28th February 2020
This article was first published by Insurance Day
Steven Crabb CEO – Insurance Services at Davies Group explains as the pace of change in the London market continues to increase in 2020, firms cannot afford to be reactive.
The next twelve months in the London market will be defined by its ability to change. It may also define the market’s long term future. Lloyd’s CEO John Neal and his senior management team have unveiled their vision for the future of the market and the blueprint for the Future at Lloyd’s clearly identifies the areas they believe need to change for the market to remain relevant to clients across the world.
The blueprint will define the changes clients will seek to implement and with it the services they will need. Those services will be required not only to implement those changes but also to operate in what is likely to be a very different environment to the one they find themselves in now.
The key to success in a period which will be defined by the speed and scale of change is to position your business to be ahead of the changes as they occur. You simply cannot be reactive. If you wait until change is implemented and then seek to understand what the impact will be on the way you do business you are already too late. However to achieve such an aim is no easy task. The six core initiatives that are at the heart of the Future of Lloyd’s Blueprint will drive fundamental change and with it challenges for all. The biggest question, and one that the market as a whole is asking, is quite simply “How quickly will the transformation occur?”
Like many in the market, we are closely monitoring the announcements on the progress across the initiatives and in terms of the risk exchange just how the exchange will seek to handle and in effect commoditise standard risks and the impact on the needs of brokers, underwriters and managing agents. The same can be said with the complex risk exchange in terms of the way in which the more bespoke risks will be transacted on the risk exchange. There are unanswered questions. While the market understands the aims and the outline, the devil is all too often in the detail and the Lloyd’s team are in the midst of creating a timetable to transfer the blueprint into an operational system. We continue to fully support the work that is currently underway and are monitoring it closely as the question many want answered is when will we receive a definitive indication on the timing for the exchanges to go live and for business to be transacted. There is much to examine around the plans for the services hub and questions remain. We are keen to understand how the market intends to consolidate the services required by the various market participants, and almost more importantly what services the market expects to be delivered. Services such as bordereaux support and premium credit control will be required to adapt to the ways in which the Future of Lloyd’s will seek to reshape systems and processes.
Clearly the market needs to understand the technology and the processes that will be utilised and, certainly for service providers, just how big a change will be made in terms of the needs of clients. The challenge for the technology in the market is how it will keep pace with the Future of Lloyd’s Initiatives and it is clear that John Neal is determined to deliver the initiatives within the document.
It will result in a market where data and technology are at the forefront of the business. Change comes at a cost and Lloyd’s has already announced it has sourced £300 million to fund the initiatives. As they are created the market will get an understanding of the technology that will be required to access the platforms, communicate and move data across the market. It will also highlight what changes if any firms will need to make to their own IT systems in order to play a full part. The market needs to ensure they understand not only the timescales but also the changes in technology and processes to be able to hit the ground running as the initiatives come on line.
As the Future of Lloyd’s continues to progress it will also influence the distribution channels between London and North America. Lloyd’s recognises while the US remains its biggest market there are still further opportunities in the US and Canada and firms are looking at how they can best access the markets and distribute their products. It has required services providers to enhance their capabilities in North America and we can only see the demand continue to grow.
While the Future of Lloyd’s has attracted the majority of media coverage in the past year, as a company we have witnessed another fundamental change in the London market. As an incubator for Managing General Agents (MGAs) a fundamental change has been gathering real momentum in 2019 and is set to continue into 2020. We have seen a significant shift in the MGA dynamic with the new MGAs bigger and with greater capital. Those seeking to create MGAs are doing so on a far larger scale than in the past. The smaller niche MGAs which were created by four man bands leaving insurers or syndicates to fund the start up with their own money. Whilst not completely a thing of the past they are now rare indeed. There is a view that such smaller MGAs are becoming increasingly unsustainable given the requirements they face in order to operate in the UK market. Many MGA clients are larger scale than previously and have a bigger more complex structure with the ambition to write significant amounts of business on behalf of their capacity providers. As such they are also willing to assume greater levels of responsibility for tasks such as claims and administration than in the past and may well have been the responsibility of the capacity provider. We are seeing a significant demand for compliance services as MGAs engage more with the regulators. Clients’ SM and CR have significantly benefited from assistance and support but it is indicative of the need for MGAs to recognise that conduct and compliance scrutiny will only increase in the coming months. The PRA’s “Dear CEO” letter was clear in terms of the areas where the regulator wants to see improvement for 2020 and the implementation of the SMCR in recent weeks has added to the challenge of compliance.
The year ahead will in many ways define the future direction of the London market. Firms will need to ensure they are part of the process in order to be in a position to deliver the changes technology will present before they are actually required. A failure to do so has the potential to impact your ability to thrive or even survive.
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