View from City Road: Lloyd's is trapped by its history

In the next few weeks the authorities of the Lloyd's insurance market will produce a 'business plan' in an effort designed to restore credibility to its pounds 5bn loss-making community. The omens are not good.

Take the latest crisis in Lloyd's. An independent insurance investigator probing the circumstances surrounding the losses of more than pounds 925m that have fallen on 3,000 members of Lloyd's has decided that it is a suitable case for treatment by the Serious Fraud Office.

Although the investigator was appointed by Lloyd's professionals deputed by the market's authorities to look after the affairs of members, Lloyd's decided not to approach the SFO on its own behalf. This inertia reveals much of what is wrong in the market place. Too little action is taken too late.

When the business plan emerges Lloyd's is likely to make all manner of pronouncements on the importance of cost-cutting. It will recommend that companies become exposed to market forces by negotiating directly with members over fees.

There will be clarion calls about the need for new capital in the form of subscription by companies outside the market. But it is unlikely that there will be much done for the 20,000 underwriting members suffering the brunt of Lloyd's pounds 5bn losses in the past three years.

Here, Lloyd's is trapped by its history. All members are expected to be liable to the full extent of their individual wealth when losses exhaust available funds. If they fail to respond, Lloyd's security is compromised and the market might be deemed by international regulators as 'unsafe'.

Unlimited liability, Lloyd's argues, cannot be abandoned at a stroke. But if Lloyd's cannot provide something in the form of convincing capital as its members become increasingly unwilling to pay up on losses, the future of the market must be in doubt.