Chris Terry, Head of International Liability — AEGIS London.
Covid-19 has ushered in a new era of electronic trading to the London market. But let’s not allow it to throw the baby out with the bathwater, says AEGIS London’s Chris Terry.
One of the more frustrating aspects of modern life is the way society likes to divide the world into factions. You’re either with us or against us, pro or anti. Modernisation of Lloyd’s: are you for or against?
It’s sometimes easy to see only two camps: tech nerds or luddites. Speaking as an international liability underwriter, I would suggest a middle way is the best solution.
As I write this, I can almost hear the groans from colleagues in the market: it’s always the liability underwriter saying ‘it’s different for us, it’s not like that in our market’. But there is substance to that claim. The business flowing into London’s international liability market is diverse, unique, complex, unpredictable and sometimes bizarre. It often has few homogenous exposures. Despite nearly 40 years in the market, I never fail to be surprised by what I see. Rating is far from standard and wordings commonly bespoke. Portfolios are forged from risks of every size and shape that defy easy categorisation. In short, these are characteristics that don’t readily lend themselves to ‘pure’ electronic trading.
Some classes in London tend to have broadly homogenous exposures and more standardised underwriting criteria. These classes are perhaps a better fit for pure electronic trading. A good example is our own Opal platform at AEGIS, which has seen strong growth in business since the beginning of lockdown. It focuses on more standardised SME-type risks, which would be uneconomical if they came to London via the traditional route.
After years of creeping acceptance of electronic trading, lockdown transformed our market virtually overnight. Fast forward three months and this new normal – electronic trading and remote working – is being heralded as the future for Lloyd’s and the London market. Have the tech nerds been proven right? Modernisation may be both inevitable and necessary, but how far do we go and what could we lose in the process?
Before we all buy into this classic narrative of underwriter meets technology, underwriter falls out with technology, technology woos underwriter with the promise of reduced costs and greater efficiency, just think for a moment about what really defines London’s liability market internationally. Our real strength lies in the people and personalities who tackle and solve problems. Solutions are achieved by working collaboratively with people, talking things through, be that in person or virtually, but not just by messaging in whatever form it may take.
Face-to-face meetings are part of London’s brand. According to the pro-tech camp, they’re inefficient. Queues of brokers waiting to speak to an underwriter have long been used as evidence of outdated trading methods. But once you reached the end of that queue, chances are the broker would achieve a resolution or understand an underwriter’s position.
Today, that broker’s request could be emailed and may well sit in a crowded inbox for 24–48 hours before receiving a reply. That game of email tag could go on for days. Is this more efficient? Everyone misses the random interaction of bumping into people at Lloyd’s or in the market generally – many solutions and initiatives have historically come from chance meetings.
Before I’m accused of harking back to the halcyon days of steam-powered underwriting, let me be clear: electronic trading has arrived and will doubtless shape this market’s destiny, however our new trading environment evolves. We need to harness the technology in a way that preserves the interaction that is its lifeblood.
The key as far as the international liability market is concerned is to establish a middle ground – somewhere between the luddites and the tech nerds. Electronic trading can’t be allowed to throw the baby out with the bathwater. London has its inefficiencies, but some of those inefficiencies are hallmarks of our distinctive culture and can be differentiators. London is about people – and people, by their very nature, are not machine-tooled for maximum efficiency. We need to find a way of being inefficient efficiently.
For international liability underwriters, the priority now is to be involved and to be heard. We must speak up – as should all – if we believe our class requires separate consideration when it comes to driving changes in the marketplace. I would encourage participation in the Future at Lloyd’s project, including the virtual underwriting room initiative, to make sure that the marketplace of the future allows us to keep the best of the past along with the advantages of a technology-driven future. Unless we get involved, modernisation will be done to us, rather than for us.
So, to prevent the market dividing into camps – luddites and tech nerds – we need to establish and champion a third position: pro-technology but pro-people, too. We need to recognise that there are better ways of doing things, but not at the expense of the reasons why the world comes to do business here. The answer is not easy, but unless international liability underwriters state their case clearly and loudly, it will be an answer to someone else’s question.
First published in Insurance Day 17 July 2020.