Nigel Roberts, Head of Distribution — AEGIS London
Lloyd’s new prospectus adds John Neal’s vision to a growing pile of potential plans for market modernisation. Will it be different this time wonders AEGIS London’s Nigel Roberts
Reading the recently published Lloyd’s prospectus outlining CEO John Neal’s vision for the market’s future, I was struck by a sense of déjà vu. As I leafed through the document, I couldn’t help but recall meetings I attended back in the late nineties when I was one of a small group of market practitioners who fashioned the London Market Principles (LMP), arguably London’s first concerted attempt to dig up what we called ‘the Victorian pipework’ of the world’s oldest insurance market. What we hadn’t realised was just how deeply that pipework had been buried.
After LMP, I spent a spell sitting on the boards of both LIIBA and the market reform group arguing the case for modernisation. And yes, I’ve got the scars on my back to show for it. My point, though, is that having played a role in the earlier iterations of market modernisation, I’ve a strong sense of what needs to be done, but equally, an awareness of how difficult a task it is.
Putting to one side the challenges created by the depth to which London’s practices and behaviours are embedded, the market’s diversity of interests makes it particularly difficult to manage. On one hand, we have the brokers with their agenda; on the other, two types of underwriters – Lloyd’s and company market – each with their own outlook on life. It’s important to consider that organisations in the company market can be headquartered in Europe or America or Asia. London may well play a significant role in their thinking but it’s unlikely to be the be-all and end-all.
Against this backdrop of a complex marketplace harbouring a multitude of long-held practices sits the fundamental realisation that something has to change. One doesn’t have to look too far to see growing insurance centres in other parts of the world, diminishing market share in our key classes of business, new entrants, disruptors, algorithms with the ability to out-think and out-price some traditional underwriting methods. The portents are there for all to see. Why? Because the cost of doing business in London is far too high. Even if one compares the cost of acquiring business in the London insurance market with other forms of commerce, we outstrip them. That, in turn, makes the cost of the London market’s products too expensive.
A solution, however, is at hand. New technology means that we can deliver out products faster and more cost effectively. But it’s not a one-size-fits-all solution. As John Neal’s prospectus makes clear, London handles two types of business: that which is suitable for commoditisation and that which is too complex and continues to require face-to-face trading.
Let’s first consider the non-commoditised business – the Asian airline, the oil refinery, the offshore wind farm, the film production about to begin shooting in Turkey. This is Lloyd’s and the London market’s strong suit, yet we continue to serve it poorly. We transact this business inefficiently meaning it requires underpinning by placement support in order for it to flow seamlessly from front office to back-end. Currently, the tool we’ve been offered to aid the placement of this business is Placing Platform Limited, which we all know as PPL. But – and it pains me to say ithis – PPL is not the answer we need. Even though market practitioners have worked tirelessly to implement it, the reality is that PPL is not what it purports to be. In fact, if one were to take a long, hard, dispassionate look, it is increasingly evident that PPL is not a 21st century way of doing business. Far from reducing the workload, it is increasing it. Back-filling – inputting risk data into PPL after the risk has already been quoted on and bound – is all too commonplace.
Executives can sit around tables at PPL and the Lloyd’s Market Association to argue that PPL is the answer for complex risks but that view is not shared at the coal face, which means, ultimately, it will fail. Down at the underwriting box, tears will not be shed for PPL. What we need to do is be brave enough to admit that we tried and that lessons need to be learned. Where I see real potential is in a system like Whitespace, which is gaining traction in the market. Where it scores over PPL is that Whitespace looks and feels much more user-friendly. Brokers certainly like it – and while not the finished article, colleagues who have tied it are very positive, This, to me, indicates the direction in which we need to move if we are to truly modernise.
When it comes to less complex, commoditised business, electronic placing platforms are the way forward. We’re seeing more and more of these launching across the Lloyd’s market. Our own award-winning OPAL quote-and-bind platform, which allows us to bring business to London that would otherwise go elsewhere, is growing at a rate of 40% year-on-year each month in terms of income. This new generation of platforms is reducing the cost of acquiring business while lowering the level of human intervention we’ve seen traditionally. John Neal clearly recognises this as the way ahead for commoditised business as he’s proposing a Lloyd’s platform for smaller risks that can connect and communicate with any of these systems already operating in the market.
John Neal’s plan points in the right direction. However, it paints positive scenarios that sound jolly nice but are awfully hard to deliver. What we need now, more than anything else, are some wins – some quick victories to gain back credibility in the eyes of our customers; victories that remind people that Lloyd’s and London remain extremely relevant but also have the capacity to lower their costs.
Even though I bear those scars, increasingly, I have the feeling that broad, cross-market modernisation is achievable. Or is that just the déjà vu again?
First published in Insurance Day 23 May 2019.