The Lloyd’s of London insurance and reinsurance marketplace will “wither on the vine” unless it is successful in its mission to modernise and become more efficient, Hiscox Chairman Robert Childs said today.
With as much as 30 to 40 percent of risk transfer transaction costs going to cover expense related costs, more in some cases, even where the transaction may be relatively straightforward or feature following markets, it’s clear Lloyd’s of London has to evolve to survive.
The push for modernisation began in earnest a few years ago, despite Lloyd’s having been warned where its rising cost-base was set to take it more than two decades ago, resulting in the latest set of initiatives that have been recently launched by new CEO John Neal.
Rising targets on electronic placement, initiatives like the syndicate in a box that is slated for launch in October, product innovation facilities, along with other work are all hoped to drive down costs in the market.
But at the same time the expenditure on consultancy, technology and other assets to help in delivering these initiatives are set to raise costs for the market itself, while not always promising to deliver the cost-efficiencies that operators actually need to make to become sustainable players at Lloyd’s.
Hence it’s a tough task that John Neal and the Lloyd’s execs have got, with the market, its participants and analysts watching closely to see if it can deliver on the significant change that is now required.
If it doesn’t succeed, some believe it could be fatal.
In reporting his companies results today, Hiscox Chairman Robert Childs commented, “We are very supportive of Lloyd’s and their drive for positive change.”
However, he also warned, “The market must become a more efficient and modern place to operate or it will slowly wither on the vine.”
Adding, “Such choices are made easier when there is no choice.”
Right now Lloyd’s has no choice but to change and evolve, make it easier and cheaper to participate in the market, welcome lower-cost sources of capital, move to full electronic trading and introduce other innovations.
But there’s still no guarantee that this will be enough.
Childs sees the steps being taken as positive, “I am pleased that our senior leaders are taking an active role in initiatives such as PPL which will define the market’s future.”
Although it is important to note that PPL’s increasing uptake numbers are being partly driven by the significant habit of backfilling old placements onto the system, something that has become such an enterprise at some Lloyd’s players that people have been dedicated to just this task.
As a result, it’s difficult to really gauge the impact of PPL at this time and many in the market continue to suggest the solution is not really fit for purpose today, let alone being a solution fit for the future of a more agile and efficient Lloyd’s marketplace.
Childs warning of “withering on the vine” is stark for Lloyd’s, but well timed and placed as it is vital the initiatives being implemented today have a significant effect on the costs of operating at Lloyd’s and can help to make those participating in the market increasingly efficient and competitive on a global basis.
The Hiscox Chairman does feel that rates are moving in the right direction at Lloyd’s at least, saying, “In our London Market business, market losses and renewed discipline in Lloyd’s are putting upward pressure on rates, and the picture looks more positive than this time last year.”
Bronek Masojada, Chief Executive Officer, Hiscox, concurred, “With six consecutive quarters of rate growth in some Lloyd’s business, the market is in a better position than it has been for some time.”