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View a video of Bruce Carnegie-Brown discussing how digital advances will affect face-to-face interactions here.
Bruce Carnegie-Brown was appointed chairman of Lloyd’s of London in February 2017 and took up his role in June of that year following the retirement of former Chairman John Nelson. Mr. Carnegie-Brown, who is also vice chairman of Banco Santander SA, was chairman of price comparison website Moneysupermarket Group PLC from 2014 to May of this year and prior to that was a nonexecutive director of Jardine Lloyd Thompson Group PLC. Mr. Carnegie-Brown recently spoke with Business Insurance Reporter Claire Wilkinson about the challenges facing the Lloyd’s market, including recent allegations of sexual harassment at London-market companies, and its plans for a digital future. Edited excerpts follow.
Q: What is Lloyd’s doing about the harassment issues that have happened?
A: We didn’t know what was going on in the marketplace, so part of the plan is to try to call out the behaviors. The two principal levers for that are a culture survey across the market and a manned helpline that we set up. In many cases, the challenge will be that if we are successful, more of this bad behavior gets called out. It’ll feel like issues are getting worse before they get better, but that will be part of the improvement process, that people will be brave enough to call out these issues. The other part is how you deal with it when you find bad behaviors. Because we are a regulator of the market, we have quite a lot of powers to deal with these things. We have beefed up our policies around this, trying to make sure people are on notice both that we have the powers, that we will exercise the powers, and what the scope of our powers is.
Q: How do you manage the risk of harassment across a marketplace?
A: It’s a two-level test. Each of these individuals is an employee of somewhere else. Of course, when bad activity happens, most of it is put in the context of the Lloyd’s brand so we’ve got to have a view on overall standards in the marketplace. While it is the first duty of care of the employer to deal with these issues, what we now are saying to employers is first they must share their data with us. We’re asking them to report the number of complaints and how they’ve dealt with them. One of the challenges is that even when complaints are raised, they often don’t go public. I think you have to call these issues out in public if you really want behaviors to change, so we have intervened and now we will see the data from the underlying companies in the market and we can exercise our own judgment on whether the penalties are appropriate.
Q: How much of this is embedded in the historic city culture of harassment and daytime drinking?
A: There’s a reasonable challenge around London — not just insurance, not just Lloyd’s — in terms of whether there’s more of a drinking culture in the London market. To me, the right answer is not how do we compare with others, but to set the right standards for the marketplace and have ambition about what those standards should be. We want to create an environment which is attractive for people to come and work in; and if we don’t get the best and brightest talent, that’s a very poor outcome for the industry and for Lloyd’s specifically.
Q: What are the various control procedures Lloyd’s is putting in place to improve profitability?
A: It’s easy to default to a view that in 2017 and 2018, the losses are derived from extraordinary natural catastrophe risks. They were above average in terms of their claims over that period, but that disguises two things: one is underwriting discipline and the other is the expense base in the marketplace. We started to tackle the first at the end of last year with a much more stringent performance review of everyone’s 2019 plans. There was a reasonable amount of noise around that because many market participants didn’t expect us to hold the line as strongly as we did. In the event, we chased out over $4 billion of what we think of as bad business but at the same time created capacity for more than $10 billion of potentially new higher-value business in the marketplace. We didn’t get out of any lines of business, but we imposed some quite draconian plans on individual syndicates where we couldn’t see a path to profitability in their current strategies. Underwriting discipline is key to improving the performance of the marketplace.
Q: What role are rate increases playing in improving profitability?
A: It’s very hard to say at this point, because so much of 2019 was already written in 2018. The benefits of price rises will only come over time through the years. We point to a small rise in premiums in the first quarter, but it’s probably not a good indication of the average rise we would expect through the year. When I talk anecdotally to underwriters in the marketplace in several lines of business, they are experiencing some quite strong rate appreciation. But you’ve got to analyze that because people don’t necessarily tell you everything that’s happening in their book, they tell you about the pieces they want to. Much more importantly to me is not the size of the price rises but the consistency of it over time, because that gets to this discipline point. If you have sharp spikes in the market, they typically fade quite quickly, but what we’ve seen now in Lloyd’s is seven quarters of average rate increases to the end of March 2019. That’s not in every line and every quarter but on average over the marketplace.
Q: What does Lloyd’s hope to achieve through the digitization plan?
A: This is ultimately about the customer. On average, too much of a premium is lost in placing the business instead of going towards buying the risk protection. We could make this a better deal if we reduced the cost of execution. The best way to do that is through a digital distribution model as an alternative to the traditional distribution model. The digital distribution model does not eliminate the manual or day-today interaction of individuals around complex claims. But what we know in the financial services industry is that complex products commoditize over time. Insurance products are commoditizing at a faster and faster pace. In order to be competitive for longer we must provide insurance at a cheaper cost.