The Silver Lining: London Market Modernisation

Bart Patrick, Managing Director of Duck Creek Technologies Europe, calls for a more collaborative approach technology if the London market is to achieve its modernisation goals.

With the Lloyd’s market operating expense ratio down just 0.3% year-on-year in 2018 to a still sizeable 39.2.%, clearly there is a need to accelerate the market-wide efficiency drive to make this a more cost-effective place to do business.

Much has been made of the bold new strategy outlined by Lloyd’s CEO John Neal, which includes plans for no less than two automated insurance exchanges, as well as other transformational initiatives in an ambitious six-point strategy.  It’s light on details at the moment, but is nevertheless a clear statement of intent if ever there was one.

It’s less clear where this plan sits with the London market Target Operating Model (LM TOM), where the key idea has been to transition from inflexible, paper based and fragmented systems to a is highly effective and accessible model which harness economies of scale for common activities, and benefits from enhanced data sets.

Growing dissatisfaction

Technology is critical to any transformation of the London market. And currently, despite the best of intentions, there is no competitive advantage to any of the technology being used in the market.

Even among those London market insurers and brokers who have taken steps to invest in new technology, there is a growing dissatisfaction with the need to constantly upgrade and maintain their core platforms.

At the same time, there is a fear that any significant change to IT and systems infrastructure is at risk of being out of date before it is even implemented, such is the pace of evolution in technology.

It doesn’t matter how good your architecture is – or whether a new system is labelled insurtech or blockchain etc – a platform that cannot adapt as technology changes and upgrade in real time quickly becomes more problematic than the challenge it was brought in to solve.

Not everyone running at the same pace

Technology projects, such as electronic placement are progressing, thanks in no small part to the fact that Lloyd’s has mandated their adoption. But the fact remains that not everybody is running together or at the same pace.

The results, especially when added to the demands of regulatory and reporting challenges, can be time consuming at the very least, and chaotic at worst.

The number of international insurers wanting to operate in the London market has risen in recent years. The Lloyd’s subscription market model has provided strength, but it also poses a unique challenge for finding solutions that provide efficiency. There is a strong need to reconcile disparate vendors between the US and the UK and internationally with a single, global solution.

Everyone in the market is facing the same constraints. There is a clear need to reduce repetition of some services while at the same time close the gaps and put a stop to the wasteful duplication that is rife in London Market functionality.

A unified back office

So here’s a bold plan. The London market’s back office, running across separate entities, can and must be more unified. You can dress it up how you want, but it’s essentially the same thing repeated across multiple systems in hundreds of businesses. And no matter how electronic or digitised the market gets, this approach is simply inefficient.

What’s been missing so far is an end-to-end solution to access the market’s myriad systems via one platform – and I’m not talking about another Kinnect.

We think that such a platform would streamline market access, cut out duplicative data entry and provide the sort of efficiency that could well make a dent in that troublesome market-wide expense ratio.

The key is to provide a single-entry point to manage the maelstrom of systems and processes, utilising the power of an open platform and a connected ecosystem. Back office functions need to be seen as shared and standardised functions across the market, as well as a single layer of cost that each market participant subscribes to.

Low-code software that is scalable is quite exciting to the insurance market. The IP lies in each company’s business plans and strategies, and this will never change. However, from a back office perspective, every player is essentially doing the same thing.

Each individual business should use its own data and insights, but to my mind LM TOM should target standardised back office processes that are same across the market.

The technology to support this group standardisation with local autonomy must also be future proof, and take the cost and time associated with upgrades, security and maintenance away from the day-to-day business of insurance. In this way, market-wide operational costs could be driven down with a shared, but separate instance of the same platform.

A single layer of cost

Every cloud has a silver lining, and I strongly believe that the silver lining to the London market’s stubborn expense ratio is multi-tenanted cloud technology. By collaborating through Cloud SaaS and using technology that presents a single layer of cost and data, significant efficiency and cost savings could be made.

Cloud technology is also capable of running as a top layer above existing legacy systems, while the transition to a single point of entry takes place. Adopting advanced technology specifically designed to accommodate the current status quo while promoting change and evolution will allow carriers to navigate uncertainty and capture market opportunities faster than their competitors.

Shifting regulatory requirements and future market standardisation efforts could also be managed with a single point of contact.

Working together is a strength

I was heartened to read John Neal’s quote in announcing the new strategy, in which he said “Together we have a tremendous opportunity to re-imagine Lloyd’s and build a marketplace that is future focused, highly responsive to the changing and diverse needs of our global customers, with a culture of inclusivity and innovation.”

Transparency must underline everything the market does as the strategy progresses. The trust and co-operation that brought together insurers at Lloyd’s three centuries ago is an enduring strength.

The concentration of professional talent for understanding, placing and underwriting complex risks built up over the last 330 years remains a winning advantage on Lime Street. We need to harness the same collaborative spirit on a technological front, to solve the problem at hand with pragmatic and cost-effective ideas. Using cloud architecture to unify and standardise back office processes will be a critical element in transforming the market.