“Any other industry would have been significantly disrupted by now. You can't take 40 cents on the dollar out of the premium a customer pays and use that to administer the activity we do. I daresay regulation has been our friend and not our foe there.”
One year into his tenure as Lloyd's chief executive, John Neal talks to Reactions about his vision for the future of the market and why there is a pressing need for some quick wins.
What have been your biggest priorities over the last year, and how have you settled into the role?
Coming into the role, I spent time doing my own due diligence on Lloyd's to understand what people felt we needed to concentrate on to really get the market back to the forefront of the discussion on insurance and reinsurance. And they said three things. One: you need to get performance into shape. Two: you need to tackle the cost of doing business, which has risen significantly at Lloyd's and which ultimately goes to competitiveness. And three: show some leadership and be strong in what you want to say and do.
How critical are the initiatives you've laid out in Blueprint One to the future of the market and its competitiveness?
Put simply, we're saying we need to ensure there is a digital capability for the market to manage both complex risk and standardised business, and that really goes to efficiency, speed and the cost of doing business. We've got to dramatically improve the claims proposition, there is some real energy around the quality of the way in which we manage the relationship at a critical point. And we have to demonstrate that we can be innovative. Our syndicate-in-a-box idea is all about how we encourage the next generation of smart thinkers to participate in the marketplace.
On the digital side, is there a feeling the market needs some quick wins?
It's been really intense in the last three to four years around “modernisation.” But the way in which you get value is through connection and system compatibility. Each broker has their own system and each underwriter has their own system, and Lloyd's operates as a platform in between. The success of driving efficiency is to ensure that the broker using their own system can connect into Lloyd's and the insurer using their own system can connect into Lloyd's. It's all about connection, and we need to get that done pretty quickly.
How will you bring the market with you as you go through these changes that need to happen?
The market has realised it's at a tipping point and the sort of the old-fashioned, document-led process just isn't serving the end customer particularly well. You would have thought, with the ideas that we're promoting, that you would meet more bumps in the road than we have today. But there is a real understanding and acceptance of the need to change. Also, we have consulted and communicated with all the constituents in the market very thoroughly.
There is a big piece of change management that needs to come alongside the technology and the move toward a data-led world, and we are not underestimating that. People need to feel that we’re helping them along that journey rather than just throwing ideas and solutions at them. We've consulted thoroughly to this point and what we've now got to do is demonstrate that we can support both our brokers and insurers through the change.
Looking at initiatives that have failed in the past, is that because the market did try to throw ideas and solutions at insurers and brokers?
On some of the solutions, the market may have tried to get ahead of itself. If you're in a document-based world and you want to move to a data-based world, I don't think you can go from one to the other in just one step. The market previously has tried to go right to the end answer and not gone through the stepping stones to get there. There's not been enough consultation and change management and representation of the market.
One thing we did between 1 May and 30 September was run the Future at Lloyd’s solutions through several design labs. These included working with the underwriting and the broking communities – and there were 160 different representatives working with us at its peak. So, the Future at Lloyd’s is very much a by-the-market, for-the-market solution rather than the Corporation of Lloyd's coming up with an idea in a darkened room.
Looking at digitization and the drive for efficiency, is there a feeling that if the market doesn't get on and do this that there's a risk of disruption?
Any other industry would have been significantly disrupted by now. You can't take 40 cents on the dollar out of the premium a customer pays and use that to administer the activity we do. I daresay regulation has been our friend and not our foe there. Our markets are so heavily regulated and it's super painful for disruptors to get in there and attack you.
But I think that time is coming where if we don't do something, there is still a strong risk of disruption from one of the big platform players. The value of digitisation, process efficiency and taking costs out, if it's 40 cents on the dollar today, then within a decade it's got to be less than 20 cents – so that a customer can really see that there is a tangible value in the spend to buy insurance.
After last year's performance review and with rates now firming across many classes of business, is there a sense that market participants can relax a bit now?
I hope not! As an ex-underwriter myself, I think you have to get up on Monday morning thinking about performance and go to bed on Friday night thinking about it. So, performance will always be front and centre of the way in which we think and act. Performing well gives us the permission to do other things. Absent that, we don't have that permission.
