A failure to modernise and follow the Future at Lloyd’s prospectus could result in a weakening of the London market, says AM Best in a new note.
The agency said that the London market is known for being expensive for doing business due to the level of underwriting expertise, a reliance on broker distribution, inefficiencies in placing business, and the length of the distribution chain. Not tackling this, as was laid out in Future at Lloyd’s, could cause the attractiveness of the market to shrink.
AM Best wrote in its note: “In 2019, Lloyd’s published its Future at Lloyd’s prospectus, setting out proposals to reduce the cost and improve the experience of placing business in the market. Subsequent reports (referred to as Blueprints) have outlined tangible solutions designed to create meaningful cost efficiencies. In Blueprint Two, published in November 2020, modernisation initiatives include implementing data and placement standards, launching a next-generation placing platform (PPL), and the release of placement support services.”
It added: “While the Blueprint Two initiatives were expected to be completed during 2021, delays and setbacks were experienced. A second interactive guide for Blueprint Two was published in January 2022, which sets specific delivery dates and provides granular details on the implementation of placement and claims platforms. This public disclosure is expected to keep the Corporation of Lloyd’s (Corporation) accountable to deliver on these much-needed modernisation initiatives which will support the market to become better-equipped to meet evolving customer needs and realise future cost savings.”
Another issue highlighted by AM Best was the accessibility of third-party capital within the London market It said that it had observed signed that market participants may make better use of the 2017 insurance-linked securities (ILS) regime, which it says so far has gained little traction.
It added: “In 2021, Lloyd’s sponsored the creation of an independently owned and managed UK protected cell company (PCC), London Bridge Risk PCC Limited (LBR PCC) utilising the ILS legislation. This action supports the Corporation’s Future at Lloyd’s strategy, and highlights its ambition to create an insurance market that attracts new forms of capital. It is also an endorsement by the Corporation of the potential benefits of utilising the ILS legislation.”
Lloyd’s members, said AM Best, can use this vehicle to manage capital requirements through attracting new investors such as pension funds.
It concluded: “If Lloyd’s is successful in attracting new capital through the LBR PCC it may encourage others to utilise the UK’s ILS legislation. Better ease of entry to the London market through PCCs could help to attract a greater diversity of capital providers, and support London’s reputation as an International Insurance Hub.”
