Leading, innovating, growing

Lloyd’s is on the front foot again as it aims to guide the industry through post-covid changes and challenges

By John Deex

Since 1688 the venerable Lloyd’s market has been a pioneer of insurance coverage, and breeding ground for new ideas.

Now, after a period of remediation and covid-induced limitations, Lloyd’s is looking to reclaim its reputation for innovation.

It’s also prioritising growth again – but sustainable growth – while carrying out a comprehensive modernisation project at the same time as bringing through vital improvements in diversity and culture.

A vision of a post-covid era Lloyd’s is emerging, and Australia plays a key part.

During Insurance News’ visit to the iconic Grade 1-listed Lloyd’s building in London’s Lime Street, Chief of Markets Patrick Tiernan confirms the local market is of “paramount importance”.

There’s some debate over whether it’s the third or fourth largest Lloyd’s market (Canada may have nudged ahead), but Mr Tiernan says it’s not just about size.

“The size of the premium is very important, but the relationships with the customers and the roots we have in Australia are deep,” he says.

“The relationships we have with regulators and distributors on the ground are very important to Lloyd’s and we [cherish] them dearly.

“I’m desperate to get to Australia this year to demonstrate how important it is to us from a markets perspective.”

Lloyd’s took a long, hard look at itself in 2018 and 2019 as profitability plunged. It pledged to crack down on underperforming syndicates, and avoid “bad business”.

In the words of then recently installed Chief Executive John Neal in January 2019, Lloyd’s vowed to never again “allow our hand to slip from the tiller and let the market drift into stagnant waters”.

This focus caused some issues in Australia, as Lloyd’s capacity was harder to come by in certain sectors, but Mr Tiernan says that “necessary phase” is now finished.

“I wouldn’t call it retreating, I think it was just taking a look at the book and ensuring that there was sustainable profitability that would maintain our strength with regulators, with rating agencies, and with customers.

“We believe that a lot of that remediation has been done and done well by the Lloyd’s market, and that 85% of the syndicates have earned that right to look forward through a different lens – through the lens of looking to grow, but grow sustainably.”

Sustainable is the key word. Mr Tiernan is adamant that the last thing the market needs is to undo the good work of the past three years, requiring another correction in years to come.

“What the market is focusing on and what we’re supporting is sustainable and profitable growth.

“I think it’s fair to say that for those syndicates and managing agents that have demonstrated that record of profitability, they’re not being held back by Lloyd’s.”

Growth for Lloyd’s in Australia has been outstripping the average, and Mr Tiernan sees plenty of opportunity.

He says Lloyd’s thrives when it’s doing things others can’t by virtue of its syndication arrangements. In practice this can mean specialist underwriting, innovative products, and greater efficiency.

But he won’t put a number on growth targets for the local market – or anywhere else for that matter.

“That’s not the way we think about it. We set top-line targets at our peril.

“Our non-financial target is to increase our relevance and increase the level of consideration given by clients and insurers in Australia to Lloyd’s as a desirable, necessary, and welcome solution to risk problems.

“If we are higher up the dial when those conversations, those thoughts, are happening, that’s success for us.”

Mr Tiernan singles out cyber as one area where syndicates still need to be particularly careful.

In a market that’s maturing so fast, the pitfalls are clear, and Lloyd’s has 20% of the global market.

“We’ve got a big responsibility to be on the front foot in terms of monitoring, facilitating, and maturing that market.”

Lloyd’s is playing a key role in answering questions about cyber before they’re asked. Cyber war clauses are one example of an area that could “one day be challenged”.

“In times of crisis, a lot of heads turn to Lloyd’s when they think about insurance-related matters.

“And we are seeing that at the moment in relation to the conflict in Ukraine. But as we think about cyber and we think about other classes, we cherish our reputation for innovation.”

Mr Tiernan says that reputation may have been forgotten by some over the last few years due to the emphasis on remediation.

But the work has carried on, with the Lloyd’s Lab producing some “fantastic innovation”.

However, with a reputation for innovation, comes responsibility.

“We have a responsibility to continue to look ahead, look over the hill, bring in expert voices from the industry and ensure that we are thinking about the next issues.”

A “vacuum of certainty” leaves nobody happy, Mr Tiernan says, and “closing down disparities in understanding” is a major focus for Lloyd’s, leading to better customer outcomes, and increasing trust in the industry.

Thriving again: the iconic Lloyd’s underwriting room

“Being open about what is and what isn’t covered today is a really big step forward because it allows people to make informed decisions.”

Mr Tiernan says the total pool of cyber premium versus the total potential economic loss from major cyber events is “completely out of whack”.

“But my view is that in the long term, private markets finding solutions to risk problems is the way forward.

“The better way to do this is to have these discussions before the event, and actually engage with regulators and lawmakers around the world, which is what we’re doing.”

Mr Tiernan, who worked in Australia between 2001 and 2003, has followed closely this year’s devastating flooding across the country.

And he says Lloyd’s can contribute to insurability debates by bringing its experience of similar issues from other parts of the globe.

“There’s been different approaches taken. Some more and some less successful. But I think getting the balance of insurability and affordability is a constant threat.”

He says all increased natural disaster losses can’t necessarily be attributed to climate change.

“A lot of it is due to living habits in the first instance, and more people living in more concentrated areas, maybe on floodplains, or closer to the coast.

“So, we think there’s an increase in exposures. It’s already becoming a bigger problem before we add in the likely impact of climate change.

“Is there a risk of uninsurability? I think if everybody sits in their hands and just hopes for different weather patterns, then yes.

