2020: Sustaining the drive for change at Lloyd’s

As we look ahead to 2020, our COO Lorraine Harfitt highlights the opportunities – and hard work – that lie ahead for all of us in the Lloyd’s market as Blueprint One is implemented.

As issues about business planning begin to fade (at least for now) and with most syndicates at Lloyd’s being given headroom for growth against a backdrop of an improving market, maintaining underwriting discipline and further improving performance will clearly be a priority for the market next year.

But for Asta, like many in the Lloyd’s market, 2020 will really be all about The Future at Lloyd’s. The vision to create a nimbler, faster, and more innovative market – one which delivers outstanding products, services, and insights to its customers – has received market-wide agreement, so 2020 will be about bringing this vision into reality.

The future at Lloyd’s

Much of the activity will require the market’s participation in the planning and implementation of the proposals as they progress. For example, Asta’s syndicate management experts were involved in shaping Blueprint One, and in particular the ‘Syndicate in a Box’ (SIAB) initiative. We brought our knowledge and experience to the table to assist Lloyd’s, and continued collaboration across the whole market will be essential to the success of the Future at Lloyd’s in the year ahead.

Lloyd’s has reportedly already received scores of applications to launch SIABs, with some expected to gain traction in 2020. For example, MGAs currently backed by Lloyd’s capacity, may use the SIAB structure to get some skin in the game and gain access to wider distribution, greater scalability, and increased control over their business.

One benefit of the SIAB model promises to be a reduction of the market’s expense ratio. Lighter-touch oversight of smaller, less complex syndicates which are professionally managed, possibly by a third party, will allow for streamlined and therefore less costly operations and reporting. The proposed digital risk exchange could also reduce syndicate expenses dramatically. The economies of scale in these areas, achieved without compromising the depth and breadth of expertise needed for effective management, will help ensure that high governance standards are maintained cost-effectively. We hope that in time, many of these economies can also be applied more widely across Lloyd’s existing syndicate base.

Another positive in the plans is the proposed central capital solution. A more accessible and efficient capital platform will not only attract a range of new investors seeking diverse ways to deploy their capital, but also potentially enhance the investment returns of existing members by creating a more cost-effective market environment with simplified rules and processes.

Regulatory change

The Future at Lloyd’s will no doubt have an impact on regulation. The market’s regulators may have to adopt a wider, more direct regulatory responsibility, particularly in areas such as ILS and the proposed new Lloyd’s capital platform mentioned above. Any additional layers of regulation should be shaped so that they are positive for market participants, and their benefits outweigh any additional costs.

Very firmly on the Corporation’s radar will be the need to maintain its historical position of market sponsor and facilitator, without jeopardising its oversight role. Support and cooperation from external regulators including the UK’s Prudential Regulation Authority (PRA) and its Financial Conduct Authority (FCA), will be essential to the successful implementation of the Future at Lloyd’s, for example to ensure that the objective of bringing value to the insurance distribution chain aligns with the FCA’s own objectives and strategies.

Market culture

Transforming the Lloyd’s market culture will be a related theme in the year ahead. The market has committed to enforce Lloyd’s determination to stamp out inappropriate behaviours, and to help change or remove the pockets of negative culture which still exist. We therefore expect to see true, market-wide cultural change, and the evolution of a working environment where people have no fear of speaking out.
We believe that achieving such change will be critical to Lloyd’s future, as will ensuring that inclusivity accompanies diversity. Blueprint One represents a big step towards building an inclusive culture for everyone, and a marketplace of which we can all be proud. We expect a greater, more concerted effort in 2020, led from the top, to achieve diversity and inclusion and visibly demonstrate its positive impact on market effectiveness.

Risk management

Another 2020 agenda item will be the changing role of Chief Risk Officers. Their role has been developing over time to become more forward-looking. A further shift in emphasis in 2020 will see the UK financial regulators’ regime for Operational Resilience impose new requirements on businesses to demonstrate that they are capable of maintaining critical business services in the face of emerging operational, economic, cultural and technological risks. In the world of insurance, micro trends such as data privacy, the emergence of data as an asset, InsurTech and the threat from BigTech, are also likely to have an impact on the industry.

The risk function of the future must therefore adapt to support, challenge, and add value to Lloyd’s businesses as these trends develop. It will be as important to recognise the potential upside and opportunities these changes will bring as well as ensuring the business is protected. This will demand an increasingly forward-looking CRO and risk function, and embedding a risk culture within organisations will be crucial to ensure risk management is both robust and effective.

So the year ahead will be one of collaboration across almost all of the market’s critical functional areas, from risk to culture to systems and processes, to ensure the momentum building behind the Future at Lloyd’s is maintained. 2020 will be a busy and challenging year as this work is carried out, but it is essential to the future of our marketplace that it is not allowed to fail.

This article was first published in Insurance Day on 6th January 2020 and has been re-produced here with their kind permission.