My view on performance is that it's a three-year exercise to get Lloyd's performance into the shape that we would want it to be in. We're getting close to the halfway point of that work but we're nowhere near the end. What you're seeing this year is a far better understanding from the market of what we're trying to do, how we're going about it and why it's important. I don't think the process this year is necessarily any easier. There's less noise about it because people know what to expect and are representing themselves better than they were 12 months ago. It's not a once-and-done exercise. It will run like the lifeblood through Lloyd's, performance management will be our overarching priority.
In terms of the market conditions, the positive sign is that every line of business is seeing a price movement, after you've adjusted for underlying inflation or changes in exposure. But it's still got a bit of a way to go. If you did a technical price analysis on say, U.S. property rates, and you went back 2018, my guess is they would be 30% to 40% off the right technical rate. Therefore, you're well short of where you'd ideally want to be. Our anticipation is that this sort of level of rate movement that you're seeing should repeat through 2020, not least because it needs to.
Where do you see Lloyd's in a decade's time in terms of its global brand and position?
Going right to the beginning when I was talking to people – both fans and protagonists around the world – the one thing that struck me is there is a real belief that the Lloyd's market has a role to play in commercial corporate and specialty insurance and reinsurance globally. And that the value of the brand, the licenses and the unique expertise concentrated around the market do resonate.
My overarching sense is that if we successfully execute on performance and strategy and some of the other things we're doing, every major insurance and reinsurance group in the world will want to participate in the marketplace. There is a strong and enduring value proposition for Lloyd's and my expectation is that you will see a much bigger, more valuable Lloyd's marketplace as you look out five to 10 years.
Tell me about some of the opportunities that exist around the protection gap, and what needs to happen in order to close it.
Whenever we look at the protection gap, we often think of emerging economies and whether there is the adequate insurance cover. But it goes even farther up the food chain than that. Governments are some of the most underinsured entities in the world, and that includes governments in mature economies. Meanwhile, many of the big global corporates are retaining an awful lot more risk on their own balance sheets within their own captive structures.
That challenges us to represent to them that we do understand the right combination of product and service and cost touchpoints, that there is a value proposition for them. The trick there is to be a lot more customer-oriented. We spend a lot of time introspectively talking amongst ourselves in our own community of what makes sense, but we need to get out there with the customer more and find out what they're looking for.
How do products and solutions need to change as the risk landscape shifts and becomes more intangible in nature?
If you look at all the risk surveys typically within the top 10 risks, we cover about two of them and about four of them partially. Some of those risks are quite difficult to insure but we need to get better about understanding the intangibles, whether that's reputation risk, supply chain or the value proposition around cyber. We need to give people more predictable insurance covers. When you look at parametric covers, for instance, they're hugely valuable because there's a very clearly defined trigger.
We also need to do a lot of work around the claims proposition. There's a lot more servicing and support we can give to the customer and we've just got to increase the speed of settlement. That's why a lot of risk is self-retained by customers. We can't take 100 days to pay a claim, or worse. At that critical point when the loss has occurred that's generally when the business needs cash.
How will Lloyd's partnerships with its brokers and coverholders evolve as the industry prepares for the changes that lie ahead?
Inevitably, each one of our ideas individually causes some offence to a proportion of your constituency. So, when you turn around and say we want to put innovative syndicates out there, the existing capital says, “Hang on a minute, why would we want more syndicates?” And when we talk about a risk exchange, you get the wholesale broking community asking, “Well, isn't that eliminating us from the equation?”
The answer is no. One hundred percent of Lloyd's business is brokered and 78% of Lloyd's business is wholesale. I don't see Lloyd's being anything other than a brokered market, I just hope people can redirect their efforts – when we take inefficiencies out of the process – to focus on prospective leads and more innovation.
What are some of the challenges in launching a risk exchange, given the specialty nature of many of the risks that go through the Lloyd's market?
A lot of what we do is bespoke, and that's fine, but you've got to create a baseline of consistency, determine what the variables are and be really clear as to how you turn those variables into data points so that you can measure the life cycle of a customer from quote to acceptance to issuing documents.
The market has just got to get an awful lot better in precision and accuracy, which will improve the customer experience. Because when a customer turns up and is attracted by a product, they want to understand that product, the terms and conditions, and be satisfied that from a regulatory point of view they are covered and that all the documentation and compliance checks are done pre-inception.
