As Lord of the Rings author JRR Tolkien wrote: "Little by little, one travels far".
Driven by the exigencies of Covid lockdown, the London (re)insurance market made significant strides towards universal electronic placement last year. But what does the future hold for continued take-up of e-placement?
When Lloyd's closed its doors on 19 March, just ahead of the UK-wide lockdown, market participants had to put their faith in electronic trading. Luckily, Placing Platform Limited (PPL) - the market's e-placing platform - was ready for the surge.
Much of the credit must go to the London Market Group, which shook up the market in 2014 when it dared to state the obvious - London was too expensive for transacting business and its processes too clunky.
It was former Lloyd's chief executive Inga Beale who said she would mandate the use of electronic trading - and current CEO John Neal has followed through on the pledge.
"It took four years from inception to getting the whole market onto electronic placing, and although we took it gently we have seen the market move from thinking it couldn't be done to that it actually could be done digitally," says Susan Jakobek, CEO of PPL.
By the last week of June there were 8,031 risks bound on the platform and just under 20,000 user logins.
"The Covid crisis most certainly accelerated adoption," observes Jakobek. "We saw an uptick overnight. The volume of risks traded through the platform accelerated and it continues to accelerate."
"We had done a refresh of all the underlying systems and hardware at the end of last year/beginning of this year, so we had lots of capacity ready to be able to support what turned out - from March onwards - to be a significant change in usage," she adds.
It wasn't just the acceleration in uptake, but also the engagement of the market. The constraints introduced by the pandemic have helped achieve the cultural acceptance for automation that had for so long been missing, thinks Jakobek.
"Changing the way people work has been the most difficult thing of all and [Covid-19] was one of those events in life that helped people to understand they could actually do it. There was no reason to resist anymore."
That it took a global pandemic to get the London market and Lloyd's behind e-placement is, however, a poor indictment of the industry's capacity for change, thinks Jonathan Prinn, managing director of BGC Partners.
He thinks the market has achieved five years' worth of transformation in less than one.
"The industry we're in is meant to be great at dealing with disaster and it's a tragedy that it had to have a disaster applied to it to make some huge changes."
The crisis has "poured petrol on the slow burn of digitalisation", adds Prinn. But it is not time for brokers and underwriters to start slapping themselves on the back. "We're still very reliant on email," he says.
"We've changed so much in what will be around a year, and I hope the pace of change continues, as we've demonstrated [that] we as an industry and we as humans thrive with that pace of change."
A change in mindset
There are signs that 'business as usual' will not resume when a vaccine is rolled out and furlough comes to an end, sometime in 2021 (optimists have Spring in their sights).
Having witnessed the efficiencies of e-placement, participants are loath to go back to wandering around the Lloyd's trading room, slip in hand.
"We made it so that in the Whitespace platform you have a panel of your network that you do business with," says Marcus Broome, chief platform officer at Whitespace. "You can immediately see if someone's online and either send them an instant message or hit the green phone button to start a video call to discuss the contract - with it on the screen in front of you. It was to try and replicate that face-to-face side of the business."
"But brokers and underwriters haven't been using the function as much as we'd thought," he continues. "It's the cultural shift we've been looking for. If someone has found that it is going to be faster to do something digitally than doing it via video call, it probably follows that it's going to be faster than the old-fashioned way."
Upon announcing the market's second blueprint, Lloyd's chair Bruce Carnegie-Brown noted the pandemic has "only increased our hunger to get on and make further change happen".
Among the objectives outlined in Blueprint Two is the need for approved and clear data standards to support the 'next generation of placement platforms and solutions'.
Contracts can be simplified through standardisation, with the next step involving the use of code to bring them to life.
"There's no point in creating a digital policy just to agree a policy. Our objective is to support the downstream process," says Broome. "There's a lot of talk about 'smart contracts' which know when to pay claims. For now, we're being slightly less ambitious, and focusing on a contract that knows how to settle up its own premium."
"It's a digital contract that knows who bought it, who the broker and supporting underwriters are (as well as percentage shares of the risk) and has defined the premium paid in exchange for transfer of risk," he continues. "We're getting very close to that, and it will be transformative in terms of the downstream efficiency."
He thinks the industry will continue to support multiple platforms and electronic marketplaces, because "monopoly is never a healthy situation".
Speaking the same language
If anything, the competition is set to increase, rather than see a shift towards an online marketplace dominated by a single platform.
Insurance platform ecosystems are becoming a level (and open) playing field, enabling the entrance of other risk-placing options into the market. Competition begets improvement, as Whitespace's superior front end and focus on a flexible and user-friendly experience demonstrates.
"There are four acid tests for any trading system and only one of them is connectivity," says BGC's Prinn. "But connectivity doesn't mean you have to use the same system as me before we can communicate."
"I have an Apple phone, one of my sons has a Google and the other has a Samsung," he continues. "I'm with Vodafone and they're both on O2 - but we can all talk. We all connect to one network, and then those networks connect to each other."
The best way of bringing the ecosystem together, therefore, is by all e-placement systems speaking the same 'language', through developing an open platform architecture and standardised application programme interfaces (APIs).
In June, Lloyd's announced its new API to facilitate the flow of e-placement data for submissions and quotes between carriers and brokers using either PPL or any other platform.
"If you're a broker or a carrier you need to be giving some thought to the standards," says Bill Pieroni, chief executive of ACORD. "Think it about it as an electric plug, can you imagine if all parts of the UK had different county plugs? Carriers, brokers and more importantly, solution providers, should not seek to differentiate themselves by the shape of their electric plug."
"ACORD is owned by the industry," he continues. "We're here to serve the industry, we're not-for-profit, we're in 100-plus countries and we support 50% of the world's premium – so just use the standards. Are we 100% of the world's premium? No, we're 50%. But for goodness sake, begin to slouch towards Gomorrah. If you're selecting a solutions provider, care that they are fungible."
"It saddens me when I see start-ups and others devise their own unique physical data model. We're here and it works. Just use this thing and then compete based on what matters. The shape of the electric plug is not the thing that differentiates your appliance."
