News analysis: Lloyd’s - the need for speed

Lloyd’s of London chief executive officer John Neal has upped the ante in a bid to relay the message to the industry that the 330-year-old marketplace must change and fast or it risks becoming irrelevant.

Having found his feet in the role, some six months since he took the reins, Neal has started appearing at more speaking engagements, which he is using as something of a rallying cry for change.

Speaking at the Marsh & McLennan Companies Rising Professionals’ Global Forum 2019 in June, he said the market needs to seize a once-in-a-generation opportunity to digitise and innovate, or risk becoming irrelevant.

He admitted that Lloyd’s has not always embraced speed or change willingly.

“Our survival hasn’t yet been threatened in the way it has been in some other industries, such as retail, and when the platform isn’t burning, proactive change is just more difficult,” he said.

“As a sector, our choice is to continue with business as usual and become irrelevant or change and realise an enormous opportunity in the world of risk.

“We have a once-in-a-generation opportunity to lead the marketplace in delivering innovative services and solutions,” he added.

“We can do that by leveraging and seizing the spirit of innovation that’s always been at the centre of the market and the trusted partnership and relationship between the customer, broker and insurer.”

Neal told the audience: “We’re facing quite challenging headwinds. Our products simply aren’t keeping up with the changing landscape of risks and we’re not harnessing all of the new capital that’s knocking on the door.”

Acknowledging the punitively high cost of doing business at Lloyd’s, he said: “For every $100 the customer pays us, the best value they get back is $60. I can’t think of an industry outside our own where that would be tolerated.”

The chief executive warned employers in the insurance sector that in addition to these challenges they also face a fight to attract talent, as technology careers and employers are viewed more favourably by young jobseekers.

“We are not yet seen as the desirable industry for young bright minds to want to work in, and is it any surprise when there are so many challenges in and around our marketplace?” Neal asked.

Seeming to comment on the recent furore around sexism and outdated attitudes at Lloyd’s profiled in the media, he said: “We need to ensure that inappropriate attitudes are eradicated and give everyone the chance of a rewarding career.

Such challenges are not insurmountable, he added, but change needs to happen fast and make the most of Lloyd’s unique characteristics.

“We need to reset the way in which insurance and reinsurance are transacted globally.

“Lloyd’s has always been a platform a marketplace where brokers, underwriters and capital have come together to create and exchange value by exchanging risk, ultimately for the benefit of our customers. The building blocks are in place. Now we have the challenge of unlocking and evolving a 330-year-old platform.”

A digital future

Neal outlined a vision of a digital ecosystem that is “altruistic by design” with an open architecture of interconnected platforms and services. Plans include a Lloyd’s risk exchange for less complex risks and a claims service powered by artificial intelligence.

“Our expectation is that all the components of the change agenda will be operational in some capacity by 2020. We have to build at speed with solutions that are adaptable and scalable,” he explained.

In an appeal to the wider insurance sector, he added: “We want a collaborative expert community that improves underwriting and provides consistently excellent products and services.

“For capital, this means making it easier and less expensive to attach to risk. For brokers, it means the value proposition of being part of the Lloyd’s ecosystem creates accelerated growth opportunities, and that ultimately creates true and unique value for customers.”

The speech follows the publication on May 1 of The Future at Lloyd’s, the market’s strategic plan of “transformational initiatives”, which included simplifying market access and lowering costs, to ensure the marketplace can thrive in an increasingly challenging environment.

Lloyd’s has put forward six fresh ideas. These include: a digital platform for complex risk that makes doing business easier for the most difficult-to-cover risks; the creation of Lloyd’s Risk Exchange which will handle less complex risks, so they can be placed in minutes and at a fraction of today’s costs; flexible capital that can access a diverse set of insurance risks on the Lloyd’s platform; a syndicate-in-a-box, which offers a streamlined opportunity for innovators to bring new products and business into the market; a next-generation claims service to improve customer experience and increase trust by speeding up claims payouts; and an ecosystem of services that helps all market participants develop new business and provide outstanding service to their customers.

Lloyd’s said the work on building and delivering prototypes for the changes is expected to begin in October 2019, with some operational in early 2020.

Market response

The proposals were broadly welcomed by the market. Chris Croft, CEO of the London & International Insurance Brokers’ Association (LIIBA), said: “At LIIBA we have welcomed the very collaborative approach that Lloyd’s has taken to drawing up these ideas and in seeking our help.

“We share a common central objective: a strong, vibrant, innovative Lloyd’s market must be a key part of the offering we make to our clients. The ability to find cover for clients that is simply not available elsewhere has always been at the heart of London’s unique offering.  We must ensure it retains and grows that ability, and we look forward to discussing what happens next.”

Bronek Masojada, CEO of Hiscox, said: “These initiatives remind us of Lloyd’s centrality to the global insurance market and its determination to remain central to it as the world evolves. We look forward to working with all our Lloyd’s colleagues to bring these ideas to realisation.”

Sheila Cameron, CEO of the Lloyd’s Market Association, added: “The launch of The Future at Lloyd’s demonstrates John Neal’s commitment to put Lloyd’s at the front of the insurance flotilla. It offers an exciting view into how our shared marketplace can evolve and we are excited to work together with Lloyd’s on building out this braver future for the ultimate benefit of our customers.”

Helena Kingsley-Tomkins, an assistant vice president–analyst at Moody’s ratings agency, said: “The Lloyd’s proposed reforms include plans to radically reduce the cost of doing business and creating new digital platforms for placing insurance risk and streaming claims services, a credit positive.

“If the plan is successfully implemented, meaningful cost reductions will support profitability, which has declined since 2016.

“However,” she added, “we believe the plan is subject to a high degree of execution risk because it will likely require substantial investment and significant cultural change.”

In an analysis from Moody’s she said that Lloyd’s target to cut costs for less complex risks from the current 30 to 40 percent of premiums to 10 to 20 percent was “ambitious”.

“Although there is considerable scope to improve Lloyd’s expense ratio, reduction on the scale it proposes will likely require considerable long-term investment in its IT systems and a concerted effort to recruit staff with technological expertise.

“The experience of peers that have similarly upgraded shows that such initiatives can be costly and shave only a few percentage points from the expense ratio,” she added.