Friday, 14 December 2007

Lloyd's, a 3 Year Plan

Yesterday Lloyd's of London issued its updated 3 year plan covering 2008-2010. On the heels of announcing 6-months results this fall of £1.8b in pre-tax profit, and with an influx of new capital providers (Goldman Sachs, Bank of America to name a few), and Lloyd's Managing Agents like Kiln fetching nice valuations in the M&A market (story here) you would assume that all is well.

The report details why there is major cause for concern.

First among these concerns is the soft market - see the chart of Advisen's premium index to the right. Insurance pricing continues to fall and with a benign claims environment, there is no sign of a reversal in this pricing trend (even in the face of mounting subprime losses sure to trigger D&O claims).

Lloyd's offers a unique platform for underwriting investment (carrot) and polices underwriting discipline to protect its Central Fund (stick). While total capacity will shrink slightly in 2008 at Lloyd's, underwriters are keeping their clients after years of fighting to win this business. Dave Bradford of Advisen wrote about this in "The Myth of Underwriting Discipline" in the latest edition of Insider Quarterly.

Second among concerns facing Lloyd's is the cost of doing business at Lloyd's both in terms of processing and taxation, with the report citing global competition as a threat.

Lloyd's is key to driving a change agenda for processing online versus by paper and will miss its goal to have all "in-scope" claims filed electronically by the end of 2007. Lloyd's currently processes 60% of "in-scope" claims files online.
The 3 year plan sets the goal of all claims to be filed electronically by the end of 2008, meaning that all claims will be "in-scope". Further, the goal is for all Accounting & Settlement to flow through the online repository by July 2008.
There are two ways from brokers and underwriters to achieve this goal:
1) re-keying and copying files to the repository web sites
2) having electronic filing be part of the regular workflow
Clearly the second option with the integration via ACORD messaging gateways is the preferred route and I hope Lloyd's will encourage more brokers and underwriters to sign up for Web Connectivity.
Last among the concerns I highlight is a need for better information. In a soft market where underwriters are tempted to relax their scutiny of the risk and chase the rates down to keep their business, tools like Advisen are more in need than ever.
According to the 3 year plan, the trading floor at Lloyd's is here to stay but much is said about Lloyd's "as an institution, not a place" and that access to this institution needs to be easier. Together with the dedicated staff at Web Connectivity, the Advisen London office works hard to help Lloyd's brokers and managing agents achieve these goals.


Mr. Gargamel, Boston,USA said...

Interesting blog.
It seems that the macrotrend- if not the imperative- in the insurance sector is towards consumer, rather than product centricity. Given that consumers (policyholders) will have greater access to products, and much more information to act with, it seems that intelligent advocacy will likely be the future of the insurance sector over the next 10 or 15 years. It also seems quite likely that traditional agency channels will almost certainly decline as a result.
As someone who has/is seeing this play out on both sides of the pond,how strongly is this perceived on Lime St. as opposed to US providers? If these trends are apparent to a layman like myself, why the resistance (or at least inertia) to IT innovation and services at the big UK insurers/reinsurers? Reading some of the UK sectoral blogs/newsletters (not yours!), it seems like as much weight is put on changing, even gaming, the regulatory framework a la Bermuda or the US as there is on actually providing a value added dimension to products or streamling direct transaction costs and information.

By the way, I think BRAU online (Blog for Reinsurance, Assurance, and Underwriting professionals) would have a catchier ring to it. It would certainly get more Google hits...

Mason Power said...

Mr. Gargamel from Boston,

It would seem from your comments that you'd be educated enough to be able to find that Smurf village...

Your comments deserve to be addressed as they go to the core of an issue in the news today. After the Spitzer investigations in 2004 in the US, Advisen conducted extensive research into the feelings of the commercial insurance consumer about their brokers and whether the brokers had any conflicts of interest.

The FSA is investigating broker commission disclosure in the UK and I have been meaning to post about it.

You also point out that the name of this blog needs some improvement. My wife thinks it says "check me out, I just learned to get on the web".