Adapt and prosper

When Charles Lindbergh climbed into his modified plane in 1927 and prepared for the first solo flight across the Atlantic he packed as lightly as possible. He didn’t take a parachute, but he did have a financial one. Legendary Lloyd’s underwriter Cuthbert Heath insured him, despite the massive risk Lindbergh was taking.

Over the years London has led the way in terms of such risks—and also in innovation. The first motor insurance policy was written in London in 1904, as was the first aviation insurance policy in 1911. And in 1965 the first satellite insurance policy was written in London.

London therefore knows the need for innovation. The question is, however, is it still leading the way or is it in danger of falling behind other regions? It’s a question that needs to be asked for one simple reason: in business complacency can kill.

London’s lead in terms of innovation has been built on a broad base.

“There are a number of factors at play,” says Gavin Steele, Lloyd’s secretary to the council and franchise board.

“One of the core ones is that innovation is a product due to the ‘cluster effect’ we have here in London. We’ve got the deep underwriting expertise here in the London Market that attracts all supporting ancillary services—particularly when you think about new products—that enable underwriters to put together new products and offerings relatively quickly and easily for clients. They have the expertise either in-house or readily available almost literally on their doorstep.”

Steele says that he thinks that this cluster effect is at the heart of London’s innovative offering. Depth of experience is another factor, as well as history, in the sense that underwriters—particularly in the specialist and P&C end of the market—realise that they need to adapt and change with their clients.

“This is because they have all the expertise gathered over the years, expertise they can tap into from the broking side of things, and they’ve got the support of the wider insurance and reinsurance cluster effect here in London. There’s auditing, actuarial, lots of other support. In a sense London is a one-stop shop.”

The experience advantage

Richard Clarke, business development director at Xuber, agrees that London has a great deal to recommend it.

“You’ve got this unique concentration of talent in London and what is still a very favourable business climate. This means that it’s an easier place to do business than maybe some of the closer European countries, where either their structures or their employment laws don’t allow people to be as agile as perhaps they can be in London,” says Clarke.

Although he says that there are a lot of positives attached to London, he also stresses that the market is waking up to the fact that London is still regarded as a bit different and a bit quirky. “There are things you have to be able to do in terms of processes and information technology in London that you don’t have to do elsewhere, and it can be a scary place to come into if you haven’t grown up in this market.”

Martin McCarron, senior underwriter & head of financial institutions at Markel International, has a slightly different view.

“To be honest the last few years in London haven’t been about innovation, but more about the development of existing products, about widening wordings, changing wordings, adding on new sections,” McCarron says. “It wasn’t really innovation. It’s the same pot of premium that’s been churned around in the London Market.”

However, Markel recently came out with a new ‘fintech’ product. According to McCarron, when the company first conceived the idea about the product it did look at where the markets were moving in terms of financial innovation and noted that it was obvious that alternative finance companies were being founded and grown at quite a rate in London. As a result Markel saw a gap in the market when it came to creating an insurance product to cater for this sector of the financial industry.

“It isn’t necessarily a brand-new product, because it incorporates professional indemnity, crime, D&O and cyber, all existing products, and brings them all together under one policy to provide a single solution for fintech clients,” says McCarron.

“The latter are sometimes not particularly insurance-savvy; they are entrepreneurs more interested in developing their business than insurance. As a result, they needed a simple solution that could be provided in one policy so we in turn created the policy to address this.

“Cyber is also one of those new products that clients are not sure that they need, or to what extent that they need it, so what we do is provide a service that gives them peace of mind in the critical first six hours after an event such as the hacking of a computer system.”
Cyber insurance is one of those products that the market is still coming to terms with and it’s worth pointing out that Lloyd’s of London has stressed the dangers of this relatively new and perhaps  poorly understood area of potential risk.

Binders of risks

Innovation does not just pertain to products. London is still notorious for being the place that embraced innovation in the front office while holding it at arm’s length in the back office. Those with long memories will remember the long struggle by various authorities to bring in electronic records, let alone electronic placement. Others will remember the fact that underwriters spotted near Lloyd’s always seemed to be carrying a large amount of paper in leather binders that in some cases they’d literally inherited.

Times have changed. Lloyd’s still sends a vanload of paper documents down to its storage facilities in Chatham at the end of every day, but according to a Lloyd’s spokesperson that van now takes just 1 percent of the daily business written in Lloyd’s, the rest being electronically placed. The days when that ratio was exactly the opposite have gone.

However, says Clarke, there’s still more to do.

“There are encouraging signs of late that some of the hang-ups have gone and that people don’t view it as the major threat that it once was. If you go back 20 years to electronic placing support—EPS––what that project promised then is probably still not in place today.”

According to Clarke one of the difficulties is that the London Market is a collection of practitioners, of organisations that compete with each other, so it’s not often that the market regards itself as a collective that actually wants to differentiate itself from other global markets.

“When it’s done this in the past the market organisations or the collaborative working parties involved have ended up recommending things that were not implemented,” he says.

“We still suffer from people looking inwards towards the competition within the market rather than stepping up a level to see that they are part of a global market that needs to differentiate itself, as well as the practitioners differentiating themselves one from another.”

The dangers of complacency

London has been a key part of the insurance industry for almost 330 years. There have been times of innovation and times of near-stagnation, and it would be fair to say that London needs to avoid stumbling into stagnation via complacency.

“We do need to be aware of complacency as much as possible. Here at Lloyd’s we’ve set innovation as one of our strategic priorities. We think it really is important to stay alive to the changing environment, the changing needs of customers, and we need to continue to adapt. We need to offer new products to customers, or help underwriters develop them,” Steele says.

“On a broader note about innovation there’s the process change work we have under way—the target operating model (TOM)—that is looking at new and innovative ways of doing things, of processing information and data, of borrowing things from insurance tech and the like.”

Despite this focus on innovation by Lloyd’s, however, others in the industry are worried about the issue. In January 2016 Allied World Global Markets held an event in London to discuss the need for innovation in the London Market. Its title? ‘Innovate or die.’