Future at Lloyd’s: Inside the strategic planning process

Details of the execution plan for Lloyd’s ambitious strategy overhaul have started to crystallise, with a clear focus beginning to emerge on the aspects of the vision which either deliver immediate value to market incumbents or are “quick wins” for the Corporation.

Three weeks ahead of the 30 September publication of the crucial Lloyd’s blueprint – which will facilitate CEO John Neal’s Future at Lloyd’s strategic vision – The Insurance Insider is able to provide an early view of the direction of travel.

Sources have suggested the initial focus will be on claims processing, the Lloyd’s Risk Exchange and the complex risk platform, however work has also begun in earnest on the syndicate in a box (SIAB) framework.

It is also understood that Lloyd’s has started the process to create a greater distinction between lead and following markets.

Lloyd’s is understood to be targeting a phased execution of the strategy, and it will continue to consult the market throughout this process.

As such, the forthcoming blueprint is expected to outline a roadmap for “phase one”, or what can be delivered in the next 12 months, with the end goal in mind.

Market sentiment on the Future at Lloyd’s remains positive, and there is a broad sense that market participants have a responsibility to ensure Lloyd’s makes a success of what could be a one-time opportunity to change.

But as the Corporation’s focus moves from vision to execution, there is a growing realisation of the scope for winners and losers to emerge.

Risk platforms

The Lloyd’s Risk Exchange – a dedicated platform for standardised risks – is a central component of the overall cost reduction objective at Lloyd’s. Neal has previously gone on record to say that Lloyd’s is targeting a 10-20 percent expense ratio for easy-to-place business.

It has been subject to push-back from the wholesale and Lloyd’s broker markets in particular, both of which fear they risk being cut out of the value chain as Lloyd’s searches for cost efficiencies. However, sources said Lloyd’s has engaged extensively with the broker community as part of the consultation feedback process as it seeks to address these concerns.

It is understood that binder and delegated authority business – which accounts for 39 percent of Lloyd’s gross written premium – will be the first to be traded on the Risk Exchange. With speed and efficiency in mind, it will build on the extensive work already completed on DA Sats, the delegated authority platform which has already been taken up by the market.

However, what classes or segments of business are migrated onto the Risk Exchange following binders is not clear.

It is understood that London market electronic placing platform PPL will form the basis for the complex risk platform.

Sources said Lloyd’s is currently in discussion with the London market trade bodies, which currently own PPL, about buying into the holding company so it can have better control over its direction. However, the discussions are ongoing at this stage.

Both the Risk Exchange and the complex risk platform are expected to form the central systems for risk placement, with the ability for other proprietary and market placing platforms to interact with them, to remove cost duplication. Uniformity of data entry and format is said to be essential to the work.

Both platforms will be accessible to the Lloyd’s and company market.

Claims

Improving claims processing and payment was identified in the consultation feedback as one of the top priorities for the vision, as the market seeks to deliver an enhanced service proposition to clients.

Neal has previously promised “next generation” claims technology for the market and this publication understands that there will be a new digital claims platform that will require a tech build.

As Neal has previously alluded to, a significant part of the early work on this workstream will focus on triaging of claims to increase efficiency – a “quick win” which is more of an internal reorganisation challenge than a technological one.

Sources said the triaging of claims would work around a three-part system based on complexity of the claim, ranging from straightforward to complex. It was also suggested that Lloyd’s could implement shared outsourcing services to support the claims processing.

Shared services is also part of Neal’s plans for a Lloyd’s “ecosystem” – a central shared hub of research, data and services – however this is still a longer-term project as Neal has previously suggested.

Lead-follow and capital

A crucial component of Neal’s masterplan was the concept of more freedom – that Lloyd’s was not only more open to allowing new business and fresh capital to access the market, but was also more willing to allow new underwriting models with which the market could trade.

A big part of this idea was to create a clearer distinction between leading and following markets, with the potential for expense-light, follow-only syndicates to be fast-tracked into operation.

It is expected that the blueprint will go into far greater detail on this concept, in order to bring speed and efficiency to the market.

Year one is expected to see internal restructuring work for creating distinction around lead and follow syndicates. The performance management directorate is said to be working on a kind of “kitemark” leadership status which it will award to syndicates based on their capabilities.

Year two will see work on bringing in third-party capital to create follow-only capacity, and creating a platform or vehicles in order to do that.

As this publication has previously explored, winners and losers will emerge from this lead-follow distinction.

Existing syndicates that are not already market leaders in any given class will come under pressure as they will struggle to compete with follow-only syndicates. However, this lead-follow distinction would eliminate much of the duplication that drives costs at Lloyd’s so high.

More widely in the capital component of the strategy, making Lloyd’s the UK hub for ILS was also identified as a priority from the consultation feedback, and work is said to be underway on this element.

Syndicate in a box

The SIAB framework – the fast-track route to market – is arguably the proposal of least interest to Lloyd’s market incumbents. Nevertheless, it is seen as a quick win for the strategy.

Neal has previously said two SIAB launches were in the pipeline for 1 October, although the picture in this area is highly fluid and there is significant scope for change.

Guy Carpenter, Asta and Aon are all bringing forward SIAB proposals to Lloyd’s, and it is understood that not all have been taken up by the Corporation.

Going forward, a fixed proportion of market premium per year will be allocated to SIAB launches to manage the risk exposure to the market. The number of launches will depend on the risk requirements of each SIAB and how many SIABs can “fit” into that allocated premium.

The SIAB framework has been pitched to the MGA market as a way for them to align themselves with their existing capacity providers. While there has been interest from the MGA community, it is understood that there has not been enough clarity around the requirements, or the ultimate cost of an SIAB launch, to persuade many MGAs to apply.