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Examining Lloyd’s ‘Future’ from the legal side

Jennette Newman, Partner with law firm Clyde & Co and President of the London Forum of Insurance Lawyers, offers her feedback on the market’s “ambitious” prospectus.

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Lloyd’s CEO John Neal recently unveiled the Corporation’s “Future at Lloyd’s” strategy blueprint. Here, Jennette Newman, Partner with law firm Clyde & Co and President of the London Forum of Insurance Lawyers, offers her feedback on the market’s “ambitious” prospectus.

Do you broadly agree with the strategy?

The London market has been at a crossroads for quite some time and has long needed to clearly identify new routes to growth, supporting true innovation and defining strategies to attract new talent.

I don’t think the prospectus is surprising in its ambition, nor is it revolutionary. It is in part very practical and in other ways inspiring – it certainly has ambition. The goals are well articulated and the roadmap is clear, at least on paper. The only thing that is perhaps surprising is the fact that it’s taken the market a long time to get to this point. The solutions – at a high level, at least – seem sensible and, in a way, obvious. I think this is often the test of a good idea.

What's also important is that the proposals weren't developed in a vacuum. A lot of discussion and work was carried out by previous regimes and the consultation process has been robust, which has enabled it to capture the mood and support of the market.

What stands out for you, among the proposals?

We are particularly excited by the bold focus on the use of technology to re-shape the future of the market.

The creation of a complex risk platform leveraging data and technology, plus the fast-track “syndicate in a box” for the out-performers will, when delivered, help catapult Lloyd’s back where it belongs – a home for the best talent at the forefront of risk transfer. Combining this with an automated, low-complexity exchange will help address the cost issues that have seen more commoditised risk classes fail to meet the new performance standards and keeps Lloyd’s relevant and in the game. The challenge, of course, will be deciding which risks fall into which category – since, in theory, most of the risks in Lloyd’s are complex or unusual in some way.

The Lloyd’s of the future will certainly be different and, if the market seizes the moment, it can be successful. I think it is inevitable that courtesy of technology there will be fewer people in traditional roles and quite likely that the people will need different skill sets and perform different roles. At the same time, Lloyd’s will still be a place where face-to-face trading is a hugely desirable and somewhat unique attribute, and I anticipate the market will remain home to some of the best, most innovative and entrepreneurial people in the industry.

Two of the areas are particularly interesting: A next-generation claims service that improves customer experience and increases trust in the market by speeding up claims payments; and an ecosystem of services that helps all market participants develop new business and provide outstanding service to their customers.

The ecosystem idea is interesting, and we have already seen leading market players discussing an outsourcing approach to areas they consider as non-core, such as claims management. I think this will be controversial for some who regard their claims service as a differentiator and source of underwriting value-add. This is fine, in principle, for the settlement of routine claims – for example, first-party property – but liability claims are often much more complex and I think the arguments for keeping those discussions in house, at least in respect of the complex claims, are very strong.

Overall, we need to be very careful of downgrading the offer – claims professionals will resist it, and with good cause: they are the advocates for their clients, brokers and insureds.

Claims technology can be outsourced, and we are already seeing the development of smart or connected contracts for parametric-style products that have huge potential – Clyde & Co launched one recently. A connected contract is a digital agreement that links external software systems and data sources to enable the automatic execution of insurance contracts. By using real-world data and streamlining processes, it offers significant cost and efficiency gains for the industry. I really hope we see more of this kind of innovation, as it is a quick win for the market.

Lloyd’s wants to start delivering on its stated aims in October; is that doable, or is Lloyd’s facing execution risk?

The Lloyd’s of the future needs to be bold in its vision and nimble in its execution if it is going to be able to compete with many low-cost competitors in other territories. That does require a new business model and the speed of adoption of PPL demonstrates that the market is capable of rising to the challenge on a technology level at least, despite all the naysayers. I think we need to travel a middle path – no one is going to sign up for a Big Bang transformation, but we do have to make steady progress at a reasonable pace in order to remain competitive on the world stage.

What’s really important is that the market invests now in getting the right kind of talent on board and not just in traditional diversity terms. We can’t wait for this generation to retire and the next to pick up the mantle. We need to be hiring the data scientists and embracing the digital innovators who will take the market forward as well as training and developing existing employees in the skills they will need. Real innovation will mean everyone making significant moves rather than leaving it all to the next generation.

In terms of issues, at this point there is no suggestion the market will be asked to contribute to the costs and that the funding mechanism for the proposed changes will be “innovative.” Presumably, that means a venture capital or external capital approach.

At a structural level the challenges are more complex, of course. I don’t think anyone would question the principle of a subscription market as this is the core of the Lloyd’s offering, but a good debate is already underway on the efficacy of the lead-follow model. There seems to be an appetite to cut the costs for those following but not to diminish the expertise they bring – which may be a hard circle to square.

There will always be challenges around funding and securing full buy-in. Words are easy, but actions are harder. However, these proposed reforms are in the best interests of market participants and businesses are highly motivated to improve the operating environment and expense ratios.

This interview originally appeared in Reactions.

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