Last month, Eurobase spoke at the London Market Technology Exchange forum (www.lmte.london). The focus was on TOM (the Target Operating Model for the London Market). Joe Dainty, Global Head of Operations at Lloyd’s, was the keynote speaker and a hard act to follow. So, in order to give the audience something new to think about, we thought we would share some insights and similarities we recognise through our experiences of working in the Banking sector over the last 20 years.
No-one likes to be told they are late to the party but in terms of adopting technology, achieving operational efficiency and straight through processing, the London Market is one of the last to arrive. The good news is that it’s recognised and TOM is aiming to put this right.
So how was it for the Banking sector? Unsurprisingly challenging and of course banks haven't got everything right. It’s a never ending journey. Many associate the Equities market with leading the way, closely followed by the Foreign Exchange market (well, within a few years). Both deal with high volumes of trading/transactions and it’s fair to say the operational efficiencies gained far outweigh the pain. Market standards, XML gateways, exchanges and central services are now commonality in these sectors making systems integration and straight through processing simple and cost effective - not cost prohibitive.
One point to recognise, which the London Market can take comfort from, is that software and service providers embrace standardisation, more than that they love it, or they certainly should do. The old adage “build it and they will come” is highly appropriate. In the Banking sector, software providers who do not offer open, standard embracing solutions (where they are applicable) simply don’t survive. In 5 years, the Insurance market will witness the same.
Across the Banking industry, many transactions involve multiple parties, a magnitude of systems, and yet execute in the blink of an eye. In contrast, moving binders full of paper around the London Insurance Market is not cost effective or good business practice, ultimately someone will be bearing the cost and undoubtedly this is always the end customer. Market forces dictate that where inefficiencies exist, opportunity for others to prey do too. Newer entrants will, or should we say are, encroaching on the London Market and these will not carry the burden of legacy systems, therefore having a significant competitive advantage technology wise. Note the rise of the Fintechs who can attack a market quickly, primarily due to the benefits of being able to embrace new technology without the baggage of legacy systems.
So surely everyone will embrace TOM? No, unfortunately. We know standards acceptance occurs when a core of participants adopt it; it doesn’t require 100% of participants to agree and move to it immediately. Resistance to change is natural. Most of us find comfort in routine and many feel threatened by the unknown. In the Banking industry, Sales teams within banks around the world became protective of their customers and relationships, attempting to resist change. We suspect this will likely lend itself to many comparisons with the Broking community in the London Market. However, whilst technology is great for operational efficiency, people ultimately rely on relationships when doing business, particularly complex, niche or high value business. Technology will not fundamentally change this.
The London Market should take comfort that it is an evolution, not a revolution that it needs to embrace and that it is not taking steps in the dark. Others have successfully made the journey and the London Market will rise to the challenge, it simply must. If TOM fails, everyone in it will pay the price. The market needs to embrace the challenge now in order to ensure London remains the global hub and centre of Insurance excellence for commercial and speciality risks. There’s a light in the distance….is it a comet and the dinosaurs are about to be wiped out or is it the light at the end of the tunnel that simply must be headed for?