Marsh: AIG’s Woes Have Boosted Subscription Market

The difficulties that have beset American International Group Inc. have offered a major boost to London?s subscription insurance market, in the view of Martin South, chief executive of broker Marsh UK.

There is an opportunity to be less passive right now and say, ?How can we grow our market share? And what are the trends that might drive that??? South told delegates to the biennial conference of the Association of British Insurers.

Trends in recent years saw large insurance companies seek to broaden and deepen their relationships with large customers. The insurers moved away from individual products and offered services that ranged from directors and officers and liability cover to pension funds, South said. This drive, he added, was designed to win advantages over competing insurers.

?A lot of big insurance companies were gradually breaking down internal silos and were becoming much more client-centric,? South said.

The strategy began to pay off for large well-capitalized insurers in the form of ?dominating market positions? with large corporate clients.

When AIG ran into trouble, there was deep concern in the market, according to South. Suddenly, the idea of risk management through the diversification of exposures moved to the top of many insureds? agendas. ?Clients are very keen to make sure they spread their risk,? he said.

In risk management, South said, there has been a move even away from the ?the old paradigm where you have a single fronting insurer ceding risk out to multiple reinsurers.?

A lot of Marsh?s clients are wondering whom they can trust, South said. This lack of trust, he added, extends to rating agencies. ?Individual personal relationships [between clients and insurers] are breaking down as people move around.?

One of the strengths of the London market has been its ability to syndicate risks. Lloyd?s is seen to offer security, with the added advantage of its worldwide network of licenses. South also spoke approvingly of the development of electronic commerce within Lloyd?s.

In his speech, South focused on the international business that comes to Marsh in London. He is also responsible for U.K. retail business.

The London market does contain regulatory and tax risks for insurers. ?Clearly Bermuda stole a march on London because they?re a very tax-friendly environment,? he said.

He suggested that insurance companies might be encouraged to build their capital, under a favorable tax regime, during good times as a cushion for catastrophes. South noted that such thinking is being applied to the banking sector.

South said he does not fear a strong competitive challenge from Bermuda.?Bermuda ultimately is maxed out to a large degree,? South said. ?You simply can?t get more people into Bermuda.?

And with four children, he said, there is no way he could get a Bermudan work permit.

Marsh UK is part of Marsh & McLennan Cos., the second-largest broker in the world based on 2007 brokerage revenue, according to the Best?s Review ranking of global brokers.