View from City Road: The hard questions still unanswered at Lloyd's

The cultural divide between the investors who make up most of the loss-making Lloyd's names and the market professionals was at its most glaring yesterday. The professionals beat their breasts with cries that everyone and no one is to blame, particularly those now in charge (the people on the platform at the meeting), since they were not running the show when things first went wrong.

But names quite rightly wanted answers to basic questions like who was to blame, where to seek redress and what has been done to prevent similar disasters happening again.

They were given answers of a sort to the third question, based on the business plan and a regulatory overhaul, but once again they received short shrift on the others.

The names' case against the market has not been properly answered on several levels. Fraud may well have taken place, an issue for the Serious Fraud Office which is looking into Gooda Walker. There was individual incompetence among the professionals, which is a matter for the Lloyd's authorities, who have so far managed to make even the Securities and Investments Board look like tough guys. There were examples of seriously bad judgement by underwriters, not a hanging offence in itself, but questionable if the people concerned are allowed straight back into the market. And there was regulatory inefficiency on a vast scale.

Throughout the 1980s, despite a decade of warning signs, Lloyd's stuck to its non-interventionist approach. An unforgiveable result of this laissez-faire was that there was no attempt to police firms in a way already becoming standard in the banking and securities markets, weighting types of business taken on by syndicates according to risk.

Indeed, there is no sign of this emerging even now, despite promises a year ago. It is extraordinary that a market dedicated to insuring against risk had not even thought seriously about risk management in its own businesses.

More than corruption and stupidity, which can happen anywhere, it is this history of regulatory incompetence that will dog Lloyd's efforts to revive the market. The only convincing solution is to take regulation away from Lloyd's altogether by bringing it within the Financial Services Act.

Until then, fine calculations about whether to reinvest in Lloyd's because the insurance cycle is turning are irrelevant. Intending names should keep out.