The growing threat of competition to Lloyd's of London from foreign insurance centres like Bermuda and Singapore is exacerbated by rising losses from climate change, which will make insurance groups focus more on costs, says a commentary in Reuters Breakingviews.
For Lloyd's, costs are about 10 percentage points more expensive than its rivals, according to estimates by UBS analysts. Making Lloyd's competitive will require tough measures, like kicking out weaker syndicates, and investing in new technology.
The 80 syndicates or so that make up the Lloyd's market have to pay into a central fund to cover losses. That means more profitable groups like Hiscox, Beazley or XL Catlin end up covering the risks of smaller, less diversified members. The risk is that reinsurers ship more of their business to cheaper locations.
These are among the challenges which the still unnamed next CEO of Lloyd's will face.
Lloyd's announced last week that the current CEO, Ms Inga Beale, will leave the 330-year-old insurance marketplace next year. Apart from foreign competition, rising losses from hurricanes and a bloated cost base, her successor will have to grapple with the fallout from Brexit.
Cost-cutting is probably the best line of defence. Lloyd's members pay around 2% of their earned premiums into a central fund to cover losses, while internal costs chew up 10-15% more, and they must also pay the broker's commission, says the commentary.