Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.
Apres moi the deluge A reflection on 45 years in commercial property insurance
Bill GloynChairman, Real Estate Europe
Aon Mergers & Acquisitions Group
Slide 2©2009
Aon and Bill Gloyn
Aon is a Fortune 500 company, based in Chicago; listed in NY and London; 36,000 employees; 500 0ffices in 120 countries
Bill is Chairman of European real estate in Aon’s M&A group
He set up the Aon commercial property specialisation in 1983
Established the European Real Estate Practice in 1999
Vice-President, Insurance, Olympia & York Canary Wharf Limited 1989/92; in-house consultant 1992/2003
President – City Property Association
BPF General Advisory Council and Chairman, BPF insurance committee
Member, JCT insurance committee; City of London Law Society construction committee; Society of Construction Law
Freeman of the City of London and Liveryman of the Chartered Surveyors Livery Company
Columnist – “Property Week”
Member of the UK & European Property Awards Academies
Slide 3©2009
Our Mission "To raise the levels of professional knowledge of those working in insurance in
London, to assist members in their career development and to support and reinforce the role and work of the CII“
I hope that I will be able to assist - previously involved with Advanced Study groups and another West End lecture
Slide 4©2009
Life at the Commercial Union in the early 1960sThey were different days
- Alternate Saturday morning working
- smoking at the desk before 10.00 and after 4.15
- Clerks had a separate lavatory to Principals
- all letters and memos countersigned by at least one superior
- records kept by hand
- policy facsimile books in Kalamazoo binders
- wet photo-copies – I was an early Xerox user (“another string to your bow”)
- standard policy and endorsement wordings
- marking up the Goad maps that recorded where insured risks were located
- running to the R/I dept if capacity exceeded - otherwise a disciplinary offence
Slide 5©2009
Life in the CU- Fire Offices Committee - keeping the tariff rate books up-to-date
- Standard, clearly transparent, rates of commission –– 15 or 17½% plus postages
- Clerks didn’t type!
- No electric typewriters
- Mistakes meant a complete re-type
- No computers or even pocket calculators
Slide 6©2009
And the resultant amounts?
All written by hand on a page of accounting paper!
They never tallied up across and down
Rates were split into fire and separate perils – each with separate loadings
Cons Loss rates were different
We worked in £.s.d – needed decimal conversion tables
Pro-rata calculations required Odd Time Tables
No wonder that insurance was a major employer
Slide 7©2009
My first experience as a broker
Recruited by Rose Thomson Young after 11 months
Working for two MP directors – also involved with property companies
Scratch-boy at Lloyds
Learnt the tricks of the trade – queuing all day for the Head Broker
Went up the tree – got my own ticket
Ended up as an Account Executive – without the title!
Slide 8©2009
Life as an Insurance Manager – first time round
Offered role as Insurance Manager for a client in 1969
English Property Corporation – major listed company – became 28% owned by Eagle Star after the early 1970’s property crash
De-listed following acquisition by Olympia & York
Established Albany Insurance Management – 3rd party business
Became Registered Insurance Broker following new legislation in 1977
First involvement with British Property Federation – an outsider!
O&Y decided that there was no future in UK/European development
Planned to wind down the company and sell the rump
Offered opportunity to stay, go to a managing agent or seek my fortune
Slide 9©2009
So, I went to seek my fortune with Aon
Joined Clarkson Puckle in 1983 to set up the first major broker commercial property specialisation – they had the same computer system as EPC
Then merged with A W Bain – Bain Clarkson
Further merger with Hogg Robinson – Bain Hogg
Taken over by Aon in October 1966
Joined by Alexander & Alexander, Minet and others Europe-wide
HOWEVER
Slide 10©2009
Canary Wharf
Olympia & York were seduced back to the UK by Margaret Thatcher - to rescue the Docklands regeneration dream
The Canary Wharf development agreement was signed in 1987
Started some consultancy work in 1988
Joined O&Y Canary Wharf as Vice-President Insurance in 1989
First desk top computer and Excel spreadsheets – mind-blowing!
Focus on construction insurance until first phases complete in 1991
Appointed to represent the BPF on JCT insurance committee – first client- up to then it was controlled by the contractors
Slide 11©2009
The property crash of the 1990’s
O&Y in Administration in 1992
Rejoined Aon (Bain Hogg) to take up from where I left off
Retained by Canary Wharf Limited, then a listed company, as Insurance Consultant for another 10 years – saw the vision realised
Slide 13©2009
The rest of the Aon story – to date
Aon encouraged the expansion into a European operation with close US links
Set up the European Real Estate Practice in 1999
Decided to move into the M&A consultancy team from 2007
A change in direction to mark an age milestone
Still working closely with the commercial property team
Two major industry recognitions
Invitation to join the Chartered Surveyors Livery Company – only the 3rd non-qualified member after the CE of the RICS and the CE of the BPF
Election as President of the City Property Association- the first insurance person to hold high office in any property organisation?
Slide 15©2009
The City Property Association
Founded in 1904
Originally for property owners
Now represents all those with an interest in City property – owners, developers, tenants, residents and consultants
150+ members – not enough from the insurance world; although they are major occupiers and owners – as well as consultants
Recent Past Presidents – Roger Reeves, PWC - Peter Cole, Hammerson - Mike Hussey, Land Securities
Our vision is to foster the right environment – where business can thrive;
to promote the City as a place where people should want to work, reside and visit, and be best placed to compete fully with business rivals in Europe and throughout the world
Slide 16©2009
CPA activities
Lobbying – EDF, Empty rates, Post Office closure and Planning
Seminars - Transport, Mapping and Sustainability
- Security, Flooding and The Future
Annual Luncheon – Lord Mayor
Annual Reception - Stuart Fraser, City Chairman of Policy & Resources
Much of this activity is undertaken in close liaison with the City. A supportive and mutually beneficial relationship
Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.
