Future At Lloyd’s: Blueprint One in a nutshell
October 2, 2019 Greg Brown
On 30 September 2019 Lloyd’s released ‘Blueprint One’. This 146 page document is the latest instalment in the Future At Lloyd’s – the marketplace’s transformation programme initiated by CEO John Neal. It follows the Prospectus, which was launched in May.
The Oxbow Partners team has gone through the document and written this 2 page summary.
Note that our post focuses on the strategic intent behind Future At Lloyd’s and the six specific initiatives. Blueprint One also discusses other topics (such as technology, data, people and culture) but we have not included these in our summary. We will be look separately at some of these themes in future posts.
THE SIX SOLUTIONS
Back in May, the Prospectus proposed six solutions which remain at the centre of the Future At Lloyd’s. These are:
- Complex risks platform
- Lloyd’s risk exchange
- Claims solution
- Capital solution
- Syndicate in a box
- Services hub
These solutions will be delivered over three phases that are broadly aligned to the next three calendar years (i.e. Phase I is in 2020).
1. COMPLEX RISKS PLATFORM
The complex risks platform is intended to make the placement of complex risks more efficient. The core technology platform allows brokers and underwriters more easily to: place risk (including appetite search), negotiate contracts, submit risk information and perform other back-office services (e.g. accounting, global tax calculations, compliance checks, payments etc).
Initially the plan is to build a ‘document-plus-data’ solution. This means that data will initially be stored in a combination of database fields as well as documents (e.g. PDF policy documents). Over time it is proposed to move to a ‘data-first’ system which we assume means that much more of the data is stored in the database.
The technology will initially build on the current PPL platform. N.B. the Corporation is planning to take a financial interest in the PPL platform to gain more control.
Phase I (2020) will deliver:
- An ‘early build’ of the document-plus-data solution.
- Alongside this will be prototypes of the data-first solution. There are no specifics on ordering of service or product class implementation.
2. LLOYD’S RISK EXCHANGE
The Lloyd’s Risk Exchange is a ‘full-stack’ platform for transacting non-complex risks. “Non-complex” is not defined. The system will comprise:
- A multi-channel interface (e.g. web, mobile and APIs) to connect to distributors (e.g. brokers) and capacity providers (syndicates)
- Product and distribution configurator that allows coverholders and syndicates to set up products (or extract product information from existing e-trading systems) and define how those products are distributed
- Search, quote and bind, including API connectivity into syndicates’ and coverholders’ existing rating engines
Other elements include: connection to DA SATS, reporting, data enrichment and back-office services (e.g. tax calculator).
In Phase I the plan is to continue to: deliver DA solutions (e.g. building on DA SATS), deliver the first pieces of the interface (e.g. search engine, structured product and distribution configurator), and start building API connections into existing e-trading platforms. US property is the likely priority.
3. CLAIMS SOLUTION
The claims solution also has a technology platform at its core. The platform will provide:
- A multi-channel interface for policyholders and brokers to submit and manage claims
- Orchestration and workflow to streamline claims handling
- AI to triage and settle non-complex claims (e.g. sub £5k claims)
- Market claims service – in essence a centrally-managed outsourced claims service for non-complex claims that still require some human intervention
- Connection into other data and insights (e.g. event observer that provides proactive insight into impending perils)
The system will be heavily dependent on the Complex Risks Platform and the Lloyd’s Risk Exchange for policy data. Over time it is expected that the platform will replace the current Electronic Claims Files (ECF) platform. The new system will only apply to new claims on policies incepting after the platform is live. Existing systems will need to remain in place to manage the claims run-off.
The Phase I plan is to run targeted initiatives which could include automation of low-value claims and redesign of existing processes and standards.
Phase I will also include detailed design of the ECF replacement, central procurement of the highest value expert services (e.g. satellite imagery) and a pilot of claims system components for a yet-to-be-announced priority class of business.
4. CAPITAL SOLUTION
The Capital Solution opens up Lloyd’s to new forms of capital. It will include:
- A set of simplified capital rules to allow new capital to onboard and offboard the Lloyd’s platform more quickly.
- A set of new structured investments to allow new investors to enter the market. These could be: Insurance-Linked Securities, follow-only capacity and a market tracker that will ‘track’ multiple syndicates across single or multiple lines
- Provision of a capital [technology] platform to allow matching of risk with capital.
Blueprint One is at pains to mention that any new sources of capital will receive sufficient scrutiny to ensure they are deployed with the appropriate levels of underwriting attention.
Phase I will deliver: a set of simplified processes defined to support 2021 year of account, the first production release of the capital platform and the first ILS transaction through the capital solution.
5. SYNDICATE IN A BOX
The Syndicate in a Box is intended to allow ‘new and innovative’ syndicates more easily to join the Lloyd’s market. Syndicates will have to meet s set of entry and exist criteria to be part of the 3-year programme. The entry criteria include:
- Must bring new or innovative business or distribution opportunities to Lloyd’s
- Must have limited exposure to peak perils (e.g. US / Caribbean Wind)
- Should ideally be short tail risks, unless the sponsor can prove a track record on long-tail
To stay within the programme, syndicates must also:
- Be on track for <100% combined by year 3
- Be on track for <35% gross expense ratio
- Bind less than £100m GWP in year 1
Syndicates that are part of this solution will have the benefit of a reduced initial capital requirement, deferred payment into the Central Fund (deferred to years 4-6), simplified reporting, faster and lower cost approval (£100k and 3 months vs. £200k and 5-12months)
Overall the Syndicate in a Box solution will account for a maximum of 2% of GWP written through Lloyd’s.
In Phase I the solution will accept applications and onboard new syndicate in a box. Munich Re is sponsoring the first Syndicate in Box, set to start underwriting in January 2020.
Slightly ironically (and you’ll need to be familiar with Lloyd’s jargon to appreciate our attempt at humour here), ‘Syndicate in a Box’ underwriters are not allowed to have a presence in the Lloyd’s building so will be the only syndicates not to be in a box.
6. SERVICES HUB
This Services Hub is intended to support the other solutions with a set of centrally sourced and accredited services. The services include existing market services, new third party services, access to data and access to an expanded Lloyd’s Lab. Third party services could include: risk forecasting, live event response (e.g. loss adjustors) and business services (e.g. know your customer)
The services hub will be delivered through a portal where market members can search for new services, monitor supplier performance and subscribe to new services. Phase I will deliver: a database of existing services, definition and build of the services portal, design and implementation of the accreditation process, and onboarding of the first wave of new suppliers.