By LEN WILKINS
The London market is about to be transformed from a paper-based analog system where information and money flow like concrete to a new digital age where placing, documentation and claims will be processed in seconds. The new system will be some 40 percent cheaper than the existing paper round.
Lloyd’s already announced its market-wide joint venture with the International Underwriting Association and DXC technology to build this data superhighway that will take analog processes and digitalize them into a fully automated process for the Lloyd’s and London markets. DXC’s role is to reconstruct the market’s entire IT system, both Lloyd’s and IUA companies, and turn it into a cloud-based digital platform.
Lloyd’s produced its second interactive guide giving the steps and changes required to achieve the solutions outlined in Blueprint Two. The guide includes a roadmap running from Q1 2022 to Q2 2024, detailing what businesses will have to do to transform Lloyd’s and the London market from an ugly duckling paper/analog market to a white swan data-focused, digital and cost-efficient marketplace.
For open market business, how it’s going to work is that every risk will have its own core data record and intelligent market reform contract promoting a single data standard that will stay with the risk throughout its entire transaction life cycle. For delegated authority business such as binders the new delegated data manager and the delegated contract and oversight manager systems will be used to make sure data is entered correctly the first time. These systems set out the rules and procedures for the use of delegated contracts and binders.
Lloyd’s and IUA will take advantage of the new Data Council introduced by the London Market Group which represents all parts of the London market. The aim of the council is to drive the digitization of the London market forward. The group has obtained a commitment by its members to set up the council and use the ACORD system. A delegate data manager will centralize data reporting and distribution for the market.
Full digital adoption will not happen until the second quarter of 2024, although testing will be available from the third quarter of 2023. For market participants who will not be able to make this time period, a transitional service will be available.
The changes are backed by the entire London market and Lloyd’s. Company underwriters will appear on a single core data record with the leading Lloyd’s underwriter adding any Lloyd’s specific information that is needed, similar to the existing market slip system.
Blueprint Two concentrates on open market and delegated authority business, which is the way 90 percent of Lloyd’s business is placed. Already London businesses across the market are recruiting IT staff. For a market that not long ago was using pens, paper and wet stamps, this is a major cultural change.
Lloyd’s moving home?
In addition to looking at the way it operates, Lloyd’s is considering a move out of its landmark Richard Rogers-designed building at 1 Lime Street, which was completed in 1986. The potential move is a response to the pandemic prompting businesses across the world to reassess the way they operate, their reduced office needs and market modernization.
Lloyd’s has a problem in that 1 Lime Street is not a traditional office building but was designed as a market forum. The original design for the building was for a market trading on a ground floor and four galleries. Floors above the galleries are glassed in, but the design allowed for their conversion to new trading galleries as the market expanded.
Unfortunately the market went the other way, and the number of syndicates contracted from 300 or so various size syndicates in the late 1980s to the 70-plus large syndicates operating today. It doesn’t take a genius to work out that the current Lloyd’s building isn’t suitable for today’s market.
Lloyd’s has been a resident of Lime Street since 1928. Market expansion meant it needed a new building across Lime Street in 1958, and Lloyd’s moved to its latest home in 1986. The financial crisis of the late 1980s-early 1990s caused Lloyd’s to sell its building as part of its reconstruction and renewal. The building is now owned by Chinese insurance group Ping An. Lloyd’s has a lease on the building until 2031, but there is a break clause in 2026.
What Lloyd’s needs is a smaller building that can still operate as a market trading floor. Unlike a lot of trading floors, this will have to be partly electronic trading but allow face-to-face negotiations which are seen as more efficient. Whether Lloyd’s traditional boxes survive remains to be seen. While there are signs of a recovery in the City of London, a lot of business is still conducted online, and the number of people using the market has dramatically reduced.
One thing is certain, as it adapts, Lloyd’s will have to consider new structures and flexible ways of working. The top floor of a 60-story building will not be attractive, nor would any building too far away from the insurance market’s Lime Street center.
One problem: What will Lloyd’s do with its 1763 Adams dining room which it uses for council meetings and other events?
Underwriters back to work
Like all marketplaces, Lloyd’s relies on critical mass to supply its products. It also needs ease of access to those who are selling these products. If the sellers aren’t there, the market isn’t going to last very long. While many risks could be sold or insured with electronic trading, many need face-to-face trading, and the complaint from the brokers who buy cover on behalf of their clients is that the underwriters were not there.
Whether it was fear of Covid or a desire to stay at home and not commute, the underwriters were conspicuous by their absence, and the board of the Lloyd’s Market Association has announced a cross-market consensus on underwriters’ availability “at the box or in the office.”
The commitment ensures Lloyd’s underwriters will be physically present for in-person trading with brokers on Tuesdays, Wednesdays and Thursdays – either in Lloyd’s Underwriting Room or in their offices. The LMA published on its website a detailed timetable of underwriters’ availability.
