Briefing: Technology innovation once again raises London’s transformation hopes

By Jon Guy

Member organisation the Lloyd’s Market Association (LMA) has this month (November 2024) opened a new debate around the future of “enhanced underwriting” through the publication of its joint report with Oxbow Partners, entitled The Growth of Enhanced Underwriting in the Lloyd’s Market: The New Normal?

For those of us who are keen to understand what makes underwriting enhanced, the LMA has defined ‘enhanced underwriting’ as propositions that use data and digital technology to enhance underwriting decisions, or propositions that have taken a new strategic approach to follow business.

According to the LMA, there are four distinct enhanced underwriting models. These are pure algorithmic underwriting, active portfolio trackers, augmented underwriting and digital and algorithmic broker facilities.

The association said that these enhanced underwriting models are in their early stages of maturity.

Carriers and brokers are investing in these approaches, with many conducting small scale experiments. Few enhanced underwriting vehicles currently operate at an optimised, scalable level, however.

Enhanced underwriting currently represents around $5bn (£3.88bn) in premium, the LMA stated. This equates to approximately 7% of Lloyd’s 2023 gross written premium (GWP), with the largest share coming from pure algorithmic underwriting – notably Ki’s $877m (£680m) GWP.

Elizabeth Jenkin, underwriting director at the LMA, said: “Although enhanced underwriting is in the early stages of its maturity, this report shows that there is almost universal belief that it will be a fundamental part of Lloyd’s future, presenting an opportunity for the market to apply its deep specialty expertise in new ways.

“By thoughtfully integrating these models, market participants believe they will drive efficiency, improve risk selection and access underserved business, while reinforcing Lloyd’s position as a leader in complex, high value risks.”

Tentative technology ambitions

The LMA presents an impressive vision of a future where technology will drive efficiencies and a reduction in frictional costs, all while enhancing the ability of the Lloyd’s market to innovate.

However, it sounds familiar to those of us who have been involved with the Lloyd’s and wider London market over the past two decades.

From former Lloyd’s chairman Peter Middleton’s claim that Lloyd’s would have full earnings per share by Christmas 1996 to the 2006 closure of online risk platform Kinnect and the current faltering implementation of Blueprint Two, the dream of a technology powered future has long been held by London market participants.

What may give enhanced underwriting models a better chance of success is the fact that these systems are being driven by individual brokers and underwriters, rather than the market itself.

There are bold statements in the LMA’s report around the percentage of business which will be carried out on enhanced underwriting systems in the near future.

LMA chief executive Sheila Cameron said that the organisation hoped to help its members to identify the underwriting models that would suit their organisations best.

How these will fit with the Blueprint Two implementation when it eventually happens is less certain.