As the trend towards modernization picks up pace in the London market, the next 12-to-18 months represent a critical juncture for the sector.
That’s what Stephen Postlewhite (pictured) is seeing in his role as partner and head of capital solutions at McGill and Partners, particularly as Lloyd’s digitalization strategy Blueprint Two looks to equip the market to innovate with new products and processes aimed at reducing costs and increasing efficiencies. Having a renewed focus on cost and efficiency is going to be critical as the market softens, he said, because traditionally the London market has not been very efficient, and its cost base has been quite high.
“Now is our chance as a marketplace to fix those problems; to reduce our cost base and be more innovative around solutions, so that we can actually compete effectively three, four or five years from now,” Postlewhite said. “It's not really about today, it’s about that period of time in the future where we find ourselves in a very different marketplace.”
He noted that there has been a lot of work conducted around innovation in the market between London Bridge 2 (LB2), Lloyd’s Syndicate in a Box initiative and the rise of algorithmic underwriting. All of these things build on this “strong digital spine”, he said, and will be accelerated once the right foundations of digitalization and modernization are in place.
“It really is about the ease of access of capital into the market, the ease and cost of setup, and the cost of running operations,” he said. “Certainly, when you look at something like the Ki Syndicate, you see that algorithmic underwriting is being used very effectively to reduce the cost of following, which is a key area of consideration within the Lloyd’s and London market.
“Once this innovation through Blueprint Two has hopefully created that digital spine, I think all of these things will start to get supercharged again, which will lead to a very interesting future for Lloyd’s and the London market.”
Lloyd’s as a marketplace has gone through some significant changes in recent years, he said - it was only a few years ago that people were discussing its “terminal decline”. That narrative has shifted over the last 18 months, especially as Lloyd’s reported a 20% increase in stack capacity in 2023 and delivered excellent half-year results, recording a combined ratio of around 85%.
“As the market has hardened significantly, it seems that perhaps Lloyd’s actually moved to fix some of its underwriting issues somewhat earlier than others,” he said. “Between around 2020 and 2022, we saw Lloyd’s going backwards in terms of its market share, particularly for treaty reinsurance and E&S.
“But perhaps that was cleaning house and actually, what we're seeing now is renewed opportunity through the hard market to scale and attract strong business. The key there, again, is that business will only remain through a soft market, if we can reduce the cost base effectively. And so, it links back to the innovation and modernization that the market needs to see.”
The third trend Postlewhite is seeing shape the Lloyd’s and London market is the rapidly changing global risk landscape, which is marked by three core areas – geopolitical risk, climate change, and cyber. Numerous examples abound today, which show how fast the geopolitical risk landscape can change, he said, and while the impact of climate change on natural hazard assessments is more of a five-year window, it’s still evolving quite quickly and it hasn’t yet been fully addressed.
“Then you’ve got cyber which is a marketplace going through rapid development,” he said. “I would say that all of these things are increasing the level of systemic risk within the global risk landscape. These systemic risks are very hard to properly price for and monitor from the point of view of aggregation. You can add to that claims inflation – which we’re seeing throughout all lines of business – with social trends, social media trends and lots of other factors adding to that potential systemic issue, which has grown and continues to change quite rapidly.”
With that shift, the market needs to respond very nimbly, he said, and the question is whether it can. Can it change the coverage so it’s not overly exposed but it’s still giving the benefit to the client? Can it properly price coverage? Can its current catastrophe models be updated quickly enough to realise and reflect the changing risk landscape? These are just some of the challenges facing the market now, and they look likely to continue into the future.
Last but not least, he noted that the London market is facing some existential considerations around the future of its workforce and workplace. There is still a war for talent, he said, but it’s playing against wider changes in the way people work, which he doesn’t think have reached their natural conclusion yet.
Postlewhite is not convinced that the global insurance industry does a good enough job of letting people know that the industry is a genuinely exciting place to work. The challenge for the Lloyd’s and London market is slightly different, he said, as it is grappling with the question of whether a marketplace is actually needed anymore.
“Some industries have gone down the pathway, and much more than we have in insurance and reinsurance, of becoming completely digitized,” he said. “They’re thereby not really requiring an office or a face-to-face culture at all. We still have that culture in insurance and reinsurance, and maybe that will persist forever. But I think that as we continue to modernize and develop, it’s going to lead to a much more digital way of doing your work.
“So, I do wonder whether there’s a longer-term trend here of questioning whether Lloyd’s as a marketplace will have relevance, just from a trading perspective. And the answer, I think, is unknown at the moment.”
