London Makes it Possible if It Comes Together!
“What should the London market look like in 2025?” Lloyd’s chairman Bruce Carnegie-Brown posed the question to more than 400 delegates attending The Insurance Insider’s London Market Conference on the 2nd November in one of his first speeches since taking the helm at Lloyd’s. In an information-rich world in which imagining what is going to happen next week seems an impossible task, the Lloyd’s Chairman has certainly set himself an ambitious task!
Of course, we all know that great change will impact and disrupt the global specialty insurance classes and, by extension, the business models that affect enterprises, their policyholders, and claimants. Carnegie-Brown drew parallels between a London market standing on the cusp of the digital age and the US agricultural sector in the 19th century, which was transformed when Cyrus McCormick invented the combine harvester.
When McCormick demonstrated his new horse-drawn mechanical crop harvester to farmers in the 1830s in the US, he was met with derision. The blinkered thinking was why should we spend money on an unproven technology when we have access to a seemingly endless supply of labour to reap the harvest manually?
In those days the combine harvester with its jiggling wooden bars and sharp blade looked otherworldly. McCormick persisted, however and by 1856, he was selling crop harvesters across the US. The machine improved productivity by a factor of six or more.
According to Carnegie-Brown, McCormick wasn’t the only inventor of a mechanised harvester at the time so why did he succeed and others fail?
McCormick understood three things better than his competitors:
- First, the importance of new technology – as new engineering techniques were invented he kept improving his machine so that it would always be the best.
- Secondly, the importance of distribution – he used a trained sales force to sell the harvester and made use of the then new rail network to deliver it around the US; and
- Thirdly, customer focus – he offered an in-field repair service in case of break down.
McCormick’s innovative strategy changed farming’s business model forever. These events occurred more than 170 years ago, when McCormick lived during a time of transition from manual to mechanised labour.
The parallel Carnegie-Brown was making is that the commercial insurance market is also facing a key moment in history – at the end of the old industrial, analogue era and at the beginning of a new digital world.
As someone that often views the London insurance market through the claims prism that underpins my customers’ businesses, it was therefore instructive to listen to the Lloyd’s Chairman’s comments that followed as he outlined a case study of future opportunities presented by this digital world.
Technology was at the heart of McCormick’s revolution and technology is at the heart of the changes taking place in our sector. In his speech Carnegie-Brown asks us to imagine that you are an insurance customer coming to Lloyd’s in 2025, and it is worth quoting him verbatim:
“You put your property risk up for auction on Lloyd’s online portal. Syndicates bid for the risk or part of the risk online, offering a range of different premiums and covers. The risk can still be syndicated – the auction method allows for parts of the risk to be transferred in the way they can be now. In effect, Lloyd’s now offers its own price and product comparison service.
“Because the system is fully electronic, frictional costs are reduced. Your preferred brokers may or may not be involved in the process depending on the complexity of the risk, but they now offer you a range of value-added services based on expert advice. Their fee structures are lower, because digitisation has lowered their costs. Let’s say you get the cover for the risk – it might have cost you less than it does today because by 2025 the algorithms are so developed, the data sets so rich and the analysis so insightful that much actuarial work is now automated.
“Halfway through your policy term, a storm destroys your property. Straight after the disaster strikes, satellites beam back imagery augmented by drone photography to build up a picture of the disaster zone and verify the damage has taken place. When there’s too much cloud cover, insurers use a free online service that aggregates images from all of the CCTV cameras in the damaged area to provide an alternative on-the-ground view.
“Once this data reaches a certain evidential threshold, the claim is triggered automatically – you don’t need to submit it. The payment is made electronically, underpinned by distributed ledger technology, such as Blockchain, within days of the claim being made.
So what are the benefits once this vision becomes reality?
- Policyholders benefit from better customer service: bespoke products and policies that cost less and come with faster claims payments.
- New technology means we can compete with and beat the disruptors. By disrupting ourselves, we will have beaten them.
As was pointed out in the LMC speech, digitisation will eliminate manual processes but it will not eliminate the valuable part of what the London market does. We need to enhance, develop and where necessary redefine our value so we are relevant in 2025 and beyond.
In the London market, which pays $100 million of claims on a daily basis and connects 52,000 risk professionals that is a valuable lesson. Nowhere is there a clearer demonstration of the value of insurance than in the recent payment of billions of dollars of claims to help the people of the Caribbean and the US recover from the disaster of three hurricanes in the space of a month.
Disruption is the word of the day, the mantra that describes the risk and the opportunity that can come with being open to new ideas and technologies, such as machine learning, Blockchain and even existing proven systems such as the LMA claims initiative Write Back, which DOCOsoft helped to initiate two years ago.
The thoughts of the Lloyd’s boss were echoed by Steve Hearn, Group CEO of Ed who shared his strong (and maybe even controversial) views on the position of London in the global market. Hearn’s passion is to make sure the market he has been part of for the last 30 years gets to see another prosperous 300 years. He extolled the virtues of new emerging markets but warned that London needs to embrace change to compete.
At the same time, Chris Beazley, CEO, London Market Group explained that London makes it possible whilst launching a new initiative designed to future proof carriers against the threat of external disrupters.
Disrupt or be disrupted was the theme of the first panel debate of the conference’s afternoon session where it was explained that the tech challenge is the regulatory challenge while Aon boss Greg Case argued that the insurance market must evolve to maintain its relevance and to quote The Beatles, Come Together!
At DOCOsoft, we’re fond of the Beatles who were the innovators of their day but as an InsureTech firm with strong roots in Dublin we’d be more inclined to state that With or Without You U2 (Lloyd’s Managing Agents) can have a Beautiful Day if you embrace the art of the possible while investing in a culture of innovation!