The long road from Arkansas to Lime Street

Tom Squires, Head of Digital Trading — AEGIS London.

Making a success of smaller US P&C business has proven elusive for Lloyd’s underwriters. AEGIS London’s Tom Squires says that taking the digital route is the best approach.

‘There’s more than one way to skin a cat’ is an old adage that never was truer than in the world of US property and casualty business (P&C). For many years, Lloyd’s has excelled at writing complex and higher risk business, but a huge swathe of smaller, more standardised risks has proven elusive for the market’s underwriters. The traditional Lloyd’s distribution model, it seems, has its drawbacks when it comes to, let’s say, an Idaho-based printworks or a manufacturer of plastic components in Arkansas. In simple terms, it’s a long way from Arkansas to Lime Street – and that journey is an expensive one for a risk to make.

Last year, Lloyd’s centrally drew the same conclusion that we at AEGIS London reached in 2016. As a market, we’d spent years skinning the cat in a highly skilled but very expensive manner. If we were to gain access to that more standardised US business a different approach was needed. Lloyd’s described this as the creation of a risk exchange – a new, convenient, low-cost way to carry out global risk procurement, with the reassurance of the Lloyd’s brand and associated benefits. We’d drawn a very similar conclusion but expressed it in slightly different terms: if we wanted to increase our share of this type of business, the answer was to go digital.

Our thinking was fairly straightforward. The US Midwest generates a considerable volume of P&C business, the bulk of which never gets close to Lloyd’s because of cost. The elongated distribution chain – that long journey from Arkansas to Lime Street – adds cost with every link, thus rendering SME-type business from the Midwest uneconomical for Lloyd’s insurers and too expensive for the SMEs themselves. The answer, therefore, has to be to find a way of reducing the distribution cost, right? Yes. And no. Alas, insurance is rarely that simple.

Cutting cost is of paramount importance. Unless the price offered by Lloyd’s insurers is comparable with competitors, we don’t even – as one native of Tennessee put it to me – have a dog in that fight. For AEGIS London, our online quote-and-bind platform Opal was the solution. It has allowed us to make that cost saving. Others have taken a similar route. But cost is only part of the answer.

While brokers want to be able to offer more competitively priced cover to their clients, they also have workloads to manage. For many brokers operating out of the Midwest, the standard way of requesting quotations is by email with the paperwork scanned and attached. So, what’s really going to grab brokers’ attention is something that is faster and more efficient than preparing that email – something that adds value beyond the simple cost-reduction equation. This is what some Lloyd’s insurers have failed to recognise but needs to be built into any offering. Whether that’s the high quality of the underwriting, the speed with which documentation is delivered or the seamless renewals, there has to be some offering that impacts directly on the broker’s role, not just their  P&L account.

It’s also important to recognise that many brokers don’t have the time to spend hours poring over complex instruction manuals. The way to deal with this is to build a digital platform that functions intuitively and is fairly self-explanatory. What this means for Opal, for example, is that the system guides a broker through the quotation process field by field. If data field A is not completed correctly, then the user cannot proceed to data field B, rendering a manual unnecessary.

The added-value philosophy is also important because, by their very nature, Lloyd’s insurers are unlikely to be able to offer the cheapest price when quotes are compared one against another. But where Lloyd’s insurers can win is on attributes such as quality, technology, customer service and relationship-building.  Combine that with the price proximity enabled by technology, and this is where we come into our own.

There are other lessons which we’ve learned during the four years in which we’ve been using the Opal platform to distribute products to the US P&C market. Uppermost among these is that assumptions made without consulting US partners can be lethal. For example, when considering new products to build for digital distribution, one needs to choose the right product and construct it in a manner that’s suitable for partners’ marketing and distribution. Once substantial time, effort and money have been expended on building a product, it’s too late to then start asking Midwest brokers if they would find it useful.

Another point to think about when building a US P&C digital product is what will come after it. What are the next 3–4 steps? This ensures that the products selected for digital conversion form a product suite that is both attractive to the end-client and can readily be adapted or enhanced.

Perhaps the other great benefit of taking a digital approach to US P&C business is the degree of communication between insurer and intermediary. Feedback from end-users is direct and instantaneous. In many ways, the digital channel has brought us closer to our Midwestern partners.

As a market, Lloyd’s has the potential to be able to bring a considerable volume of US P&C business to London that would otherwise be going to other markets. All that’s required is flexibility of thought and a recognition that we need to help US brokers and intermediaries achieve their own objectives.

First published in Insurance Day 28 Oct 2019.