Global insurance syndicate Lloyd’s of London has vowed to halve costs and dramatically shake up how it does business, saying large corporations are increasingly retaining risk on their own balance sheets because it is more efficient to do so than buy insurance products. It blamed “slow modernisation of internal systems and legacy IT infrastructure” in large part for its high policy administration costs.
The storied insurance syndicate, which admitted that it has been unable or unwilling to cut its costs since 1990, said: “We will ensure that buying insurance is faster, simpler and better value. Our ambition is to cut the time it takes from request to bind and policy issuance from weeks to days. We aim to cut acquisition and administration costs for the most common risks from 30-40 percent today to 10-20 percent.”
In a prospectus published today [pdf], Lloyd’s of London proposed six new “stories” of how it could transform as it launches a 10 week consultation, following a “listening tour” with customers, distributors and capital providers.
Proposals listed in the prospectus include building “a platform for complex risk that makes doing business easier and enables efficient digital placement of complex risks” and a “Lloyd’s Risk Exchange through which less complex risks can be placed in minutes at a fraction of today’s costs”.
Chairman Bruce Carnegie-Brown said: “The new Lloyd’s will be nimbler and faster, oﬀering our customers outstanding products, services and insight, supported by technology, innovation and ﬂexible, responsive capital. This prospectus is the first step towards turning this ambition into reality.”
The consultation comes as Llloyd’s which has paid out just over £200 billion in claims this century alone, admitted it was struggling to get costs down.
“Acquisition and administration costs are high and are reducing more slowly than those in other sectors. Insurance’s 30 percent or more cost of doing business does not compare favourably to the 4-13 percent cost of an equity IPO”.
“While many complex products are inherently costly to transact, the sector has not stripped out other costs by modernising systems and processes quickly enough. Acquisition costs can also be high even for more commoditised products.”
Lloyd’s of London: Missing Out on Cyber Insurance Opportunity
Despite the increasing threat of new risks such as cyber-attacks, and traditional perils such as windstorms, insurance buying is not keeping pace.
“Less than half the world’s natural catastrophe exposure ($225 billion) in 2018 was covered by insurance; in 2017, Lloyd’s estimated total economic losses from a mass cyber-attack would cost $53 billion, yet the value insured was only 17 percent of that” Lloyd’s said. (Its own exposure to a recent data breach may have sharpened minds).
Painting a picture of a better process, it conjured up the image of a Europe-based logistics company CEO, which delivers parcels for e-commerce companies using various technologies including autonomous vehicles and drones.
In this vision: “Lloyd’s has created a state-of-the-art digital platform to support sourcing and placement for these (and other) complex products. The policy process is automated across quote, issue and bind in a single digital end-to-end workflow. After discussing my needs with my broker, she uploaded my details and preferences onto the platform, including the geographical coverage I needed (which can be accommodated by Lloyd’s licensing network). The platform supplies high quality, consistent data to the market and my needs are automatically matched to a panel of syndicates, who have pre-defined their risk appetites and areas of expertise within the system.”
“This matching process informed my broker precisely who would be the best-placed and most willing to work with us, and, after selecting a shortlist from this group, she approached them to design a bespoke solution for my needs, using the data already uploaded to the platform. The syndicates use Lloyd’s modular approach to product design to quickly offer quotes and this process is integrated entirely within the digital platform. When my broker has to discuss policy design with the underwriters, she sometimes goes into the Lloyd’s building to meet them face-to-face; at other times she uses the platform’s online video chat system.”
It’s a bold vision. There’s a lot of work to do first.
Carnegie-Brown added: “Technology and data analytics are disrupting traditional business models. Customers are facing new risks as their asset mix shifts from tangible to intangible and, consequently, are seeking new insurance products and services to protect their businesses.
The industry needs to react to these rapidly evolving business and risk environments so we can continue to provide customers with the support and protection they need to grow and prosper. This means accelerating the development of products and services to meet customers’ needs, and creating new business models that support their delivery.”