In 1688, Edward Lloyd ran a coffeehouse on Tower Street in London. It became a bustling address, frequented by those whose business was connected to the ships, and was soon known as the place to buy marine insurance.
Today, Lloyd’s name is synonymous with insurance around the globe. It’s the world’s leading market for specialist insurance. It has 94 syndicates, managed by 57 managing agents, and more than 200 different brokers bringing in business from over 200 countries and territories.
Despite technology leading all industries down a path toward increasing automation, Lloyd’s chairman John Nelson was keen to impress upon attendees at an industry event earlier this year in Auckland, New Zealand, that Lloyd’s has no shortage of manpower.
“I have heard it said that there are no real underwriters anymore – just computers, churning out off-the-shelf products,” Nelson said. “Well, in the case of Lloyd’s, nothing could be further from the truth. We have a growing global marketplace full of expert underwriters – more than we’ve ever had – writing the most innovative and specialist products going. We have a world-class reputation built on being flexible and responsive to our clients’ needs and our first-class knowledge of the changing risk landscape.”
In May 2012, UK Prime Minister David Cameron attended the company’s world-famous Lime Street premises to assist Nelson in launching Vision 2025, a strategy for the development of the Lloyd’s market that aims to make it the global centre for specialist insurance and reinsurance.
Plans to make Lloyd’s mirror the geographic origin of the market’s business and capital read every bit as ambitious as its endeavours to develop in high-growth economies. The ambitious plan involves global expansion – Southeast Asia, China, Eastern Europe and Latin America are all poised to become key to Lloyd’s business. It also includes the goal of being globally diverse in its capital base, as well as being a diverse market by gender, age and ethnicity.
Speaking about Vision 2025, Nelson says that while the plan is still in its early days, Lloyd’s has made “good progress” in working toward its objectives. “Bottom line, I would say that Vision 2025 has very much been embraced, and it’s very much being executed,” he says.
Nelson believes that, in terms of gender diversity, Lloyd’s has made great progress. “Without wishing to overplay it, we have the first female chief executive, Inga Beale, we’ve ever had in Lloyd’s. She wasn’t selected because she was a female. She was selected because she was the best candidate. But I think it was a sign of the times that we had a female candidate who was the best candidate.”
Nelson says that while gender diversity moves along, nationality diversity remains a challenge. He says nationality diversity is “very, very important because, if you have true nationality diversity in the Lloyd’s market worldwide, you get much more input in terms of local culture and customs [and] understanding new local risks and new markets.”
Nelson points to the banking industry in London in the 1980s as an example of a sector that successfully involved huge national diversity in business. He says that diversity was what really drove London to becoming the financial intermediation centre of the world. “I think we have the same opportunity in Lloyd’s in the London insurance market. You’re seeing greater diversity now, but there’s quite a way to go.”
Nelson shared with Auckland event attendees the startling statistic, from a recent study by The London Market Group, that only 10% of the corporate risk map is covered by insurance.
“What does this tell us? It tells us that in the same way there is a physical world out there needing coverage, there is panoply of new, emerging risks demanding innovative solutions,” he said.
He refers to cyber, supply chain and reputation as being niche classes of business that are in high demand, adding that “the bespoke, imaginative and intellectual challenges they represent offset the commoditization of more traditional coverage.”
Speaking specifically about Lloyd’s, he says, “We like to think we’re in the vanguard of innovation, and it’s very important we are.”
Nelson also says it’s absolutely vital to make back-office platforms more efficient and user-friendly. “I would say the insurance industry, generally, is behind the rest of global industry in terms of embracing technology to improve their platforms, and that would be true of Lloyd’s as well,” he says. “I think, though, now that the market has smelled the coffee, they understand they need to do it, and we’re doing that.
“It’s not just a cost thing,” he continues. “It’s making it more user friendly and, as we grow overseas, making it easier for stakeholders to plug and play.”
Asked about the global outlook for the industry, Nelson says, “In the short term, obviously there’s a glut of capital, very low interest rates, and people competing aggressively … it’s going to be tough. It’s going to be very tough.”
His advice for dealing with fierce competition is simple: “Innovate to compete.”
When it comes to talking about the long-term outlook for specialist insurance, Nelson is much more optimistic. “If you look at Lloyd’s market, we think our addressable market at the moment, in annual terms, is around $600 billion. We think that, in 2025, that number will be around $2 trillion.”
He says China, India, Brazil, Mexico and Turkey will form the majority of global GDP, and those countries are currently among the least insured in the world. He also says that, according to Lloyd’s figures, a 1% rise in insurance penetration translates into a 13% reduction in uninsured losses, a 22% reduction in taxpayers’ contribution following a disaster and increased investment equivalent to 2% of national GDP.
“The amount of risk that’s being created in these countries is prodigious,” he says. “Governments know … they need to close the insurance gap just to make sure that the economies are sustainable. There is a real correlation between good insurance, diversified insurance and economic performance.”