2020: Old Lloyd's, New Lloyd's - What the Future at Lloyd's May Mean for the Insurance Industry



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Lloyd’s has responded to pressures to address long-standing expense, performance and service issues with an ambitious plan launched in 2019. The Future at Lloyd’s plan proposed a bold, comprehensive overhaul of Lloyd’s business processes to slash expenses, attract new capital providers, and enhance customer service. Conning’s study Old Lloyd’s, New Lloyd’s – What the Future at Lloyd’s May Mean for the Insurance Industry’ explores prospects for the plan’s success. The study presents important implications for brokers as well as insurers competing with Lloyd’s at both ends of the market – complex risks as well as binding authority business.

   1.    Introduction

    2.    Executive Summary

    3.    Why Reform Is Needed

    4.    The Plan in Summary

²     Principal Strategies

²     Goals for 2020

    5.    The Data Challenge

²     Core Data

²     Data for Differentiated Decision-Making

    6.    Can the Plan Succeed?

²     Establishing the Risk Exchange

²     Reforming and Retooling the Corporation of Lloyd’s

²     Attracting the Right Skills to the Lloyd’s Market

²     Improving the Quality and Timeliness of Decision-Making

    7.    Implications for Clients

²     Maintaining Lloyd’s Lead in Innovation

²     Reducing the Price of Insurance at Lloyd’s

²     Improving Service Standards

    8.    Repercussions for the London Market

²     Future of the London Market

    9.     Repercussions for U.S. Competitors

²     Enhancing the Relevance of the Lloyd’s Market to Client Needs

²     Increasing the Attractiveness of Lloyd’s to U.S. Insurers

  10.     More Attractive for Capital Providers?

  11.     What Does It Mean for Talent?

²     Reskilling the Corporation of Lloyd’s

²     Equipping the Lloyd’s Market with the Talent It Will Need

²     Own Goal

²     Toward a High-Performance Culture

  12.     Changes for Brokers

  13.     Conclusion


Introduction

The Lloyd’s market has long been recognized as a laboratory for new forms of insurance and reinsurance, playing a key role in the development of pioneering products, from excess-of-loss reinsurance at the beginning of the 20th century to cyber insurance in the early years of this century. However, in other important respects, including ease of access to business and to capital, Lloyd’s has recently been a laggard, not a leader.

The Future at Lloyd’s, an ambitious 145-page plan presented as a “blueprint” for change by Lloyd’s management and issued by Lloyd’s in September 2019, seeks to address a host of structural issues that have left Lloyd’s with an expense ratio well in excess of competing markets. It proposes a comprehensive overhaul of Lloyd’s business processes to slash expenses, attract new capital providers, and enhance customer service.

Many of the world’s largest insurance and reinsurance companies also have sought in recent years to digitize their businesses and thereby to drive efficiencies and improve the service they offer to customers. However, the Future at Lloyd’s marks the first time an entire marketplace has attempted to go down the same path.

As this report was going to press, the underwriting room—known simply as “the Room”—at Lloyd’s was closed as part of the U.K.’s effort to slow the spread of the coronavirus. This extreme measure, which Lloyd’s announced “with a heavy heart,” will test the quality of business continuity plans across the market: on a normal business day, around 5,000 people come and go in the Room. It is unlikely to save money—emergency measures rarely do—but it may mark a step on the road toward a more virtual, delocalized market.

Looking beyond the current pandemic, the Future at Lloyd’s is about more than reducing costs. It is also about equipping Lloyd’s for profitable growth in two very different business arenas: (1) the market for complex risks that have been the mainstay of Lloyd’s business throughout its history and (2) the market for simpler risks—usually underwritten through binding authorities—that have played a major role in the market’s recent growth.

In many respects, the challenges confronting Lloyd’s are sui generis. The market has a unique capital structure, a unique technological infrastructure, a unique approach to distribution, and a unique system of governance. The market’s infrastructure, distribution, and governance are all slated for change.

In other important ways, Lloyd’s is a microcosm of the global re/insurance industry, and its challenges are the industry’s challenges. Can digitization support the provision of far cheaper insurance and reinsurance products, increasing their appeal and relevance to customers and reducing the insurance gap that yawns in many cases between economic exposures and insured exposures? Can insurers transition smoothly from a data-poor world (an environment in which Lloyd’s, as the industry’s go-to market for unique risks, has generally thrived) to a data-rich world? Can insurers attract the talent they will need to realize these opportunities while handling the dislocation that change will likely bring for their existing workforces?

In all of these respects, the changes that Lloyd’s is trying to implement matter to the broader insurance industry. In the United States, they matter still more. The U.S. accounts for 40% of the Lloyd’s market’s premiums, representing $18.9 billion in gross premiums written in 2018, sourced through an intricate web of relationships built up over more than a century. U.S. insurance groups are the largest source of capital for Lloyd’s, supporting more than 19% of the business underwritten at Lloyd’s in 2019. Lloyd’s also plays a pivotal role in the U.S. surplus lines market (where it is by far the largest capacity provider with a market share of 23.6% in 2018) and the U.S. reinsurance market (where it is the largest non-U.S.-domiciled reinsurer).

For good reason, the U.S. insurance industry is paying close attention to developments in Lime Street.