“I think Lloyd’s role must be in bringing the experience of other places to bear, bringing capital, government and insurers together to work these issues through.”

Mr Tiernan backs the industry view here in Australia that government investment in resilience is crucial.

“There have been quite a few examples where there’s been a lot of damage in a certain area, flood defences built up, similar weather patterns happen five years later and losses are massively reduced.”

He believes the Lloyd’s market’s ability to innovate is again important in keeping insurance accessible to all.

“Current conventional products for homeowners, business owners, or property might not be suitable. We may have to develop new products and evolve our thinking about it.

“To be fair to the market, I think they’ve done some fantastic work in actually looking at products that can be quite responsive.”

Mr Tiernan references New Zealand simplified earthquake insurance provider Bounce, and Australian parametric cyclone insurer Redicova, both backed by Lloyd’s, as examples.

“We’ve got to think deeply. Australia might be, because of its concentrations of population in certain areas, a more difficult nut to crack.

“But I think that the tougher the problem, the more difficult the solution – Lloyd’s should have a bigger role to play, on the basis that our value proposition is to be complementary to the domestic markets and to step in where our specialisation is needed.”

In terms of dealing with climate change, Mr Tiernan says the insurance industry will play a “critical” role in the transition to net zero carbon emissions.

“It can’t happen without the insurance industry. Lloyd’s position is really very clear on this. We do not set policy, but we full-throatedly support it.

“We’re going to insure the transition because that is, in Lloyd’s view, the best and possibly the only way to actually achieve the public policy goals and net-zero by 2050.”

As a corporation, Lloyd’s will be net zero by 2025, if not before.

On the asset and liability side, Lloyd’s is “absolutely committed” to net zero by 2050, but Mr Tiernan warns the graph probably won’t show a steady emissions decline.

“That’s just not realistic,” he said. “In order to get the clean energy solutions that we’re going to need for 2030 and beyond, there’s quite a lot of work that needs to be done on nuclear reactors, more wind, and more battery power for example.

“We think that it may be quite spiky or quite lumpy as we get there.

“We’re investing in terms of people, in terms of research, in terms of our own efforts to really drive this at the fastest, most realistic pace.”

And once again, innovation will be vital as new sectors look for the insurance cover they will need in order to operate.

“This is what the Lloyd’s market is all about. It’s about being innovative and about solving these issues.

“We are front and centre in driving that acceleration in change of how we use power.”

Lloyd’s is steeped in history, and its underwriting room where brokers and underwriters meet face-to-face to do business and share ideas is legendary.

But while traditions are celebrated, there is also a need to modernise and Lloyd’s has embarked on a mission to upgrade systems and processes and close the technological gap on some of its more nimble competitors.

The Future at Lloyd’s project was launched in 2019, and the roadmap stretches into 2024.

But Mr Tiernan says it was important to spend time getting it right.

“While it was a difficult decision, it was right to take time in the design phase to ensure that there was a robust design that would survive the build phase and the adoption phase.

“We’d like to be further ahead, but we’ve no regrets in taking the time that we’ve taken to design this right, get the data council in place, and get the support of everybody involved in the market because this is a market solution to a market problem.”

Mr Tiernan sums up what success will look like – a data-driven market that serves its clients quietly and efficiently.

Gone will be clunky processes, old technology, tasks that don’t add value, and waste.

“We want to be very easy to deal with. We want to be competing against folks who maybe have a slight advantage over us in terms of that nimbleness or agility. We’ll close that gap down.”

He says there won’t be a “lights turned on” moment, but change is happening “quietly and confidently” and success will be “not talking about this stuff anymore”.

While covid proved that the marketplace could operate remotely, Mr Tiernan says it’s important not to see that as the new workplace model.

“My personal view is that the reason we were able to trade so successfully [through covid] and to meet customer and broker needs, is that there were years and years of personal relationships built up by various comings together in the underwriting room or elsewhere.

“As we come out of covid, one of the things that we’ve heard is ‘we’re looking forward to you guys getting back on the front foot in terms of creative solutions’.

“So, while I think we functioned very well, I think that the real creativity and innovation will speed up as people have those serendipitous meetings downstairs or around the room.

“A huge power of this place is its magnetism for talent, and magnetism for actual boots on the ground in London.

“The younger folks, the people who are the next generation in this market, they seem to like to be here.”

Just as important as modernising systems and processes, is changing culture. Lloyd’s is working on that too, carrying out regular staff surveys and acting swiftly where issues emerge.

Mr Tiernan says the latest survey saw “good participation”.

“I think that’s great. Maybe there’s increased confidence that the corporation, the market, is listening and is going to act on feedback.”

In March, managing agent Atrium Underwriters was fined a record £1.05 million by the Lloyd’s Enforcement Board over misconduct including “sanctioning and tolerating” inappropriate comments made about female employees at “boys night out” sessions.

Mr Tiernan says the incident shows “we’re not there yet”, while pointing out that the behaviour dates back to 2018 and was dealt with decisively.

“Maybe we’re never there,” he says. “Maybe you’re always trying to improve your culture, particularly your inclusivity and your magnetism for talent so everybody can come here, no matter what their background or their characteristics, and go ‘I definitely want to work here, I feel included and valued here.’

“We want to make sure that more people are speaking out, anybody who’s experiencing this market in a negative way has the confidence to speak up, and we act quickly.

“If we don’t leave this place in the right state for the next generation, then shame on us.”

After almost 335 years, Lloyd’s is proud of its history. One of the reasons it’s still here, and still leading on insurance, is its ability to evolve.

And that’s more important now than ever. 0