NU Online News Service, May 3, 2:17 p.m. EDT, Orlando,Fla.--In an address before a managing general agent'sorganization, Lord Peter Levene, chairman of Lloyd's of London,said the insurance industry needs to do a better job managing itsbusiness, calling some of its practices "ridiculous" and "idiotic"in the eyes of the world.

Mr. Levene made his comments at the 79th annual AmericanAssociation of Managing General Agents' conference held here thisweek.

The chairman said the industry is faced with several challenges:managing risk, the market cycle and its reputation, which has beenaffected by the scandal over contingency fee abuses "that hasreverberated throughout the world," and process weaknesses revealedby World Trade Center trial.

He also focused on problems with excessive litigation in theU.S.

In his remarks, he discussed the trial over the World TradeCenter claim dispute concerning whether its destruction byterrorists constituted one or two covered incidents under thepolicies that were issued.

He was critical of the insurers for not having agreed uponwording of the policies before putting the contracts in place,noting that the entire incident casts doubt on contractcertainty.

"In which other industry would so-called sophisticated partiesfind this acceptable?" Mr. Levene asked. "It seems totallyridiculous that this wording should not have been there. And youmight wonder what harm this is doing to the reputation of ourindustry."

He added that it is "absolutely idiotic" that an insurancetransaction can be completed without the contract in place, andthat no other industry completes a transaction in a similarfashion.

He went on to talk about the scrutiny the commercial insuranceindustry is now under because of New York Attorney General EliotSpitzer's probe of contingency fees and other facets of thefinancial services industry.

"The financial services industry as a whole has already beenleft with a tarnished image in the minds of consumers, regulatorsand commentators," said Mr. Levene.

He said the investigations show that, on the issue oftransparency, the industry has some significant catching up to doto meet the expectations "of what a 21st century business" shouldbe, adding, "We can't ignore this any longer."

He said the keys to the solution are greater transparency anddisclosure of the insurance transaction process, and bettercommunication with those outside of the industry.

"The good news is that there appears to be an awakening acrossthe top levels of our industry that things have got to change," hecontinued.

He said the industry must make clear to the policyholder what isbeing done for them and what precisely the terms of the agreementsare. He called on the industry to craft rules that will clarifytransparency and contract certainty, adding that additionalregulation from outside would only be a burden.

He said Lloyd's is taking a lead in developing rules, inconjunction with its U.K. regulator, to solve questions of contractcertainty while at the same time enhancing transparency and workingto improve communication with those outside of the industry.

"More time communicating and building relationships withpolicyholders and economic leaders in the first place means a lotless time firefighting a bit later on," he observed.

Mr. Levene also addressed the industry's challenges dealing withrisk management and the current market cycle.

He said insures must work to manage cycle swings for the healthof the industry. Lloyd's, in an effort to do that, has cut capacity9 percent. It is also practicing disciplined underwriting, with itsreview boards rejecting undisciplined contracts.

"Good cycle management is critical to our future success," heremarked.

In the area of risk, he was critical of the growinglitigiousness the industry is seeing throughout the world,sarcastically calling it "a fantastic export [the U.S.created]."

Lloyd's is very concerned about U.S. litigation because thenation is a significant market for the syndicate, he said.

Despite the signing of the tort reform act recently in the U.S.,Mr. Levene said litigation problems are worsening in some statesand some lines, especially in the area of medical malpractice. Thesituation is stifling innovation and, he added, more reforms inother areas of the system are needed.

One of the most significant problems, he noted, is that the bulkof the awards go to the attorneys, with the injured party receivingless than a quarter of the award.

"The U.S. tort culture has become inefficient, inconsistent andinequitable," he said. "Any drive to reform it needs to addressthese flaws."

"It is wrong to reduce this to a political issue," he continued."It is a burden on the whole economy. It stifles innovation on riskand it stifles risk-taking everywhere from the family business tothe public sector. It is a subject we should do more to adopt aunited front on and lobby more effectively for change."