If Delegated Authority Is the Answer; What Is the Question?
Delegated Authority (DA) business makes up nearly 40% of all premium inflows to Lloyd’s and is transacted by a network of over 4,000 registered coverholders and more than 350 service companies and thousands of brokers Worldwide. It has also been estimated (by the International Underwriting Association) that the ‘Company Market’ writes close to US$6BN of DA business and has been steadily growing in recent years. This would suggest that writing DA business is indeed the answer to many a company’s question around where growth exists in an ever changing and increasingly challenging global insurance market; whether that is to front up to the challenges presented in a post – pandemic world or to deliver new and innovative products in the area of evolving and new covers provided for cyber and parametric insurance risks. Business delivered by this capacity distribution model is increasingly popular and strategic in the thinking of London Market companies as they look to create the value required in an efficient and strategic DA proposition. The simple fact is though that at present it is expensive, inefficient and a somewhat aged and challenging business model to execute successfully and it is this at the most basic level that the Future at Lloyd’s (FAL) programme is looking to address in order to protect, enhance and develop this revenue stream to the market but market directives and mandated technologies will not by themselves make DA more relevant and commercially viable as there are so many other measures by which companies will benchmark their relative success in delivery of an efficient DA business model.
As readers of this journal will be aware, the FAL programme is working at providing platforms that make it better, faster, and cheaper to do DA business, focussing on the capture of accurate and reliable data, which enables the simplification of downstream processes but what does this really mean and how realistic are these ambitions? Technology is part of the answer and so it is welcomed that market systems and portals are being built in which to accommodate the digitisation of this marketplace but let’s not forget that this is about being digital where we can be and applying the human touch as and when required. It should be about providing choice, particularly to coverholders who have varying degrees of experience and skills within their business to engage with the market in the manner in which they choose. Brokers of course play an important role in the market and will continue to do so but really must adapt and evolve their business models to be more accommodating to the requirements of coverholders and the capacity providers with which they work. The model needs to move to an options-based model where clients are offered the choice of direct dealing with a digital marketplace for all or part of their risk portfolio or in fact utilising the services of a broker on a more transactional, traditional basis. Again, the word here is ‘choice’ and it is at the moment missing and therefore a blocker to opening up new distribution channels and territories in which to trade.
The ongoing relevance and commercial viability of writing DA business in London is under scrutiny like never before, given the huge volumes of business transacted in this manner. The market should be looking to deliver capacity into new channels of distribution by using platforms that automate the DA process through innovative use of technology services and products that will facilitate the straight through processing of this type of business. To this end and as well as the FAL programme of works underway, The Lloyd’s Market Association (LMA) in January of this year engaged the global DA community of coverholders, managing agents, brokers and other stakeholders involved in the management of DA business, looking for and encouraging participants in the work to be bold and brave and to ‘think outside the box’ when it comes to writing and administering DA business in the London Market. The initiative labelled ‘DAre’ (DA Re-imagined) has now reported its findings and I would encourage people to look it up (www.lmadare.com) and to review the findings of this consultation with the market and to understand the outputs that have been generated as it points to the future direction of DA business written from London and what is required to make the process more engaging, customer centric and efficient. The LMA will be using this output from the project to constructively engage with Lloyd’s to influence the FAL change agenda relating to DA, which will hopefully offer some counter balanced views on the future direction and state of where we are now and where we need to be in the future. It will be interesting to see how this plays out and what can and will be accommodated within the roadmap for delivery of the DA workstream under the FAL in the coming months and I will of course be keeping a close eye on this and reporting back in these pages accordingly in the months ahead.
The challenges of writing business in the London Market are well known, with the unique way in which risk is syndicated through the subscription model being both a blessing and a curse in many ways, adding levels of complexity and challenge to an already laboured and archaic process. What is clear though is there needs to be a better and more forensic understanding of the insurance value chain if we are to see improved capacity management and distribution within the DA market, in simple and stark terms it needs to be more streamlined and customer focussed, with participants using the best in breed technologies and services to support (not solve) their own business propositions. We will see increasing use of the market platforms in place and being delivered currently which of course will assist at the macro or market level, but companies will also have to carefully consider their own micro level engagement and what they will need in order to deliver successful outcomes in their own DA portfolios. We must also ensure there are concerted efforts to align governance, contractual and commercial outcomes to ensure that the environment in which DA business is conducted can be done so in the most efficient and commercial way possible.
Originally published in The CHART Exchange: https://issuu.com/chartexchange/docs/2021_july_chart