Lego or Duplo. By that I mean we can manage performance like we would a box of Lego – look for all of those tiny pieces, the small blocks that make up the way a firm does its business, and involve ourselves. More of a rules based approach.
“Or we can manage performance of the market as if it were a box of Duplo – set a good framework and then focus on the really big blocks, the big things that really drive performance and good oversight will really make a difference. Very much more of a principles-based approach, and the one I choose,” said Hancock.
The evolution of Lloyd’s market oversight towards a risk-based approach comes as the marketplace undergoes a series of structural changes to increase efficiency after it has come under increasing pressure to innovate and modernise operations.
Hancock added that the trick for regulators is to “walk that tightrope between ensuring markets can function to their maximum potential while at the same time as preventing any rogue activities.
“Strong performance management equals good business which equals happy customers and shareholders.”