Looking at Lloyd's internationally, has the Corporation moved away from its strategy of sticking flags in countries?
Lloyd's value proposition is in London. And in a modern digital world, we can represent ourselves globally very effectively. Do we need representation on the ground? Yes, we do to be able to address specific needs of a geography, whether that's customer or regulator, but I don't think we need to be in any more geographies than we're already in – and we don't need to replicate Lloyd's physical presence in the same way outside of London as it is inside London. I think when we do that we dilute the value of the brand.
So we're not likely to see any more Singapore-style platforms?
We won't, and I think you'll see some evolution at the platforms that we have. At one point in time the world thought that bricks and mortar were the way to go and Lloyd's went that way with Singapore, and in some geographies it's had to. In China, you had to set up a subsidiary and obviously in a post-Brexit world you have to set up a subsidiary in Europe, which we have. It has been writing business since the end of last year – so we are, in that sense, Brexit-proof.
But we're looking quite deeply at things like Singapore and asking, how do we evolve from bricks and mortar to something that could be more representative, matching the growth strategies and expectations of Asia? So, you'll see our Singapore model evolve over the next three to five years.
Culturally, how much does the market need to change when it comes to issues such as diversity and inclusion?
All the issues that we are talking about, whether it's performance or strategy or culture, the market was thinking quite deeply about each. My predecessor Inga Beale really stuck her neck out on the cultures and behaviors in the market and I'm glad she did because it's a lot easier coming after her than going before her. We've just got to accept that the intent is good, but we've just got to want to move the dial and that’s why we're going to put measures in place when it comes to gender equality. We need to want to move the dial on gender and measure that definitively.
We introduced a code to business because it's only 10 words. “To act with integrity, be respectful and always speak up.” Each of those is measurable, and we need to hold ourselves to the same standards for conduct that we do for performance. Because if we don't, then people will wonder if we're the right business partner for them.
What (beyond the obvious) benefits were there for you coming into the role as an industry insider?
I knew the market participants well, almost irrespective of geography. So, I've got a good deep understanding of the U.S. market. I've always been connected with the international market and my time in Australia gave me a very different lens on Asia, and in particular southeast Asia. So that's been helpful, and I can connect readily and quite quickly with the obvious business leaders in each market – and that makes a difference.
Does your international perspective help when you're navigating the market through this period of uncertainty?
Yes. The irony with uncertainty is it makes the day job more challenging but actually increases the opportunity. If you think about that end customer in a more uncertain world, they're more likely to buy insurance because they have more definitive concerns about their balance sheet and the freedom for them to be brave and committed in the way in which they go about their business lives.
So, at a point like this your leaders, whether it's insurance or other, need be very confident in your intentions and the way in which you execute your intentions. And if you do that and you can prove to the people that yes, you can execute, then I think actually in uncertain times – particularly for the insurance industry – your value to your own customer goes up.
Tell me about some of your personal career highlights.
I was underwriting on the floor at Lloyds back in 1985, a number which is a bit scary these days. My good fortune is that I started in a quite family-oriented firm, a very old-fashioned Lloyd's business and then quickly went into one of the biggest and better-known managing agents. So I had experience at both ends of the spectrum.
I went through the process of buying and then selling my own Lloyd's managing agency, which was an interesting experience in itself. It took me into a whole different corporate world. And then there was the opportunity at QBE, a business that worked both within and without Lloyd's and working out how to leverage the best of both. That was an invaluable experience for me, both in London and then subsequently in Australia.
Because of that, I think I've got a quite a good lens on what it's like running a listed company and what are the complexities of managing shareholder relationships. What does it actually look like to operate both inside and outside of Lloyd's? What does an owner-manager look like? So I've got a reasonable understanding of what all our constituents are going through as they try and grapple with the challenges we're putting in front of them.
One of the big challenges dealing with all those different stakeholders must be balancing short-term with long-term goals.
It is. You've got to take on people's views. You've got to leave people feeling confident that you've listened to them. But then, ultimately, you’ve just got to take some decisions and act. The challenge, if you're representing a marketplace, is that you don't act. You can keep asking and not act. And I would hope those experiences that I've had and the experiences of the senior team that we're putting together, should allow us not to make any false steps. So, consult, really understand what people want, what they like what they don't like and then our experiences will give us the bravery and the confidence to act.