After years of criticism directed at the unsustainable cost of writing business at Lloyd’s, in a recent strategy document CEO John Neal revealed plans to move to electronic exchanges within the next year in a belated response to competition from cheaper rivals.
Lloyd’s has proposed splitting its market across two platforms that will facilitate a quicker and cheaper placement of risks.
Firstly, the Lloyd’s Risk Exchange will help automate standard insurance contracts, such as marine cargo coverage for SMEs, thus allowing less complex risks to be placed in minutes at a fraction of today’s costs. Lloyd’s announced its aim of cutting the costs of insuring standard risks to 10-20% of premiums from 30-40%, it said in the document.
The report revealed that the Lloyd’s expense ratio had remained broadly unchanged since 1990 and was higher than other global carriers.
Lloyd’s is notorious for sticking to centuries-old customs and previous efforts to promote online platforms did not gain much traction among underwriters in the marketplace. However, Mr Neal told Reuters in an interview that everybody at Lloyd’s would be required to join the exchange.
Meanwhile, a second exchange will look to enable efficient digital placement of much more complex risks.
In the same interview, Mr Neal said that human connectivity is still important especially for complex risks which require bespoke solutions. However, he expects face-to-face business to decline over time.
Lloyd’s will also make it easier for new syndicates to set up business, for instance, by allowing them to operate remotely, and encouraging different types of funding, such as private equity and hedge funds.
The strategy document was produced as a result of meetings with 1,000 market participants.
Market observers believe this is the largest single shake-up of the Lloyd’s market since the early 1990s, when the marketplace was brought to its knees by asbestos-related claims which bankrupted many of its investors who had unlimited liability.
Lloyd’s aims to implement the proposals in the programme in early 2020, with another run of consultation on the strategy scheduled in June. M