The Lloyd’s insurance and reinsurance market faces numerous challenges, from an extremely competitive business environment, to the threat posed by new re/insurance market entrants, but it needs to embrace disruption, according to Jon Hancock.
Speaking at an A.M. Best industry event in London this week, Jon Hancock the Performance Management Director at Lloyd’s of London, explained that the market has been falling behind and it is vital that it is made “simpler, easier and less expensive to do business at Lloyd’s.”
He stressed the need for Lloyd’s and those operating in its marketplace to, “Adapt to survive and thrive.”
The recent large losses provide an opportunity for the market ands Hancock said it’s vital for Lloyd’s to remain “healthy and competitive” as well as”able to respond quickly, when rates harden and new opportunities arise.”
However, while Lloyd’s may have opportunities in the wake of the recent hurricanes, there are deeper issues that need to be resolved, among them the question of the cost of doing business in the market and just how high expenses are.
“I’ve been struck by the sheer complexity of the way we do some things at Lloyd’s. We need to make things simpler,” he explained.
“Expenses are increasing and they’re unsustainable at the levels they are at the moment,” Hancock cautioned, saying that efforts need to be taken to drive down the average expense ratio from the 41% seen in the Lloyd’s market today.
“Traditionally we’re not renowned for being innovative,” Hancock said, “We have been left behind and what is innovation now is very different to what was innovation back in 1975. We do need to start developing that capability.”
The market and its participants needs to work “really hard” to reduce its expenses and to embrace innovation, to make the cost of doing business significantly lower, Hancock said.
“Acquisition costs are too high, we shouldn’t hide from that. But combined with a high administration cost is restricting our ability as a sector to provide the services we need to, as a London market and Lloyd’s to compete heavily against our competitors,” he continued.
He said that among the different players in what is a complex market, “There’s too much inefficiency, too much duplication,” he explained.
He went on to explain the importance of the digitisation trend, one way that Lloyd’s can heighten its efficiency. But again the Lloyd’s market mustn’t be left behind.
“My view is that I’d rather go and disrupt ourselves than be disrupted, but at least let’s get healthy disruption in here,” Hancock said.
He said that it is necessary for Lloyd’s to embrace the change that is going on around it, “How we adapt in this changing market will define our futures.”
He said it’s important that Lloyd’s acknowledges that there are things that need to change and change quickly and it’s clear that the senior executives in the market are looking for change to accelerate to help the market remain more competitive.
“I think we need to rethink the value of insurance,” Hancock said, “That we become more agile, more efficient, keep innovating and become more transparent in everything we do. We put customer at the very heart of what we do and we build real trust.”
