MGAs are ‘incubators of innovation’, says Lloyd’s CEO John Neal at MGAA 2019 conference
MGAs are the “incubators of innovation”, said John Neal, CEO of Lloyd’s, speaking at the MGAA 2019 conference, as he told delegates that MGAs and coverholders “represent an important and fast growing channel for Lloyd’s”.
Neal said he wanted to make it easier for them to do business with Lloyd’s as they bring in about a third of all the business the market writes.
In his keynote speech in London yesterday, he said the Lloyd’s Market is currently building one streamlined process for onboarding, creating right first time binders, providing out of a box trading solutions and allowing easier data reporting and auditing.
However, he said that in terms of onboarding “we’ve delayed the launch of Chorus”, which is set to replace Atlas, the Lloyd’s coverholder approvals and compliance system and BAR, the Binding Authority Registration system. He said they had delayed the launch to ensure the system, which will take coverholders through the approval process and allow for right first time binders to be created, will do “exactly what you need it to do”, adding “It’ll be ready to go live in the new year.”
Despite the delay he said figures for what they expected to be processed had reached 1,200 binder authority contracts for the 2019 underwriting year.
“Interestingly, for our European business we are slightly ahead of plan in terms of income expectations. So it’s good progress actually and by next year all of the components that you would want us to have will be up and running so we can create a more seamless and complete process for delegated authority and bound underwriting.
“That work shouldn't only make it easier to do business with Lloyd’s in the short to medium term but also acts as a vital springboard for what we want to do longer term.”
Neal highlighted the importance of innovation in products and services to differentiate themselves from competitors and to try and “stay ahead of the game”, a central concept in the market’s prospectus published at the beginning of May this year.
However, he told the delegates: “It’s important to get some balance in a Lloyd’s context because what people might not appreciate is that 50 percent of what Lloyd’s does today is specialty and reinsurance business and 50 percent is MGAs and coverholders, so we do serve two equal markets, which have very different demands and expectations.
“Whatever we do in the future needs to accommodate both sets of constituents and do so particularly well. Based on the feedback we’ve had we tried to reimagine what the future could look like for insurance and reinsurance and what the benefits could be for all of our stakeholders.”
Focusing on what the benefits could be for the MGA community and the coverholder community he said: “The headline for me is that there are some real pluses within the proposals presented such as the Lloyd’s ‘Risk Exchange’, a new claims process, our ‘Syndicate in a Box’ solution and a Lloyd’s Market ecosystem, which you can tap into and all of which should enhance the value to you and to your customers.”
Detailing ideas he thinks will support MGAs more specifically, Neal pointed to ‘Risk Exchange’, which is one part of a dual platform solution “which by design will support coverholder type business allowing it to be quoted, bound and the documentation issued promptly and efficiently and allow that process to happen at a fraction of today’s cost”.
He acknowledged that the proposals had generated attention among some coverholders and wholesale brokers, who fear that they could be cut out of the chain. “That’s simply not how we see it,” Neal said. “The Exchange has been consulted on with coverholders in mind, building on the technology that is coming down the line for Chorus and DA SATS (Lloyd’s central service for delegated authority data management).
“So you’re already in the front line as a key part of the distribution chain, connecting us through your customers and the retail broking network, so that Risk Exchange will enable you to put the products that are being developed at Lloyd’s market into an electronic trading environment and similarly direct into your platform or your systems. which is where the design is meant to support a reduction in administration and simplify the costs in the chain replacing business that exists currently. By definition it’s meant to make us more competitive and ultimately allow us to put a cheaper product in front of a customer.”
He flagged up “flexibility around capital, which is giving everyone the choice of how different types of capital might attach to risk” as another idea that will be relevant to MGAs and coverholders.
He explained that Lloyd’s operates very efficiently on a three year time horizon for capital but it doesn’t work quite so well if capital has a one year time horizon or a seven year time horizon.
“So we’re minded to create a marketplace that can be open to different types of capital and have different return expectations and different risk time horizons.”
Lloyd’s ‘Syndicate in a Box’ idea was another opportunity for MGAs that Neal focused on. “[It is] designed to operate in certain circumstances, so if you’re an MGA and you want to put some of your own money at risk, then we should encourage you to do that and allow that to be facilitated. It could be a vehicle for an MGA that partially wants to capitalise its own interests and to be able to do that at Lloyd’s. If you’ve got a particular product in a particular geography that requires subscription support we should facilitate that.
“If you’ve got a good idea around a different type of risk and a solution for it, reputation risk could be a good example, then why don’t we allow that to happen.”
He said greater flexibility offers MGAs and coverholders “a faster, easier, lower cost route into Lloyd’s with a clear pathway to achieve full syndicate status if that is where you want to be”.
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