Can the London market afford an arm's length relationship with technology? In April, GR ran a survey looking at the importance of technology for the future success of the London market.
The London market often gets criticised for its alleged failure to embrace the technology and modern business practices needed to compete in the face of growing competition. In the past year, events have kept this issue prominent in the media - and high on many boardroom agendas.
In early 2006, Lloyd's bid to create its own technology platform, Kinnect, ended in a £70m failure. As the market took stock, Lloyd's named as its new CEO Richard Ward, who had succeeded in driving forward new initiatives during his six-year tenure as CEO of the International Petroleum Exchange. And at the same time, a group of six market syndicates - the G6 - came forward with their own, straightforward technology solution: the "peer-to-peer" approach. This involved automating communications between brokers and underwriters on a one-to-one basis, using the same software "language": the ACORD standards.
Meanwhile, the world moved on. While some syndicates started relocating to what some saw as a more innovative market in Bermuda, the London market grappled - successfully - with contract certainty. All the while, technology vendors were busily developing new systems.
A year after Kinnect sank below the waves, it was time to reassess the situation - and to gauge readers' views on technology in Lloyd's and the London market. So with an online questionnaire, which included several opportunities for open comment, that is what we did.
The Global Reinsurance questionnaire drew a strong and forthcoming response from London brokers. There was general agreement about why Kinnect failed (see figure 1). Asked to select up to three options from a possible 12, half our respondents said Kinnect failed because it was an "over-ambitious attempt to do everything for everyone", while 34 percent put its demise down to "failure to correctly identify the market's key needs". Lloyd's is often accused of being set in its ways and a quarter attributed Kinnect's failure was due to the "market's resistance to change". Twenty-two percent said it had a "lack of senior management buy-in" and 20% said the market was "genuinely not ready for change". Only seven percent opted for "lack of technological know-how among project leaders" as a prime cause of the project's failure.
Whatever sank Kinnect, however, three-quarters of respondents said that London now needed radically to automate its processes. Why? Fifty-eight percent said change was required to improve efficiency and reduce long-term costs, while 44% emphasised the importance of not losing out to more modern competitor centres. Said one respondent: "The need to remove costly, ineffective manual proceses which hamper our ability to perform the key purposes of the business is becoming critical." But not all have yet been convinced. Said another: "The industry's financial strain is not yet high enough to force radical change."
Throughout the survey, people highlighted London's high market costs. We asked respondents which three factors (out of 12 suggested options) were the most influential in driving buy-in for current technology-related initiatives. Sixty-three percent identified "inefficiency and the high costs of old business practices", while 34% went for "pressure to automate driven by regulatory requirements".
Michael Cook, director at Navigant Consulting, reckons the need to reduce costs and improve efficiency is just one reason why the London market needs to embrace technology. He says he is surprised that just 20% of respondents identified the need to provide a better client service as a key driver for market automation. Despite many announcements of support for technology initiatives, Cook reckons parts of the market and some London market brokers are still acting as a drag on automation. "In reality, most of what is being transmitted by brokers is still being done manually," he says. "They may be using technology for some business placement, but there's no technology on the claims side."
Who's using what?
What are people using? Of the Lloyd's and London market insurance, reinsurance and broking professionals who responded, 44% said they communicated risk-related data via email (see figure 2). Just over a quarter said they used a platform or hub system and a similar proportion said they use a "peer-to-peer" system. Twenty-two percent said they did not use any IT system to transfer risk-related data at all; that is to say, they agreed all their transactions face-to-face or over the phone.
Respondents outside London seem to be more automated. The same amount - 44 percent - said they used email for transferring risk-related data. But 30% are trading electronically on a platform or hub.
"The market needs to use the most efficient workflow tools available and these now involve a significant contribution from technology," said the CEO of one technology provider. But an insurance company managing director argued that technology, by itself, was not the answer and that success would come only with senior management buy-in: "There is a great divide between those who would implement and those who are in senior management," he said. One of the more dramatic conclusions came from the partner of a global broking firm, who said a massive overhaul was required: "Technology should not automate existing insurance workflow practices," he said. "This is akin to giving a workman an improved spade so he can dig a little bit faster. Technology thought-leaders should be looking to provide the workforce with the equivalent of a bulldozer - which is what has happened in the international banking markets."
21st Century relationships
Will technology undermine the relationships that are the foundation the London market? An underwriting controls manager at a Lloyd's syndicate feared it might: "A total technological approach will reduce the opportunity for the new entrants to learn the business, get to know the market and establish relationships. It will obviate the need for personal relationships and kill the advantage that Lloyd's has over the rest of the world."
Yet the majority said technology would not supplant relationships. Some respondents felt it could even strengthen them. "Anyone who cites technology as damaging the relationship side of the industry has completely missed the point," said one. "Technology can free up time, to allow people to devote more effort in building more meaningful relationships."
Another saw greater automation as a natural part of Lloyd's development: "Over the last 319 years, the way business is transacted has evolved. The advance of technology is simply another step in the evolution of the world's premier insurance market."