Evolution: The time is now

With a four year lead up to the UK’s trading withdrawal from Europe it was reasonable to expect that the necessary preparations would have been made for the fundamental change in the UK/EEA relationship as of 23:00hrs on 31 January 2020. Regrettably it did not seem like they had. The UK government appeared to pay little (if any) heed to the financial services industry (of which insurance is a part, and London is a global centre) leaving it to fend for itself in an evolving environment which struggled to identify the operating parameters.

Everybody muddled through with various ad hoc measures to enable the flow of business both from and to Europe. The basics have become more established as both parties identify the boundaries and despite early confusion the framework has settled into place.

Some brokers have yet to create the bridge between Europe and the UK, and perhaps some will not bother and no longer participate, but the bulk of the market is fully able to transact.

Has it been a seamless transition? Absolutely not. Are we still trading with Europe? Yes, and we always will.

Russian Agression

The strength of Russia’s action towards Ukraine in late February 2022 caught many by surprise. While aggression between the two countries has been ongoing since 2014, the crossing of the border and aerial engagement took matters on to an international stage.

The conflict that has ensued, and the reaction of the Western world and other countries sympathetic to Ukraine’s plight, has brought about sanctions. These have required careful policing since trade with Russia continues.

Much activity has ensued within the shipping world/markets. Methods to release trapped vessels were examined and corridors established through which the Ukrainian exports can occur, as well as allowing non-sanctioned cargoes to still be carried into certain Russian ports.

With the conflict ongoing the markets have settled into established patterns of cover for permitted maritime trades. Or so it seemed until the end of 2022 when the reinsurance market reacted with restrictions designed to reduce their aggregated exposure.

Turmoil resulted and many marine markets no longer have the breadth of reinsurance cover they previously enjoyed. Smaller participating lines are now normal and, while cover can still be assembled, the feeling is that our market is no longer as deep as it previously was.

The London market’s USP has always been the size of capacity it can bring to complex risk. Even in the current form the capacity remains large. But if the trend of declining covered risks continues then how long will it be before the London capability mostly mirrors that of it’s US, European and Far East competitors? At which point will it still hold a primary position in the wider world?

Pandemic Ramifications

The ramifications of the pandemic on an industry so focused upon face-to-face discussion were always going to be sorely felt.

The closure of the Room in Lloyd’s for long stretches tested broker and underwriter relationships. These have survived well, carrying the business with them.

There is great pleasure in once again being in front of someone and the cut and thrust of negotiation is absolutely the better for it. As is so often the case, the testing of relationships has strengthened them. The common bond forged through maintaining the business under extreme circumstances has led to a greater appreciation of the personal touch.

Difficult conversations still occur and always will, but the joint experience of talking from remote locations has increased the goodwill between parties now that the camera is not the only means of visual contact. Long may that continue.

An essential part of the structure which got us through the office closures has been our systems.

Pre-existent trading platforms (PPL, Whitespace, ECF), communications (E-mail, WhatsApp, SMS) and the old-fashioned telephone have allowed us to prove to our clients’ satisfaction that the market is not quite as 19th century as it might have pretended to be.

Tales of quills being used to sign slips at the box in Lloyd’s will always bring a smile, but the truth is that the market has been digital in so many ways as everyone has moved forward at a rate of knots.

The very fact that the same problem confronted all parties at exactly the same time invested everybody in finding and quickly adopting the solution. Thus, what might have taken two or three decades of fractured steps between parties with differing agendas has actually occurred in two years and the market now has the most solid electronic base it has ever had.

Hybrid Working

With a return to the Room and face-to-face representation has come an intense discussion of what hybrid working should be. The cry of “Everybody Back!!” has gone up in many quarters. Which prompts two particular questions: How and why?

Few companies have maintained their office space in a fashion which is untouched since 2019. Understandably, many cut back on space during lockdowns. There is no obvious prospect of more lockdowns and so views need to be taken on how to accommodate a workforce returning to the City.

If office and desk space have been shrunk by meaningful percentages then there is a need to increase both to provide the required workspace. Not all companies seem willing to engage with this and real estate savings achieved since 2020 are hard to let go from balance sheets.

Something has to give though. Either provide the desks or stop pushing the office agenda so loudly. Hot desking might look and sound like the answer but experience suggests that it really isn’t unless planned with military precision.

One obvious exception to this is, of course, the Room. Here there are desks in abundance (many of them noticeably still empty) and a lease signed through to at least 2026.

If underwriting seats are adjusted to reflect postpandemic use then what is to stop Lloyd’s offering brokers and other associated companies desk and workspace on floors two and three?

If successful, then maybe the thinking can extend to and beyond 2031 with Lloyd’s re-established as the epicentre. This would surely also be useful given the notable exodus to the company markets of late.

If the “How” can perhaps be answered, then the “Why” still remains.

Remote working has been an almost universal success. Unlike some other industries it is hard to bring to mind any core businesses within ours that have had to close their doors due to pandemic issues.

Most would admit to having seen productivity increase because employees are less constrained by commutes and less distracted by office environments. The laptop at home has somewhat re-defined traditional working hours.

Ultimately, the employer has benefitted. The employee has had wins also with greater balance between home and the office. As familiarity and trust in the systems has embedded, so have efficiencies. The understanding has thus grown that a desk in the Square Mile is no longer an essential requirement for work interaction and productivity.

Divided Opinion

Is a wholehearted return to the City required? It appears to depend on who is asked.

The senior and junior groups tend towards “Yes”, with the middle (larger) group more in the “No” camp.

From the senior perspective this seems to predominantly represent the indoctrinated view that it was always done this way and always should be. The younger view appreciates the benefits of in-person contact and the ability to learn faster that way, including by osmosis.

The middle group’s view is mainly born from the comfort of having already gained a better sense of their place in the industry and working with established relationships, along with certain family pressures which inevitably arrive at that stage of life.

Is it impossible to accommodate all? Surely not, but for that to succeed the decision-making must be vested across all the participants rather than laying squarely in one group. While a recent EY report showed good progress with female board representation it also confirmed that there were no board members under 40 in any of the UK’s top financial services firms.

And here we return to the title. As referred to in the comment on the speed of development of electronic platforms, the industry is confronting potentially rapid evolutionary changes.

Are we willing to fully address them? We stand in a moment which presents an opportunity to re-engineer some parts of how we do what we do. The decisions made in this time will affect the path towards the next 30 years. Who should make them?