In recognition of the challenges facing Lloyd’s with an expense ratio that’s been materially higher than that of its competitors, the market has taken seriously the need to adapt to remain relevant and has introduced a dual strategy of cost-cutting and investing in its technological future; the challenge for 2018 and beyond is now the pace of market adoption.
In Lloyd’s 2017 annual report, Shirine Khoury-Haq, Lloyd’s Chief Operating Officer (COO), said particularly for electronic trading and CSRP, 2018 goals are to focus on adoption.
She said the technical delivery had been effective after Lloyd’s carried out a blockchain pilot around the claims process to understand how it could be applied to the London market.
The market also worked collaboratively with industry players across the entire re/insurance value chain to create the London Market Target Operating Model (LM TOM); a key priority is to finish these initiatives and secure further market adoption.
Lloyd’s Chief Risk Officer, Hilary Weaver, said that after laying the groundwork for widespread technological upgrades and beginning to implement changes to drive growth and cut costs of writing business, the risk in 2018 lies “in adoption of the new technology by the market.”
Lloyd’s Chief Commercial Officer, Vincent Vandendael, cautioned that, “Adoption of the enhanced services provided by the LM TOM is not happening fast enough. Unless the market moves together it will not reap the benefits and reduce costs. Without higher levels of adoption throughout the market we put our investment to date at risk and we are in danger of seeing administration costs rise further. It is for this reason, and at the request of the Lloyd’s managing agents, company market and brokers, that Lloyd’s is proposing to mandate the use of electronic placement on a phased basis over time.
“The Corporation will also embed the new account manager model for the way it interacts with managing agents.”
Lloyd’s recently revealed its electronic placement mandate, stating that after Q2 2018, all syndicates will be required to write at least 10% of their risks electronically, rising to 20% in Q3 and 30% in Q4, with further targets to be confirmed later in the year.
Lloyd’s will offer syndicates a rebate as a financial incentive if their managing agents meet the required targets, and will charge additional fees if they fail, using the proceeds to contribute to the costs of modernising market systems and processes.
The market has set ambitious targets to reduce Lloyd’s market by £145 million cumulatively by 2020, to be assessed by estimated savings based on take-up from the London Market TOM blueprint business case.
Exploring ways to use technology to improve distribution and improve access to Lloyd’s remains a key priority, and one way to do this, Weaver said, is for simpler risks to be written digitally, though “the most complex risks will continue to benefit from face-to-face negotiation.”
In addition, Lloyd’s has announced that it will be launching an Innovation Lab later this year to test new concepts, design advanced technology solutions to solve market issues and give it a place that can act as a testbed for market modernisation efforts, all with the support and active involvement of market players.
As Lloyd’s reshuffles its market processes, using data and technology to enable easy market access and improved customer service, Chairman Bruce Carnegie-Brown said the focus in 2018 would be on using, “A risk-based approach to ensure our oversight is appropriate in giving the right level of prudential protection and to help achieve sustainable growth; on modernising operations and services; and on exploring new ways in which we can use technology to improve access to Lloyd’s.”