London Market Claims 2021: Evolution or Revolution?
The rate of change in the global economy is accelerating faster than ever before. Climate change, intangible assets, intellectual property, cyber, the Internet of Things (IoT), and pandemics are new challenges that the insurance industry and their partners in risk must address.
In this environment, the consumer economy is constantly innovating, making physical buying as frictionless and nimble as possible. At an insurance level, today’s pandemic-impacted economic environment is fuelling underwriter concerns about liquidity, risk management, systemic risks, and overcapacity. Meanwhile, economic shifts such as lower consumer demand and post pandemic ways of working mean that old business models may not work any more.
There is no doubt that the role of claims will need to evolve to accommodate the ever-changing nature of risk and insurance. Insurers and their claims teams have to engineer a first-mover advantage to anticipate the needs of their customers. Real, enduring value will be created by those claims teams that can convert customer insights into products. Ditching outdated approaches to data storage and the operation of legacy platforms will free new resources that can be used to develop new products and services.
Claimants – whether they own a policy on a car or an offshore oilrig – want their insurance companies to make life easier for them. The London market will win over customers by issuing policies and paying claims within minutes rather than weeks and by introducing value-add tools that are tailored to their specific needs.
Global services are reportedly growing 60% faster than the goods trade, according to the World Economic Forum, as Digital and Industry 4.0 help to facilitate new opportunities to establish outcome-based business models – such as pay-for-performance availability. That is for the near to medium term future.
For now, the London market can afford to pat itself on the back for some of its recent decision-making successes. PPL started over five years ago, for example, and predated Blueprint 1, but it’s the initiative and the support that Blueprint generated that has accelerated momentum, most visibly through the Lloyd’s mandate.
Two years ago, not much more than 10% of risks at Lloyd’s were closed through PPL or electronically. At the moment it is running at around 90%. The lockdown and pandemic has changed our working practices. Without technology like PPL, however, and the even older ECF electronic trading platform for claims, we would have been in big trouble with everybody having to work from home.
So we need to look at successful technology like that while continuing to stay relevant and able to carry on transacting business in a new way. It is about simplifying how we do business in London going forward and making it cheaper to do so in the meantime. Embracing intelligent change – not just change for its own sake – is going to be a central theme this year so that we can use technology in a productive, integrated and complementary way.
But we can also make London an easier place to do business. One of the reasons that we’ve been able to trade successfully in this period of time has been because of the social capital and relationships built in what has been described colloquially as a ‘3D world’.
As we go forward, and adapt to the new normal, we may see a mix up of digital and 3D coexisting side by side, much like businesses done in Bermuda today. One of the next phases of London market development will be data standards. When you look at what’s within Blueprint 2 and the focus on placement, claims and delegated authority, the golden thread that stitches them together is data – and the digital spine.
The next generation of platforms will be able to plug into that, to provide the data that will then pass through the entire life cycle of a risk within the London marketplace.
The great thing about digital for London is that it grows the London market pie. What we are all assuming about digital is that it is about how people do business in London with other people who are in London. The great opportunity on digital however, is how do we do business with people who are not in London in a more efficient way?
We can do lots of really fun and interesting stuff looking at new business and going after new business, but obviously we’ve got to get our fundamentals right around the methods of placement and open market delegated authority. It will come on to reinsurance later this year, but also around the claims process. That’s what impacts insurers’ clients the most, and where we have the most to gain from an efficiency perspective, by linking them together digitally.
A digital gateway is how data will flow, for example, from PPL. It will be validated, and data will be enhanced through the digital gateway, which will flow through the processes and systems that we’ve got within the London market. It is fundamental stuff that we really need to work hard to get right within our marketplace.
Part of what the digital gateway will do, once we have agreed to an agreed set of standards, is validate that the data being submitted at point of bind is correct, and will then flow on through the system so we start to remove the errors that we’ve got, and speed up the process significantly.
That is how the market will start to strip costs out of the system because the cost of that re-work is huge. Lloyd’s revealed in its press release for Blueprint 2 that it expects at least £800mn of cost savings across the market.
One aspect that COVID-19 has brought to the fore far more quickly than maybe it would have happened before the pandemic is the virtual underwriting environment – or, to be precise, the benefits of the physical versus virtual trading environment.
The pandemic has shown that we can use technology in different and productive ways. But we continue to be a marketplace based on judgements informed by people, meeting each other, and understanding how they think, and how they act.