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23 May 2019 4 min read

London Market Underwriting Study 2019: Standing still is no longer an option

Adam Tyrrell

Adam Tyrrell
Manager | Financial services | London

The London Insurance market is struggling to make the much-needed shift towards emerging channels of business and focus on client service that the banking industry has successfully pivoted towards in recent years.

The recent Future at Lloyd’s prospectus suggests a renewed mobilisation towards dramatically cutting the cost of doing business whilst taking advantage of new opportunities from emerging technology which will be essential for the long-term viability of the market.

Within this context, Baringa conducted its biennial London Market study, engaging with over 30 insurers to understand the current challenges and future opportunities facing the 300-year-old market.

In advance of the full report publication, some key findings are:

  • Gross Written Premium (GWP) makes for good headlines, but are there more fundamental problems? The survey uncovered that 65% of respondents believe there is insufficient business coming into London to deliver medium-term growth. Whereas the Lloyd’s Annual Report 2018 declares premiums increased by of 5.8% and the company market rising by 16%, general perceptions are that only pockets of the market are truly attractive for growth. For example, Energy has been performing well, whilst traditional products such as Motor and Marine are faltering at Lloyd’s [1].
  • Cost reduction initiatives are underway and yielding modest results: 95% of respondents are managing ongoing cost reduction programmes, with 55% of respondents looking to reduce headcount by up to 25% in the coming year. This is starting to bare (modest) fruit with several insurers dropping 1-2 percentage points from their expense ratio in recent results. However, the study identified that only short-term benefits gleaned from targeting headcount reduction and outsourcing, with a number of firms recognising the risk to sustainable growth and talent retention. 
  • Utilisation of emerging technologies is still in its early stages: While the majority of respondents recognised there are significant opportunities to leverage Insurtech solutions, RPA and AI automation in underwriting operations, over 85% of respondents stated working with emerging technologies is still in its infancy. There are two interesting developments in this space:‚Äč
  1. Insurers’ use of RPA and AI to automatically place risks via market platforms.  PPL for example, which is unlikely to be the end solution, sets a clear direction in removing the need for manual process intervention
  2. The evolution of the underwriting role in a future where decision making is linked to increased real-time data and technology.
  • Agreeing where to differentiate on product will be crucial to next generation underwriting: The survey highlighted the slow response rate and limited agility in responding to changing market risks. Respondents viewed only 60% of business written through Lloyd’s as specialty risk. They acknowledged that business models and technology capabilities are ill-equipped to capitalise on more homogenous product offerings, where competition was high. If insurers want to continue offering non-specialist commercial products their model must change to be more cost-effective and differentiate on a specific value-add (e.g. proximity to clients, global market exposure).

Read the full LM Underwriting survey report here.

[1] Lloyds Annual Report 2018 – pg. 34-35
 
This blog is part of our London Market UW Survey campaign led by Dan Golding, Partner, FR&C and Christine Frendo, Director, Insurance London Markets. Do contact us for further information about the campaign or if you would like a free copy of our 2019 Survey report findings.