From Electronic Placing to Artificial Intelligence: Lloyd’s America CEO
Earlier this year, this reporter was walking on Lime Street, the home of Lloyd’s of London, dodging raindrops. She observed a broker, carrying a large blue binder containing documents for an underwriting risk, had lost control of the binder and papers were rolling down the street in the wind and the rain.
She thought: “Hasn’t this antiquated system changed yet?”
Well, things have changed and are changing. It’s this type of inefficiency that the Lloyd’s and London company markets are trying to put in the past with various modernization programs, including the London Market Target Operating Model (TOM).
TOM is a program that aims to modernize the market and make it easier to do business in and with the London market. A big part of the program is the Placing Platform Ltd. (PPL), which aims by 2019 to have 100 percent of risks entering the market placed electronically through the platform.
A big impetus to the modernization program happened in March when Lloyd’s CEO Inga Beale decided to mandate PPL’s implementation earlier this year. It’s made all the difference to the momentum, affirmed Hank Watkins, president of Lloyd’s North America.
“Absent a mandate, we would never get everybody on board. But it was mandated and those market participants who ultimately don’t comply with it will be fined,” he said.
“No one wants to be named and shamed in the press for not being part of a team effort to modernize the market, especially now, because there’s just no patience anymore.”
Watkins said younger people coming into the industry are not going to have patience for stacks of paper and processes that take months to get things done.
TOM was initiated a couple of years ago to eliminate triple, quadruple keying of information.
Watkins cited the hypothetical example of a retail agent in California, who keys in a submission, sends it to a wholesale broker, who in turn keys it in, and then sends it to a London broker, who keys it in and sends it to an underwriter.
“That’s two or three different opportunities for mistakes to be made and just from a plain efficiency standpoint it makes no sense.”
These modernization efforts are designed to reduce the Lloyd’s market’s 40 percent expense ratio, which is generated by commissions paid to brokers and by its costly administrative processes.
Watkins said Lloyd’s expense ratio is about 10 points higher than many of Lloyd’s excess and surplus lines competitors in the United States, which is unsustainable.
PPL will enable the entire Lloyd’s market to be on one system, which aggregates information the same way, allows underwriters to see it the same way and cuts down on the time it takes to actually look at data, said Watkins.
“We believe that over time it’s going to take a number of points off our expense ratio,” he added. “It just makes sense — the quicker you can look at a risk and understand it, the quicker you can move onto the next one.”
In August, Lloyd’s revealed that across the entire market, syndicates accepted 16.3 percent of PPL-related risks through electronic placement, and 56 percent of syndicates met or exceeded the target to have placed 10 percent of so-called “in-scope risks.”
Shirine Khoury-Haq, Lloyd’s chief operating officer and sponsor of the London Market TOM program, commented at the time: “We are encouraged by the support and effort we have received so far which has resulted in the market exceeding the target set earlier in the year. Further adoption will help the market increase efficiency, reduce back office costs and, most importantly, improve client service.” But PPL is just the start of the Lloyd’s and London market’s modernization plans.
Another major modernization effort involves artificial intelligence — a real 21st century move for Lloyd’s and the London market. The program is called DA SATS, or Delegated Authority Submission Access Transformation Solution, and is due to be rolled out in September.
Watkins said DA SATS is an artificial intelligence (AI) driven platform, which will allow Lloyd’s and London company market underwriters to accept delegated authority data from all over the world in any format.
“Data typically is entered by coverholders and wholesale brokers who have different ways of entering the same information, often on different pages in the document.”
“You can imagine just the headache that it is to gather all the information you want,” he said. “The DA SATS artificial intelligence platform will convert any kind of data submission into a standardized format, which will enable underwriters to transact business more quickly and efficiently.”
Improving the Customer Experience
Lloyd’s is particularly keen to improve the customer experience — to make the process easier, more efficient, with fewer errors.
“TOM will affect the wholesale brokers and the coverholders who do business with Lloyd’s because it will make the way they transmit information to the underwriters in London a more efficient process,” Watkins said.
“We’re not looking to displace London brokers. We’re aiming to free up their time to do less mundane tasks and take a lot out of the transaction itself and allow people to be more consultative,” he noted.
Further, more efficient transmission of information allows a quicker turnaround of quotes, making it easier for brokers and underwriters to deliver policy wordings, endorsements and mid-term transactions, he explained.
“In this complex world, brokers will have more time to be helpful to their clients and find new solutions, which makes a lot of sense.” Reduction of its expense ratio is particularly important for Lloyd’s in the United States, in order for it to remain competitive.
Largest E&S Player
Lloyd’s is the largest E&S player with about 24 percent of the market, with premium in 2017 of $12 billion.
Nevertheless, Watkins emphasized that Lloyd’s is not resting on its laurels, which is a reason it conducts regular “Meet the Markets” sessions in the United States, Canada and other cities across the globe — something it’s been doing for nearly five years.
In October, Lloyd’s will be running Meet the Market events in Orange County, Calif., Houston, Boston and Montreal.
Rather than hoping and waiting for U.S. brokers and risk managers to come to London, London brokers and underwriters visit them during these events, providing educational sessions on various topics.
“After the educational piece is over, we will have the actual Meet the Market session where underwriters sit or stand at desks similar to their underwriting ‘boxes’ in London,” he said. “Those are set up by syndicate name and by broker name in a hall and the attendees at the conference go from box to box and talk with the underwriters specifically about the kind of business they’re doing.”
Why should a U.S. client do business with Lloyd’s and not a U.S. E&S carrier?
Watkins cited several reasons. The first is the fact that Lloyd’s underwriters have a global view of risk, which provides a wide perspective of all the potential ramifications of exposures.
“Also we operate a subscription market which helps provide capacity for the more complex risks. You’ll have several underwriters taking part in the placement, not just one.”
He explained that the subscription market enables several underwriters to understand an insured’s needs. As a result, when an underwriter’s appetite changes, deciding to exit a line of business, then other underwriters on the risk can provide additional capacity.
Perhaps the most important reason to do business with the Lloyd’s market is the fact that, unlike the admitted market, the E&S market segment in the U.S. is not protected by state guarantee funds should a company become insolvent, he affirmed. Lloyd’s policyholders are protected by its Central Fund, which is $4 billion in reserves for claims if a syndicate should become insolvent.
With a 330-year history, the Lloyd’s market has staying power, said Watkins.
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