Bringing risk and capital closer – Lloyd’s interview

Market efficiency, expense ratios and the cost of capital have been the source of contention and some major market initiatives at the Lloyd’s market in recent years. Lloyd’s wants to shorten the value chain and take costs out, bringing risk and capital closer to each other.

“The panel was speaking around trying to shorten the chain to take costs out,” said Lloyd’s commercial director, Dawn Miller, talking to Airmic News. “There are many different ways inside Lloyds that we're taking cost out, but it's been an issue for a long time.”

There is a lack of understanding in many quarters about how Lloyd’s works internally, which can complicate the route for new capital-finding risks, she suggested. Miller explained how her own remit within the organisation relates to this challenge, particularly with regard to shortening the route to market for new Lloyd’s entrants.

“In our network, we have 30 offices in 25 countries around the world. And within that, too, we have a series of several different regulated insurance companies. My remit, at the front of our organisation, is our new entrant process. Any new risk-taking vehicle that comes through and wants to be a syndicate, third party capital, hits this whole process,” she said.

Miller is also responsible for corporate strategy, Lloyd's Lab (the market’s incubator for emerging insurtech innovation, now in its tenth cohort, with a call for an eleventh out now), the group that governs the network, education programmes, and another group that works on deals such as complex facilities and captives that want to come into the marketplace, translating the process inside Lloyd’s for them.

“That's where you see vehicles, like some of the investment vehicles that have been developed in Lloyds, like London Bridge [investment vehicle] that allows third party capital to more easily attach itself to an underwriting entity and take risks if it wants,” she said.

“We're working hard on looking at Delegated Authorities,” she continued. “We have 4,000 Cover holder arrangements around the world. We're looking hard at how to understand the data behind them, to understand: what risks are being taken; how they're being done: and how many different people touch a risk as it goes through.

 “We think that a reason why there are so many entities that touch risks – multiple brokers in the chain – is that it is not well understood how to get into Lloyds. Like any insurance organisation, in order to place a risk against our capital, you have to be able to process the policy through the system,” Miller said.

“Over time, people had risk that was figuratively and literally far away, so they would use an intermediary or two to get into Lloyds. But as technology has brought everybody closer, and as Blueprint Two [the market’s digitalisation plan] will bring us all closer, you don't need to have so many steps in that chain,” she continued.

“That’s what they were alluding into in the panel. Our marketplace over time has got into some habits that will be forced to change with technology,” Miller added.