Andrew Brooks, chairman of the LMA and CEO of Ascot Underwriting Ltd, said, “This commitment underlines the importance of face-to-face trading in Lloyd’s. The ability to trade in person, to discuss specific risks personally in detail, is part of the singular value chain that Lloyd’s provides. Brokers, underwriters and insureds all stand to benefit from ensuring this type of trading, unique to Lloyd’s, continues well into the future.”
During the height of the pandemic Lloyd’s had to close its doors, and recovery to normal took some time. According to Patrick Davison, underwriting director of the LMA, around 1,200 brokers and underwriters entered the Lloyd’s Underwriting Room on each of Tuesday, Wednesday and Thursday during the first week in February. These are similar numbers to November 2021, when the market first returned to work after the U.K.’s second lockdown.
The LMA said that its members returning to trade in person supports Lloyd’s face-to-face system of negotiation and placement of complex risks and is part of a hybrid working approach. In a dynamic marketplace made up of multiple carriers and brokers, different working practices are to be expected, but managing agents have shown clear support for a structured and transparent approach which incorporates working in the room, in the office, and at home.
Multiple underwriting committees confirmed that the majority of syndicates represented on them will be at the box or in the office on Tuesdays, Wednesdays and Thursdays.
High reinsurance costs cause strain
Early in February, Tradewise went bust. Tradewise was a relatively small managing general agent and insurance company, which specialized in U.K. auto trade insurance. It had a three-year reinsurance deal with Berkshire Hathaway but was unable to pay the renewal cost demanded by its reinsurers for the 2022 year of account.
It seems a number of smaller players will struggle with reinsurance costs going forward. Before Christmas, Tradewise was unsuccessful in renewing its reinsurance or finding new cover. The question is how many other small insurers are going to have to close.
London market gets regulatory look
The U.K.’s governance system is in two parts – the House of Commons and the House of Lords. The Lords is independent from, and complements the work of, the elected House of Commons and shares the task of making and shaping laws and checking and challenging the work of government. That worries the London market because the House of Lords Industry and Regulators Committee recently launched an inquiry into the regulation of the London market.
The committee is going to explore the extent to which regulatory policy is well-designed and proportionately applied and the possibility for optimizing the government’s regulatory policy following Brexit. The committee will consider the roles of the Bank of England’s Prudential Regulatory Authority (PRA), which looks after the industry’s insurers and reinsurers, and the Financial Conduct Authority, which looks after the brokers.
The committee will ask how appropriate the current regulations are for the commercial insurance and reinsurance business. The work of the regulators and how they apply their policies will be examined. The committee will question whether the regulators have the right balance between regulation and competitiveness. The committee will examine whether the regulations make the insurance and reinsurance industries’ activities difficult and whether the regulations affect the cost of cover. Lastly, the committee will look at the effect on the London market’s global competitiveness and how other countries apply their regulations.
The committee will conduct its investigations with a short inquiry and a small number of public evidence sessions.
One area that will come under scrutiny is the U.K.’s regulation of insurance linked securities. Among the multiple issues cited are tax treatment of ILS structures and vehicles, overly onerous regulation, slow regulatory approval process and speed to market.
Market bodies are queuing up to give evidence to the committee. The London Market Group and the London and International Brokers Association will give evidence. LMG wants to see more proportionate rules to secure the sector’s future and help it meet buyers’ needs.
More BI woe for London
Just when England is about to relax all its Covid restrictions a major BI claim was announced by law firm Edwin Coe. The lawyers announced the formation of an action group to start proceedings against RSA Insurance Group and QIC Europe to recover business interruption losses stemming from various restrictions and lockdowns during the pandemic. The group is headed by CG Restaurants and Bars Limited, which owns bars and restaurants across the U.K.
The U.K.’s Financial Conduct Authority announced that the total amount paid out by insurers for Covid-19 related business interruption claims has reached $1.8 billion. The latest figures show insurers have made initial payments of $430 million and final settlements of $1.28 billion. Insurers accepted BI claims of and made interim payments to 32,385 policyholders. In total, 42,842 policyholders had their claims accepted.
Beazley releases 2021 statement
What a difference a year makes. Beazley’s 2020 loss of $54.4 million turned into a pretax profit of $369.2 million in 2021. Gross written premiums jumped by 30 percent to $4.62 billion (2020: $3.56 billion). The combined ratio was 93 percent (2020: 109 percent).
The rate increase on its renewal portfolio was 24 percent, which Beazley attributed to a hardening market but warned that the increase was not across the board. Some classes show prices flat as more capacity becomes available.
Beazley said it is still taking a disciplined approach to underwriting and writes selective business depending on the risk offered and price available. With market uncertainty, Beazley believes discipline will be even more important in 2022.
Beazley saw cyber premiums rise by 49 percent. Marine and aviation showed an 11 percent increase while property business premiums rose 25 percent. Beazley’s reinsurance business disappointed. While premiums rose by 16 percent, Hurricane Ida helped push the combined ratio to 126 percent.
Beazley expects the rating environment for 2022 to be strong and will maintain its current portfolio mix. Its estimate for outstanding Covid losses remains unchanged at $340 million.