DOCOsoft Compounds Momentum at Insider London event
It’s fair to say that DOCOsoft has been building up a bit of momentum over the last couple of years. New clients such as AXA XL have taken our thriving company to a new level. New starters have pumped fresh blood into the business as we have grown to meet the demands of servicing the claims management needs of a roughly a third of Lloyd’s Managing Agents operating in 2020. So we were delighted to have the opportunity to exhibit at the recent Insurance Insider London event whose theme was titled Compounding Momentum.
The title is no doubt a nod to the first phase of the Future at Lloyd’s Blueprint whose objective is to build on recent progress aimed at modernising and transforming the London market while reducing operating expense ratios
The first speaker to present was David Flandro from Hyperion X, which is renowned in the market for doing a lot of data analysis. David’s presentation was impressive. He explained that expense ratios in the London market are around 40% with brokerage making up approximately 31% of that total. Many speakers throughout the day questioned the efficiency of the current London market value chain. As he put it: “The insurance sector is barely earning its cost of equity.” Third party capital is here to stay while Property Casualty reinsurance and retro are increasing.
Pat Regan CEO of QBE opened by asking: ‘Can we honestly say we understand the impact of climate change on our portfolio?’ QBE is looking to be a leader on climate change and insuring renewables. At the same time the economic outlook is unclear with global GDP growth of only 1.8% as China slows. 20% of the world’s bonds are zero rated or even lower. Interest rates the previous year were down 70 basis points. The answer could lie in more fiscal stimulation and infrastructure investment.
He believes it is urgent that the market innovates. Products are not aligned. They need to provide what customers want. None of the digital products are fast enough. Regan mentioned that he is involved with the Taskforce on Climate-related Financial Disclosures https://www.fsb-tcfd.org/ which is a topic that the insurance market as a whole is focused on.
Brad Irick, CEO of Tokio Marine Kiln believes that insurers need to leverage better the data to support underwriting decisions. The market needs to look ahead of the curve and ahead of Lloyd’s. According to Irick we can’t wait for Lloyd’s to get its act together. Focus on underwriting, expense management, the bottom line, target low 90s Combined ratios and be willing to pull back from bad business was the overall message.
Ernst and Young
Can insurance power a brighter future was a question posed by EY and some of the answers will come in their report, coming at the end of March 2020, which will be worth reading. EY referenced the roaring 20s and the influence of the legendary 20th Century Lloyd’s underwriter Cuthbert Heath whose achievement, among many others, was to recognise the power of data to deliver CAT modelling analysis. The presentation talked about 73% of risks being intangible, how risks are changing and what the insurance sector must do to remain relevant in an environment in which a pharma company like Glaxo Smith Kline has not made a medicine or tablet in 20 years – all production is based around virtual supply chains these days.
The market needs to become relevant to risks that actually concern clients. It needs a data driven solution for loss prevention – with real time analysis of risk to help mitigate emerging exposures.
EY believes the market can triple growth in Gross Written Premiums by doing this going from $0.3 – 0.9 trillion in achievable new business. They also see the ancillary services opportunities as huge for those companies that get their data analytics projects right.
EY are working with Maersk on a real-time data initiative. They can track where all vessels are. They are using their models to improve insurance pricing. The sky is potentially the limit for insurance when you consider that when stock exchanges went electronic they increased trade 60-fold.
Mathew Moore – Liberty Specialty Markets President and MD said on the CEO panel meeting that better data is needed in casualty to be able to determine what is happening and to be able to price accurately. Social inflation – otherwise known in some circles as claims inflation – is one of the reasons why the global P/C market in aggregate has not returned an underwriting profit over the last ten years.
Market return on equity has fallen from around 12.5% to 7% in that time. The CEO panellists listed a number of challenges facing the market including social inflation, litigation, jurors punishing big business, squeezed margins, high expense ratios and the difficulties attracting top talent. One CEO said that: “the biggest risk we face is getting our reserves wrong” which was an interesting comment as far as DOCOsoft is concerned because one of our new products helps to address that issue. The CEOs were also keen to see new linkages created between claims managers and their underwriters. The belief is that technology can help to create new integrated platforms.
The Future of the London MGA session addressed questions such as the place of the modern MGA in a hardening market and the power for technology to deliver change. When panellists were asked whether they thought Syndicate in a Box (SiaB) was going to be the way forward for MGA’s the reason was an overwhelming no.
The reasons being that most of the people who start up MGA’s have previously worked in the market and for felt constrained by the rules of being a Syndicate and wanted to be able to be flexible and move with the times, which is why they started their own MGA’s.
Charles Manchester stated that although it could seem attractive to some MGA’s to go for the SIAB, the regulations mean that they would effectively have to quadruple their top line over 3 years which is a big ask in the current market and if they didn’t Lloyd’s could pull the plug which would then leave them in a worse position.
All four panellists stated that the future was looking very bright for the MGA market but there was still work to be done to move things forward and to make them more competitive.
Some of the other key points that came out of the discussions were:
Focus on Underwriting Profits
How best to maximise the profits both for the MGA and the Carrier. There has been a focus on the Top line previously, but it was expected that there would be more focus on the costs involved in running the business in the future, part of which would be resolved by the next item.
Analytics of Data
It was felt by all the panellists that they don’t do enough with the wealth of
data that they possess.
Analytics is very much going to be needed in the future and this is where they see the spend on IT
Tech to Distribute
It was agreed that there was much too long a distribution chain and this was even more apparent in
the Non-Bureau market, where the distribution can get very long and complex and add to the costs
of the business. Management Information: the ability to produce meaningful MI is going to be more
relevant and this fitted into the Analytics of Data comments delivered by the panellists.
As with all companies there is a need to reduce the costs as much as possible, which had been met
previously by increasing the top line, but this would no longer be the way to do it. Therefore, MI and
the control of the Distribution Chain will be critical going forward.
Duplication of Effort
Sometimes the same effort is done in a number of places, thus duplicating the effort and
consequently the costs. For example if the Delegated Authority business is particularly Niche and/or
complicated then the Carrier may employ an expert to oversee and manage the business on their
behalf and this would be a duplication of what is down by the MGA. Again, Data will play a big part
in reducing this as will the ability to all view the one version of the truth and this fits into the Lloyd’s
blueprint vision of the throughput of data being consistent and transparent.
The overriding impression is that the MGA market is thriving and is expected to increase it’s share of the London and worldwide market. However, to do this they need to reduce costs and make better use of technology through the MI and data analytics.
John Cavanagh, CEO of Beat Capital partners, delivered a well-received talk on how entrepreneurial start-ups can survive and thrive at Lloyd’s. Other Financial Services companies in sectors such as asset management, investment banking and FinTech have moved with the times but no so entrepreneurial talent at Lloyd’s. That needs to change to bring more fluid private capital and new underwriting talent. Private, independent entrepreneurs used to be the norm at Lloyd’s but only account for roughly 5% of Syndicates today.
Another issue identified by Cavanagh is that underwriters today at Lloyd’s actually have “skin in the game” which could help to explain why performance is so variable. The market needs to focus on where its expertise lies, take ownership of the business and deliver cost efficiencies. Can we encourage more mono-line entrepreneurs and reduce perceptions that stigma should be attached to being a follower in the lead/follower model.
Finally, only 23% of Syndicate businesses are headquartered in London, which is a real risk should Lloyd’s ever experience the difficulties it faced in the 1990s. In such a scenario, could London rely on the same level of commitment from its participants as it did back then? Food for thought to close an enlightening day of panels and discussions. At that point the DOCOsoft team still on duty compounded its momentum at the post conference bar where they celebrated the day’s meetings and presentations.