So what lessons to be
learned from 45 years?
Slide 18©2009
The IIL Mission
“To raise the levels of professional knowledge of those working in insurance in London”
Not enough to be technically proficient in insurance
Need to understand the client’s business - backwards
Insurance needs to enhance its profile in the wider commercial world
Participation in trade bodies
We want to be regarded as fellow professionals but don’t behave like them
It’s tough and needs commitment – outside the comfort zone
Nobody wants to talk about insurance!
Slide 19©2009
Understanding the client’s risk – and responding
The market has failed to deliver an acceptable solution to Latent Defects
It needs an amalgam of property damage, business interruption and PI
Too many vested interests and artificial internal barriers
Now is the time to develop Residual Value Insurance
It would bring a different dimension to the investment market
Who has the vision for that? – Cuthbert Heath would have done it!
At this time, Credit Risk is paramount – to owner and bank. Where is the market?
There must be a price and a profit – it needs innovation and courage
There used to be people like that around – killed by the corporate environment
Slide 20©2009
Working with international clients – real estate is now a global business
Don’t expect things to be the same as they are here – they are not!
The cover, culture and customs are different
Language is a barrier
Nobody – certainly not you – wants to admit that they don’t understand
Challenge the answer if you have any doubts
Levels of integrity and professionalism sometimes fall short of UK ones- even in the most “civilised” countries
Don’t expect it to be done – check that it has been
Make sure that you completely understand the coverage and conditions
Slide 21©2009
Commission and disclosure
Generally, clients still don’t trust their broker regarding income
Understandable while clients themselves are often suspect
The lawyers are at fault – poor lease drafting
The situation got out of control
FSA regulation went some way but there are always clever ways around
2007 Lease Code has brought it closer to attention
Tenant enquiries and problems will do more
The FSA transparency investigation is not over
There are likely to be serious problems ahead – for some
Slide 22©2009
Terrorism
The market responded in 1992 – just
It was much slower to respond in 2002 – still not completely sorted out- extent of cover, especially for BI and clean-up
The ABI has lost its teeth – now anti-competitive to have a unified response
The IRA, and its clones, had kept us on our toes – never far away
Since then, we have become complacent – about defence, protections and the actual cover
Mumbai was a salutary warning of what is still possible
The UK has the best cover in the world
It may be seriously tested in the lead-up to the Olympics
Slide 23©2009
Climate Change
On the top of insurers and reinsurers agenda
An international problem – not just the UK
Not just flood –
Storms and rainfall
Wind and typhoons
Earthquakes
Temperature increases
Post 9/11 improvements in data analysis should have made underwriters more aware of their exposures – no more Goad maps
No guarantee that cover for some risks will continue – despite leases
Insurers are not charities – they only have shareholders to satisfy
Don’t confuse morals with insurance – as if you would!
Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.
Flood – today’s big one!
Slide 25©2009
Flood insurance – some background
Defra report in 2002 - £220bn at risk - 1 in 13 homes plus business & farmland
Insurers objected - it is a political problem
Historic poor funding for infrastructure
Government promised increased investment
Planning regime needed serious overhaul
Improved drainage network during 2005 - 2010
ABI and HMG finally agreed a protocol in 2003
ABI announced a new Statement of Principles from 1st January 2006
Dependant on HMG meeting its promises – it didn’t!
Slide 26©2009
What happened?
Summer 2007 floods estimated to cost insurers over £3bn – 165,000 insured losses – 11% are motor claims
The perceived conditions that informed the Statement of Principles have changed
2007 NAO report – 46% of flood defences inadequate
91% of Thames Gateway development on flood plains
Environment Agency not being heard – wanted insurers to become part of the planning system
Lobbying - including from BPF and CoML - for increase in the Comprehensive Spending Review
The only government reaction was the Pitt review
ABI demonstrated frustration – early review of SoP
Slide 27©2009
2008 Statement of Principles
Now limited to 5 years maximum – with annual review
Subject to no external shocks, such as no reinsurance
Still conditional on Government meeting its obligations – financial, planning and strategic
Doesn’t apply to property built from 2009 – new guidelines for developers still awaited
If flood risk is not significant - less than 1 in 75 years - ABI members will continue to give cover
Cover maintained where risk is more than 1 in 75 years but where improvements are planned within 5 years – can be extended to a satisfactory new owner
No comment about property outside these categories
Only applies to residential and small business
Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.
What might it mean for our City?
Slide 30©2009
Extracts from the Environment Agency Extracts from the Environment Agency flood risk mapsflood risk maps
Railway Terminus
Hospital
Slide 31©2009
Sea levelsSea levels rising too fast Sea levels rising too fast for Thames Barrierfor Thames BarrierMarch 2008March 2008
Slide 32©2009
The potential economic reality if it all goes wrong
The public transport network will be disabled
Staff unable to get to work
Services and supplies cut off
Widespread damage will take months to repair
Tenants will look elsewhere for space
Real estate values plummet as banks withdraw
London could lose its top place
UK plc in serious trouble
Slide 33©2009
This has got nothing to do with insurance!
The problem has been caused by the lack of investment – over many years
Insurers will be blamed for restricting cover
An extension to the terrorism Pool Re may be set up
The basic fundamentals of risk management and insurance are being ignored
Ask those affected by the summer 2007 floods –
Would you like insurance or would you prefer not to have been flooded?