Lloyd’s digital transformation could save the marketplace both time and money in the future, but the implementation process could pose challenges. Insurance Times investigates
After a period of “relatively little news” from Lloyd’s of London, the marketplace’s latest flurry of activity since January 2022 around its digital transformation “may suggest that the phony war on innovation is over and that real change is about to take place”, according to Ian Gibbard, London market strategy and commercial lead at software company Guidewire.
January saw Lloyd’s of London launch a second edition of Blueprint Two, to include an interactive guide and road map. The revised blueprint also flagged a new leader for the project - market transformation director Bob James, who was appointed in June 2021 - as well as marketplace’s move to on-demand cloud computing platform Amazon Web Services (AWS).
Gibbard told Insurance Times: “With the right impetus, this is an opportunity for the market to make meaningful strides forward in its transformation efforts.
“Obviously, there are concerns about going too far too fast, but it should be a short to medium-term priority for Lloyd’s to not only create a new architecture in the cloud, but [to] also sunset the existing architecture instead of maintaining it indefinitely.
“In doing [this, it] could create a virtuous feedback loop whereby carriers invest time in making sure the new system works as it is built, instead of coming to it in the future and finding fault with it.”
In-person versus virtual
For the last 30 years, Lloyd’s has been talking about changing its back office systems - as referenced in its Future at Lloyd’s digitalisation strategy, first announced in May 2019 - but so far it has never been able to achieve a consensus around how this should be achieved.
Therefore, most industry commentators have assumed that the market is “very inflexible”.
However, “as soon as the Covid-19 pandemic happened, brokers and underwriters just got on with it”, said Ian Gibbard, London market strategy and commercial lead at Guidewire.
He continued: ”It’s a face-to-face market, yet during Covid-19 and several severe lockdowns, the market continued to operate and was very successful - it was able to prove that it is very flexible and adaptable. This has shown that the market is very flexible when it has to be [due to] a crisis.”
Despite this flexibility, Gibbard stressed that there is still a need for insurance professionals to meet face-to-face, especially when it comes to negotiations.
He explained: “Over the last 10 years, all the carriers I know in the London market have invested in what is effectively underwriting rooms in their offices – be it in Fenchurch Street or Lime Street.
”I don’t think Lloyd’s has announced that it is leaving Lime Street, but in terms of operational efficiency and cost, I would say [that] it would be a positive move if it did.”
While he admitted that this is an “unpopular opinion” due to the iconic and historic Lloyd’s building, he believes the market could survive the move to a new location.
Becoming cloud native
The Future at Lloyd’s strategy, focused around the market’s digitalisation, initially launched in May 2019. The key goals of the initiative were outlined in Blueprint One, which was published in September 2019, while Blueprint Two - published in November 2020 - further clarified the steps market participants and other stakeholders would need to take to help action the strategy.
Blueprint Two’s first interactive guide launched in May 2021, followed by an updated version in January this year.
To support the implementation of the Future at Lloyd’s strategy, Lloyd’s agreed a joint venture with IT company DXC Technology and representative body the International Underwriting Authority (IUA) in January 2022, to bring to fruition a Core Data Record (CDR) and automated processes.
At the time, Lloyd’s chief executive John Neal said: “With the respective commitments of DXC, Lloyd’s and the entire London market, we have the capabilities to transition to a single platform solution that will provide automated processing and accounting for the market, a substantial reduction in operating costs and offer customers a much faster, better service.”
Gibbard believes that the joint venture can reduce the cost of processing data, however he warned that becoming cloud-based is ”not just a matter of copying existing software and putting it in the cloud”.
He explained: “Just moving existing central systems that DXC manages into AWS won’t make it any more efficient or remove the downtime and issues [Lloyd’s] has with some of [its] old systems. It will perhaps make it easier to increase the number of servers, memory and resources.”
In terms of Blueprint Two’s road map, Gibbard commended Lloyd’s for drawing on data standards to support digital trading.
Data standards can be used like a “living dictionary”, according to Steve Waller, head of standards and data protection officer at Polaris, because they enable information that has a commonly understood meaning to be shared throughout the value chain.
Having ”product definition and data standards” therefore ”ensures that multiple technology platforms can easily transact insurance digitally”, Waller added. ”Such standards are really the language of digital trading.”
However, Gibbard does have concerns about how Lloyd’s plans to ”co-exist within the wider global insurance market” due to the creation of ”a London market standard” rather than ”agreeing standards globally”.
”With very large risks being co-insured across both London and other marketplaces, a lack of global standards could prove to be a more expensive business model and provide ”a reason not to do business in the London market,” Gibbard noted.
“[Lloyd’s] needs to make sure that these standards really are standards,” he added.
Blueprint Two in action
Lloyd’s Blueprint Two road map will run from quarter one of 2022 to quarter two of 2024. It details the digital solutions Lloyd’s wants to deliver, as well as highlights when the market will need to respond to planned changes.
The document also outlines how Lloyd’s intends to offer support to the market throughout the digital transition process.
The associated interactive guide looks at five key areas:
- The engine room: What does the mid and back office look like across the market? This is to do with the joint venture launched between Lloyd’s and DXC Technology, which will look at how policies are issued, how claims are handled, how accounting entries are completed and how duplications are fulfilled. Neal described this joint venture as “important”.
- Redesigning how business is placed: This revolves around data and the establishment of Lloyd’s data council, to ensure that the Core Data Record can change accordingly. The Core Data Record denotes the critical transactional information that needs to be collected to drive automated downstream processes.
- MGA, delegated authority and coverholder business: Ensure this has a “true ecosystem” approach that allows bordereau reports on a monthly basis. A bordereau is a periodical report that is prepared by an insurance company for a reinsurance firm - it details assets covered and claims paid.
- Improving the quality of proposition for claims made: This can be for the open market or delegated authority arrangements. It aims to ensure that the journey from first notification of loss to settlement is as transparent and efficient as possible.
- Importance of data: The way in which Lloyd’s drives speed, efficiency and a reduction in cost means making sure the market has the right data and data flows.