The Intelligent Quarterly from the publishers of The Insurance Insider

Summer 2018

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Go with the flow

Paul Latarche

Over recent months, London has rightly seen many of the discussions and debates around the issues that may or may not arise with the UK's withdrawal from the European Union.

Indeed, as a firm, we have been advising a number of underwriters on the potential decision they may have to make, depending on the ability of the two sides to reach an agreement over the free movement of financial services.

However, in recent months many of the strategic discussions I have had with brokers and carriers have been around the broader issues of the London market's ability to remain relevant to its clients across the world.

The brokers have expressed their concerns that not enough business is flowing through the various facilities into the London market. Indeed, the view is that business is being increasingly placed with local carriers rather than being offered to London.

There may well be several reasons for the growing inability of London to see risks that traditionally would have been brought to the market. The overriding one for many is the time and cost that doing business in London entails.

We live in an age of technology that enables fast decision-making and for information to be transferred instantly. Clients are no longer prepared to wait for answers, and therefore will look locally for decisions that can be made far more quickly.

It is also the case that ever more risks and their solutions are being commoditised, with the range of specialty risks that have long been the foundation of London's business, and that require bespoke solutions, becoming ever smaller.

With 40 percent of Lloyd's business being underwritten on a delegated authority basis, the market is facing challenges.

The regulators are becoming more prescriptive in the fact that underwriters must treat delegated business as if it was underwritten within the carrier itself.

The other issue for the market is the ability to understand what it is underwriting. When you hand your pen away, it may well be that the first you know of the risk is six weeks after it has incepted and, for the class underwriter and actuary, it is only when the bordereau arrives that they can fully understand the exposure and aggregation of the risks.

It is much the same in the locality. If the broker is looking for, perhaps, a D&O quote and receives three from local carriers within two days yet doesn't get anything back for a week, there is little expectation of that quote making it to the potential client.

Again, the current bordereau system does not allow the carrier to understand the changes that may affect the success of the product.

If you are offering a Canadian cyber product which had a 70 percent success rate, and that suddenly falls to 45 percent, you need to be able to identify the issue quickly and then make the changes that you believe will make the product more attractive to clients.

In many ways, the London market is facing a disruption of a very particular kind.

It is clear that while the personal lines and, increasingly, the smaller commercial risk classes are seeing the application of more sophisticated processes, the bespoke nature of major commercial business and reinsurance looks to be largely untouched.

For the London and international markets, the threat of disruption comes from the inability to get products and policies to the intermediary in a timely fashion.

Without a doubt, brokers are feeling the pressure from clients who are demanding that their risks are covered ever more quickly. The ability to place personal lines insurance in a matter of minutes is having an effect on commercial risk.

While appreciating that commercial risks are more complex and cannot be fully met by an off-the-shelf solution, there is view that although it cannot take minutes, it should not take weeks.

This demand links to the challenge of agility. Listening to the InsurTech experts, it is clear the successful underwriters of the future will be those that are most agile.

Again, due to the issues I have already outlined, there is no expectation that the specialty markets will be as nimble as their personal lines peers, but there are areas where there should not be any difference in speed.

Specialty insurance is dynamic. A major natural event or a fundamental change in the global economy can have a profound effect on the level of exposure, and therefore the price of the risk.

In a heavily overcapitalised market where there is no shortage of replacement capacity should a current underwriter look to withdraw from a particular class, pricing remains under intense pressure.

Underwriters need to be able to react to changes by their competitors on premiums charged and breadth of terms or conditions.

The ability to change terms and pricing quickly and, more importantly, communicate this to the distribution channels, is where the underwriter's agility can become either a USP or a barrier to trade.

It is at the heart of the industry's future to improve operational efficiencies and analytical capabilities across all stages of the underwriting cycle, while reducing frictional costs and speeding up response times.

The ability to enhance pricing analytics and underwriting data to enhance both pricing accuracy and speed is now seen as a core component in the reinsurance market's efforts to enhance client service, reduce claims risk and squeeze greater profitability from the currently depressed pricing.

Brokers are keen to access capacity and underwriting decisions quicker and the use of technology and a platform system to do so has become ever more attractive as the benefits are realised.

The goal for underwriters is to increase underwriting speed and performance, enhance the ability to analyse portfolios, reduce the levels of data input while delivering a consistent approach to pricing, and meet the ever-increasing reporting requirements from the regulators.

It is a case of developing the areas of the underwriter's business that it can control. The fewer man-hours devoted to the internal processes that drive the business the better for underwriter, broker and client.

Already we are seeing evidence of underwriters adopting this new approach and creating platforms that allow brokers to access products, offer risks and communicate with underwriters more effectively.

But in many ways, this is not enough. Underwriters need to be confident that the information pertinent to a particular class or risk is being delivered to those that require that information and not to those that do not.

It requires the ability to allow an intermediary access to areas of a platform that will enable it to obtain a quote quickly, but to also reassure the broker that the data shared in order to obtain that quote remains proprietary to them and cannot be accessed by others.

There is little doubt that in the months and years to come the underwriter's platform will become its major marketing and distribution channel. It will be the speed with which it can deliver the quote and communicate changes to existing products to reflect the market's dynamics that will drive success.

RuleBook is relatively new, but it is testament to the desire from the market to have such a platform that 25 percent of the London market now utilises it to speak to over 2,000 brokers across the world.

It enables the underwriters to operate their own specific portals to deal with specific partners while using RuleBook itself to offer products to the entire user community.

The expectation is that brokers will increasingly demand a greater ability to drive business on ever more seamless systems. Underwriters that fail to deliver that agility will more than likely find themselves ever further behind the curve.

Paul Latarche is a partner and head of the Insurance Division at Moore Stephens

This article was published as part of issue Autumn 2017

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