When Lloyd’s released ‘Blueprint One’ in September last year, it was broadly met with approval from the market. However, calling the document a blueprint overlooks a great deal of information which still needs to be shared with (and accepted by) the market. So, with the next document due at the end of January, what did the blueprint say and what should we expect?
Lloyd’s has recognised that the acquisition costs in the London Market need to be addressed. Indeed, the document states that these costs have remained the same between 1990 and the present. By contrast, the cost of a watt of solar power has dropped from $10 to $3. Citing a lack of innovation, Lloyd’s is concerned about overseas markets and alternative capital has encouraged the flight of business to other markets.
- Speed and ‘Ease of Doing Business’ is a repeated message. Lloyd’s recognises that it needs a different approach for simple and complex risks – this is proposed to drive a highly automated vs bespoke approach. Simple is defined as ‘anything that can be priced through algorithms using a set of predefined data points. Interestingly, it still involves a lot of broker involvement.
- A bespoke service for complex risk is described. It also involves uploading data and differs primarily in that information is supplied by Lloyd’s but then taken offline to price. Capital is allocated using current leader-follower management which is an interesting approach when the follower could be ILS-like with alternative capital funds. The bespoke service is still broker-heavy, but is there the subtext that the broker is relying on information from Lloyd’s rather than their own knowledge?
- Alternative capital is attracted to Lloyd’s by low costs and clearly defined risk categories. Whichever way these categories are defined, standards companies such as ACORD stand to benefit. The question will remain on how these will be categorised and how detailed the categories will need to be.
- Innovative underwriting is tackled in two way – Syndicate-in-a-box which is designed to attract existing niche carriers (the example given is Cyber) to place business at Lloyd’s directly rather than as a follower or part of an MGA. Secondly, the Lloyd’s Lab is in-house funded research and development for new insurance products and technologies.
- Claims is the final piece and relies on very fast claims payments, again driven by well-ordered data allowing underwriters to pay claims without delay.
Overall, it is a good piece of visualisation and a call-to-action. We know from conversations that it is attracting interest, but will this develop into wide support for the changes & investment necessary?
Lloyd’s is clearly looking to retain control of the core information necessary to transact business (both the bespoke and exchange approaches require Lloyd’s to ‘match’ risk with interested parties). Will this be accepted by underwriters and brokers?
In the Jan-2020 document we will all need to understand the changes Lloyd’s wish to see in phase 1 (running through this year), and as important will be the reaction of the market. Many people stand to gain (or lose) from these changes…