The COVID-19 pandemic has shone a light on the modernisation efforts of the Lloyd’s and wider London re/insurance market, potentially driving permanent changes to the way the market both interacts and transacts its business, says A.M. Best.
In recent years, the performance of the London Market has been challenged by elevated catastrophe losses, a prolonged softened market state and lower reserve releases.
While catastrophe losses did occur in 2019 and adverse loss development on prior year events persisted, major claims fell when compared with the levels seen in both 2017 and 2018.
However, despite a reduction in major claims the Lloyd’s market fell to an underwriting loss for the third consecutive year in 2019, with the market’s loss ratio exceeding its 10-year weighted average by four points to 63%.
Market dynamics ahead of the January 1st, 2020 reinsurance renewals suggested a more positive experience for reinsurers and many companies were optimistic amid signs of improved pricing.
However, while rate increases were evident at the Jan 1 and April 1 renewals, with more meaningful increases reportedly being seen at the recent Jun 1 renewals, the COVID-19 crisis has “cast a shadow” over performance expectations for 2020, notes A.M. Best, with significant uncertainty surrounding certain business lines, such as business interruption.
Prior to the COVID-19 pandemic, Lloyd’s and the wider London Market had embarked on a modernisation mission in an effort to improve efficiency and remain relevant in an increasingly competitive industry with a rapidly changing risk landscape.
But while the current crisis brings obvious challenges for the London Market, it could also present an opportunity for the marketplace to accelerate its recent modernisation efforts and permanently alter the way the market operates.
Lloyd’s of London closed its underwriting floor on March 19 in response to the COVID-19 crisis, and does not plan to reopen before August. The market is still going ahead with its Future at Lloyd’s programme, albeit with some priorities being refocused.
“The London Market deals with complex and bespoke business with transactions often negotiated on a face-to-face basis. However, the current situation is forcing individuals and companies to be more thoughtful about the circumstances where in-person interaction might not enhance value, and could be done much more efficiently electronically,” said Catherine Thomas, senior director, analytics, A.M. Best.
“It is clear that some in the market have been much more able to make a seamless transition to the new way of working. Remote working is forcing a long-needed culture change in the acceptance of digital solutions,” she added.
Lloyd’s announced previously that there had been a notable increase in the use of electronic placement since the virus outbreak, leading the marketplace to raise its electronic placement targets for submissions.
The question now, says A.M. Best, is whether the current crisis will drive a permanent change in the way the market interacts and transacts its business.
“In AM Best’s view, London Market companies and individuals will need to think about an evolution that allows the industry to operate both digitally and in person interchangeably, to get maximum value for both these elements,” says the ratings agency.
Lloyd’s revealed this week that it is planning to explore options for a “virtual” underwriting room in light of the COVID-19 pandemic, which would form part of a series of “experiments spikes” that the marketplace would trial in the coming weeks.
Overall, the London Market is taking some positive steps and AM Best notes that the proposed solutions have the “potential to create meaningful cost efficiencies and improve the experience of placing business in the market.”
Clearly, these are challenging and uncertain times for the London Market. But, it’s also evident that there’s an opportunity to embrace the changes and leverage technology to make sure the market emerges from this crisis in a stronger position – well-equipped to meet evolving customer needs and to operate efficiently in the new normal.