The cost of doing business at the specialist Lloyd’s of London insurance and reinsurance marketplace isn’t a sustainable proposition, and if the market wants to grow and remain relevant to its customers, costs need to come down, according to the Lloyd’s Chairman, Bruce Carnegie-Brown.
“We have to do a better job, in terms of the cost of delivering what we do. Again, I think this is an insurance industry-wide issue, but of course, Lloyd’s is typically at the worse end of that, in terms of where our expense ratios are,” said Carnegie-Brown, addressing an audience in the Old Library at the Lloyd’s headquarters.
It’s no secret that Lloyd’s of London is an expensive place to do business, and the market’s high expense ratios have come under increased scrutiny in recent times as profits across the reinsurance sector have been falling in response to sector headwinds that resulted in a prolonged softened market state.
Insurance and reinsurance companies, as well as market’s such as Lloyd’s, have been looking at ways to improve efficiency and offset declining underwriting results, and lowering expenses is one of the avenues many have looked to in order to improve revenues.
Discussing the cost of doing business at the Lloyd’s market, Carnegie-Brown said: “In simple terms, people give us 100 cents on the dollar and we give them, if they are lucky, 55 cents back, on average and over-time.
“And, I think many of them decide that is not a great deal. We need to give them a better deal.”
He continued to note that there is a perfectly good argument to be made for why the market should be willing to tolerate 80% loss rates, as it would represent a better deal for customers. However, the reason the market can’t tolerate loss rates this high is because of the cost of doing business.
In 2017, said Carnegie-Brown, it cost Lloyd’s £10 billion in the market to originate £24 billion of business.
“I just don’t think that is a sustainable proposition. And, if we want to be in a market that grows and is more relevant to our customers, we have to do something about that,” said the Lloyd’s Chairman.
It’s clear that lowering its expense ratios’ is a priority for the Lloyd’s market as it positions itself for the future, and Carnegie-Brown highlighted that the marketplace’s digitisation push, which includes things like the PPL, is a sign of how Lloyd’s is adapting to the changing risk transfer landscape.
With competition across the insurance and reinsurance market remaining intense, and the fact other jurisdictions around the world are looking to establish themselves as global hubs for re/insurance business, it will be interesting to see if Lloyd’s can lower the cost of doing business in its market, while remaining relevant to customers and sustainably competitive.