“Toby Esser delivering the keynote address at the 2019 Insurance Insider InsiderTech London Market event.”
The bold new strategy to transform Lloyd’s is to be applauded for its ambition and scope, but let’s not lose sight of what this market does best, says AFL Chairman Toby Esser
AFL Chairman Toby Esser recently appeared at a number of speaking events, and the following article reflects Toby’s responses to key questions from delegates and journalists.
One question that has cropped up repeatedly so far this year is around whether digital transformation at Lloyd’s could, or indeed should, lead to the commoditisation of specialist insurance business, and the acceptance of more standardised commercial risks into the market.
A strategic shift?
These issues have arisen in the wake of the bold new strategy recently announced by Lloyd’s CEO John Neal, which included moves to streamline the digital placement of less complex risks at Lloyd’s.
Most of the moves being suggested under this strategy are of clear benefit to the market, including the vision to shorten the distribution chain, but I feel further clarity of strategy and vision is required when it comes to accepting standard risks into this market.
Each of the six pillars of Neal’s vision for Lloyd’s – a digital platform for complex risks; Lloyd’s Risk Exchange for less complex risks; flexible capital at Lloyd’s; Syndicate-in-a-Box; a new claims service; a new services ecosystem – is underpinned by technology. This ambition to digitally transform is to be applauded, but I challenge the idea of technology enabling to Lloyd’s writing more “vanilla” risks to boost premium volumes.
A specialist or a generalist?
I agree that business as usual just won’t cut it any more. But Lloyd’s must consider whether it wants to be a specialist or a generalist. I question whether it can really be both. Does Marks and Spencer need to be Asda?
And then there is the fact that Lloyd’s is not licensed to write business in its largest single market, the US.
If there is to be more standard business written at Lloyd’s, then the market clearly needs to obtain more licenses. I certainly would like to see an equivalent to Lloyd’s excess and surplus lines licenses in Latin America and Asia, for instance, but I’m not so convinced about the need for an admitted license in the USA.
MGA and insurtech innovation
To my mind, the managing general agency (MGA) model represents a stronger area of innovation and growth for Lloyd’s right now than the possibility of dulling the Lloyd’s brand and business by accepting more commoditised / standardised risks.
Given that the average MGA operates at sub 10% expense, the Lloyd’s model clearly represents a lot of cost for managing capital. To me, this suggests the moves towards separating capital and underwriting for all but the biggest insurers both inside and outside Lloyd’s makes a lot of sense.
It will also be interesting to see how many syndicates and insurtechs eventually underwrite using their own capital rather than someone else’s balance sheet. I can certainly see Lloyd’s being the controller of smaller syndicates capital in the future and raising this capital as a collective on their behalf. However, this would clearly add some further complexity to the approval of business plans.
No end to face-to-face relationships
The London market is a specialty insurance market and should never consist of anonymous, commoditised business conducted from a distance. There is need for trust and relationships that is not going to disappear no matter how technologically advanced we become.
Technology presents no threat to face-to-face broking, but rather enables a focus on the most important face-to-face negotiations, while dramatically improving the background processing that supports this. Lloyd’s players must work towards paperless systems to achieve these efficiencies. I’ve consistently called for Lloyd’s to ban paper in the marketplace, and will continue to do so for as long as I have to!
Lloyd’s is at a pivotal point in its history, and could reap the benefits of digital transformation if we make the right choices and implement them efficiently and market-wide. But for the time being we now have to run quicker just to stand still thanks to the inefficiencies that pervade in this marketplace.
Lloyd’s made its name over 300 years ago as the natural home for the world’s most complex risks, and complex risks need to be firmly in focus in this market’s future vision too.
Further reading:
Insurance Insider: “Lloyd’s must ban paper.” 26 May, 2019.
Insurance Day: “Lloyd’s must remain the home for complex, hard-to-place risks.” 26 April, 2019.
Insurance Day: “Subscription underwriting in the sights of Lloyd’s cost-cutting drive” 4 June, 2019.
