Viewpoint: Lloyd's should speed up, not scale down, its digitalisation

The unprecedented closure of the Underwriting Room at Lloyd’s on March 13 has forced the market to use PPL. The system, which was set up in 2016, has been criticised for much longer than it has been used. After the building on 1 Lime Street was closed due to the coronavirus pandemic, the Lloyd’s board decided to scale back its plan, which was set up just half a year earlier in Blueprint One.

Funding of up to £400m ($498.7m) has been secured for phase one of the realisation; however, because of the uncertainties surrounding the impact of the pandemic, this money will most likely not be fully invested. Jennifer Rigby, chief operating officer at Lloyd’s, has already announced Lloyd’s will “scale back” its plans and “sharpen its focus”.

As a result, the digitalisation effort will inevitably lose momentum at a time where Lloyd’s was actually speeding up. More market participants than ever started to sense the value of agility that has come to the industry and to the market. Agility has become even more important during the crisis. Setting priorities, creating minimum viable products and realising quick wins is crucial to gain user support. Lloyd’s has made tremendous progress in following that principle.

Obviously, there is instability around. The impact of Covid-19 has hit the industry on the asset side and on its core business alike. Even if the legal situation appears to be clearer, in many markets much uncertainty remains on the claims side because of political pressure. There are rough estimates the pandemic will cause up to $100bn in losses for the whole industry, but it will take years to get full clarity.

The challenges caused by the inevitable economic downturn and the operational difficulties are paramount. However, scaling back on speed and ambition might be the wrong direction to go.

Progress

It has taken years for the market to make progress on digitalisation. There were too many blame games and too few success stories. Finally, though, it has become clear there is no business without digital tools. The pressure Lloyd’s has created by setting obligatory ratios for placing risks electronically may have caused some syndicates to circumvent the procedure and fill in data in the system only after a risk has been placed in a face-to-face way, as it has been done in the past 325 years. Nevertheless, the pressure brought to bear on market participants has made electronic placing common in our days and the lockdown situation demonstrates its importance.

One should not forget PPL is not the only risk-placing option available to the market. Lloyd’s recognises 18 systems, all but one only conditionally. There are specialist systems for credit risks or for lineslip business, while several broker systems are being used. The most popular alternative to PPL is Whitespace, which is mostly used by mid-tier organisations. It is appreciated by many as it is said to meet the needs of the market better than PPL. The front end is accessible via mobile devices and its functionalities allow business to be managed in a more flexible way.

Technology is built not to replace human communication, but to facilitate and support it. It helps the market to improve transparency, keep data confidential, speed up processes and better integrate with carrier systems

Four months ago, Lloyd’s invited six solution providers to bid for the development of the complex risk platform to improve accessibility and data usage. Will this be the next big thing or the next big failure? Surely, building on the existing PPL system instead of creating a new solution from scratch seems very reasonable and important. PPL has proved it enables the market to operate under extreme circumstances like those at present. By adding new functionalities, improving accessibility and user experience, the market would already win a lot without too much effort.

The considerable quantity of placing systems used at Lloyd’s may raise concerns about technological complexity in a market that trades complex risks in multi-layer structures. It should be remembered technological complexity is manageable if the market sticks to an ecosystem philosophy instead of building monopolies. In the past, monopoly providers of digital service solutions have not always proved to be the best option. At Lloyd’s, we should avoid repeating the same mistake.

Ecosystem approach

Digital platform providers have demonstrated how powerful an ecosystem approach is. An open platform architecture and standardised application programming interfaces (APIs) are vital to succeed. At the moment much is being said about the status quo at Lloyd’s, how to digitalise established processes without changing them, and we are discussing user friendliness or the lack of it. There was too much unjustified concern about technology replacing a business that is genuinely a face-to-face one.

One should not forget technology is built not to replace human communication, but to facilitate and support it. It helps the market to improve transparency, keep data confidential, speed up processes and better integrate with carrier systems. What it does not do is to prevent anyone from meeting anyone in person.

PPL can and should fully support the process of placing simple, commoditised risk, as well as renewals. The complex risks placement – being more subjective and unstructured – will always need more face-to-face interaction.

With its new “sharpened focus” Lloyd’s will concentrate on document and data versions of PPL and the new coverholder system Chorus, which is meant to replace Atlas (the electronic filing system for coverholders) and BAR (online market system for brokers and managing agents). Chorus has been delayed for quite a long time but with the lockdown to be continued, Lloyd’s has set it as one of its priorities. Rigby has promised to get back to data and tech, as well as middle and back office later this year, and these steps are indeed crucial.

Lloyd’s follows the ambition to be “the most customer-obsessed and advanced insurance marketplace in the world”. To achieve that, a standardised approach to data and open APIs will be the key success factors. And, of course, a spirit of agility. Why not focus on that?

Grzegorz Podleśny is a partner and Wojciech Korobacz a senior consultant at Sollers Consulting