Lloyd’s Chief Executive Richard Ward delivered a lecture to the Insurance Institute of London on the use of technology in the market and his address delivered a lot more than many may have bargained for.
Richard Ward arrived at the Lloyd’s Old library to a packed house and the expectation that he would use the opportunity to update the market on the Lloyd’s Exchange but the market’s CEO delivered a lot more.
From his frustration of walking into the iconic building each day to the prediction that the underwriting room will not last forever, he delivered an insight into the thinking of the Lloyd’s hierarchy and also a warning that things need to change and quickly.
The core of the lecture was to put an end, once and for all, to the talk that what the market is seeking to do with the Lloyd’s exchange is to drive electronic trading in the market and look to end the use of the famous underwriting room.
Mr Ward said the exchange was to act as a gateway to enable the more efficient transmission of information around the market - not to turn the Lloyd’s market into a virtual exchange.
When Mr Ward joined the market in 2006 he came from a similar role at the International Petroleum Exchange where he was at the helm when it moved from face to face to electronic trading.
The talk at the time was that he had been brought in to perform the same task at One Lime Street. Indeed a comment he made did have some in the audience wondering if that may have been on the original agenda.
He told the audience: “If that was my view when I arrived on April 29 it was not the view on April 30.
Mr Ward said the underwriting room was the heart of the market and the attraction for the many new entrants which had applied for and set up syndicates in recent years.
The underwriting room would still see face to face broker and underwriter negotiation in his lifetime, he said but added: “I do not think it will be around in 100 years, but it will remain a huge part of the market for many many years to come.”
It is clearly an issue that has been broached with Mr Ward time and time again as any mention in the subsequent question and answer session of electronic trading was quickly and forcefully rebuffed.
He certainly did his research quoting his predecessor Nick Prettejohn’s speech to the same institute in 2005 where he said any mention of the words standards and electronic operation had the market fearing commoditisation, disintermediation and see those in the market turning to run.
He said little had changed in many ways in the market despite the progress which had been made on electronic claims files, accounting and settlement and the delivery of contract certainty.
He said the issue of contract certainty once again highlighted how the market can successfully come together to meet the challenge of a crisis as it had with 9/11, hurricanes Katrina, Wilma and Rita and last year hurricanes Ike and Gustav.
“Using technology to speed the flow of information is still the biggest challenge we have to face,” he said. “As a market when we face a crisis we band together and we are great at working together. Why have we not done it in this case? It is not seen as a crisis so we don’t have to meet it.”
However Mr Ward said those who felt the use of technology was not important to the market risked watching its demise.
He said he had recently watched the film Groundhog Day where weather presenter Bill Murray wakes up to relive the same day time after time as he struggled to change the events of the day to end the continuous reliving of the same 24 hours.
“Each morning he wakes up to Sonny & Cher’s ‘I’ve got you babe’ playing in the radio,” he explained. “To some respects the market is like a Groundhog Day as nothing has materially changed.”
Indeed he said that every morning he walked into the building he was reminded of the film given the fact that nothing has fundamentally changed.
“We do use technology and we have proved we can do it when we want to,” he told the audience.
However the use of technology was not about changing the way the market fundamentally operated but how it met the needs of the clients and it was these clients that the market was in danger of alienating if it did not get its act together.
“It is all about service,” he said. “How many times have you been in a restaurant where the food has been great but the service poor and therefore you decide not to go back?
“We have a great market, with great underwriting but the level of service we support that with does not match the quality of the underwriting. If we do not do something about that service level one day those clients we simply decide not to come back.
“We will always be compared in the levels of service that clients received from other marketplaces and we have to up our game if we want to remain the market of choice for specialist insurance and reinsurance.”
Mr Ward said technology had moved on and the market needed to ensure it was not left behind.
He revealed that in recent weeks he hosted a visit from Neil Armstrong the first man to set foot on the moon who was linked with the Lloyd’s Syndicate 1969 – the year Armstrong made his historic journey.
Mr Ward said that in 40 years technology had evolved to the point where the computer capacity and technology of his Blackberry mobile phone was more powerful that the computer systems which were used to place two men on the moon.
He said the current market’s efforts were not about electronic trading or a replacement for the failed Kinnect initiative.
“It is about standards to enable the market to exchange information through the system to each other eliminating the need for re-keying, reducing the chances of error and enabling straight through processing.”
To that end the Lloyd’s exchange has decided its major push will be the exchange of endorsements via the system and Mr Ward said it would deliver a standard to which all the messages will be measured.
That will be the soon to be launched Acord 2009.1 standard and the exchange will simply receive the endorsement message check if it meets the required standards and either pass it to the intended recipient or send it back if it is not compliant.
Mr Ward said the decision to focus on the endorsements was not setting the hurdle for the market too high but believes it was a vital first step which would lead to significant future progress.
“It will take some effort as what we are asking people to do is change what they have done for some time,” he added.
Two of the big three brokers have already signed up to use the exchange for the endorsements and Mr Ward said he was actively working to get the buy in of the remaining member of the big three.
“Every initiative needs its champions and it does not have to be too many a number,” he said. “Our champions for this are the brokers.”
Mr Ward said that it was rare that he came to the market to ask for its help in such a manner but added that while there had been significant progress it had been from a very low starting point.
He added that in other industries the use of technology was far ahead of the market and stressed the need not to be left behind.
Mr Ward said it was not just a case of the market issuing its support for the exchange but that support needed to be changed into tangible usage.
“It is a bit like those who sign up to a gym membership in January,” he explained. “You sign up to feel good but to look good takes hard work –you have to use it.
“Using it is hard work, just like going to the gym to get the benefit of anything you have to work at it. It will only be when firms are using it that they will see the benefit it will bring to their business.”
