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COLORADO SPRINGS, Colorado – Plans to digitize many processes at Lloyd’s of London and to slash the cost of doing business with insurers in the market were a significant topic of conversation at the Insurance Leadership Forum last week.
The Future at Lloyd’s Blueprint was published shortly before the meeting in Colorado Springs, Colorado, which is sponsored by The Council of Insurance Agents & Brokers, and largely drew favorable reviews by insurer and brokerage executives in private meetings during the event.
The 146-page document details a strategic plan for Lloyd’s that sets numerous goals for the 330-year-old market, including cutting expenses from 40% to 25% of premium over the next several years.
Many of the changes rely on technology, such as using straight-through processing for claims, the creation of “syndicates in a box” to allow investment in the market without the need for a physical presence, the creation of a complex risk platform to provide technological support for complex risk placements, the Lloyd’s risk exchange to digitize simple or commoditized risks and much greater use of data to support underwriting at Lloyd’s.
The blueprint was “designed to put Lloyd’s in a modern digital world,” said John Neal, CEO of Lloyd’s, during an interview at ILF.
The plans detailed in the blueprint will be implemented in phases over several years with the first phase targeting a reduction in the average expense ratio from 40% to 30%.
In some areas of the wholesale business, the cost of doing business as Lloyd’s can be as high as 50%, Mr. Neal said.
“On one level that’s nonsensical because you can’t make a profit, and on another I don’t think it’s fair for the customer,” he said.
The average expense ratio for the insurance market globally is 31%, “so by going from 40% to 30%, all we are doing is closing the gap to where it should be,” Mr. Neal said.
The market will then seek to reduce expenses to 25% and after it achieves that “we’ll probably have to scratch our heads and figure out how we get it down to 20%,” he said.
Key to the expense reduction will be the introduction of the exchange plans, Mr. Neal said.
The execution in phase one of the plans “will in effect mean that 90% of Lloyd’s business is digitized and has end-to-end connectivity from broker to insurer,” he said.
By creating a more “real-time connection” between producers and insurers and simplifying administration, costs should fall, Mr. Neal said.
Brokers would also be able to access the market more efficiently rather than simply through London-based operations, he said.
“We should be saying to the biggest brokers in the world, ‘connect into Lloyd’s from where you choose to connect into Lloyd’s. If you are Aon and you want to do it from Chicago, do it from Chicago, if you are Marsh and you want to do it from New York, do it from New York,’” Mr. Neal said.
And wholesalers in the U.S. should be able to connect with the exchange via their placement hubs, he said.
The syndicates in a box – the first of which was launched by Munich Reinsurance Co. earlier this month – would, Mr. Neal said, likely address three different business needs: single product/single geography risks, such as U.S. cyber; a managing general agent that’s been successful and wants to put some personal capital at risk; and “pure innovation” to develop new products and coverages.
The changes proposed for Lloyd’s were largely welcomed by participants at ILF.
“I believe in what Lloyd’s is trying to do,” said Mike Rice, chairman and CEO of RSG Underwriting Managers, a division of Ryan Specialty Group LLC in Chicago. “It’s very ambitious, but for Lloyd’s to be a strong market, which I think the industry needs, I think a lot of these things are an imperative.”
Efficiencies throughout the system, including underwriting operations and some elements of the distribution system, need to be addressed, he said.
A group of Lloyd's of London underwriters have set up an innovation facility to develop products for emerging risks related to supply chains, intangible assets and artificial intelligence, Asia Insurance Review reported. The facility's capacity totals $67 million and includes senior underwriters from U.K.-based Tokio Marine Kiln Group Ltd., Beazley P.L.C., MS Amlin P.L.C., Talbot Underwriting Ltd. and Liberty Specialty Markets among others.