Neal’s vision: Seven steps to reset the Lloyd’s market

Less than six months into his tenure, Lloyd’s CEO John Neal has articulated a hugely compelling vision for a renewed Lloyd’s market which would address the issues of distribution, cost and capital that have prompted questions over the past 12 months about its long-term future.

When The Insurance Insider sat down with Neal to discuss the prospectus for the market, due in May, he repeatedly emphasised the importance of increasing its flexibility, openness and speed.

If the vision was to be delivered in full it would answer the central issues at Lloyd’s not addressed by the performance gap process: namely that it is too far from its customer, that its operating expenses are too high, that it is too slow at paying its claims and that it is not sufficiently differentiated.

However, when the radical nature of the envisioned changes is sketched out and the dependencies are considered alongside the London market’s record of delivering change programmes, it becomes clear that execution will be highly challenging.

When speaking to this publication Neal did not set out his priorities under these seven headings, but they have been divided as such for clarity.

  1. Distribution Open up Lloyd’s distribution to the full range of brokers globally using technology and shorten the distribution chain, while placing an emphasis on securing a larger share of the big three’s vast book.
  2. Underwriting Introduce more flexibility around the business models of underwriting firms by moving to a ‘multi-track’ market that includes follow-only or virtual syndicates, while cementing the gains of the performance gap process.
  3. Capital Address issues caused by high-cost capital and having a single clearing day a year by allowing flexible real-time capital trading, including from capital markets players that have a lower cost of capital.
  4. Data Maximise the benefit of the market’s mutuality by leveraging its huge aggregated data to deliver services to improve decision-making and create new revenue streams.
  5. Service Improve overall service levels in the market to enhance the client value proposition by establishing rapid, automated claims payments.
  6. Product Supercharge innovation to offer clients compelling types of cover, while leading the world on solutions for emerging risks including insuring intangible assets.
  7. Growth Drop the fiction that Lloyd’s is a specialist market only and directly address the bigger pool of risk this offers, while increasing attractiveness to clients and brokers through an enhanced value proposition.


Neal told this publication: “Everybody should be able to access Lloyd’s from wherever they are in the world.”

To do this, Lloyd’s will create a “standardised risk exchange” for more commoditised risk, with Neal referencing FX exchanges as the model.

Brokers anywhere in the world, including retailers, would be able to plug into the exchange to present a proposal, test the market, secure a price and bind a risk.

Major retailers have in the past complained to this publication that they are unable to access Lloyd’s due to arcane rules that demand the use of a Lloyd’s wholesaler, adding cost and complexity when it comes to accessing the market.

Pressed on whether Lloyd’s was advocating compressing the value chain to take out acquisition costs associated with wholesale brokers and MGAs, Neal said: “I think you have to simplify the value chain.”

Neal also talked of the need for a second technology platform for complex risk solutions that require human interaction ahead of a risk being bound. Seeming to gesture towards PPL-plus, he talked about joining the dots on existing tech solutions and the need to get quote-to-bind for these risks on an electronic platform before automating the back office.

The recently installed CEO also seemed to indicate that the market’s response to their dominance would be to hug the big three brokers close.

He again referenced the fact that although they provide 40 percent of Lloyd’s business, the market only writes 14 percent of the big three’s combined book.

“If we are creating options and choices they don’t currently have, then that will encourage them to support us with more of their flow,” he said.


Neal also stressed that Lloyd’s was minded to move away from a one-size-fits-all structure for underwriting businesses, radically recasting the way leading and following works to end costly duplication of effort.

“The following capacity needs to have the right expertise to understand risk – but it doesn’t have to have an underwriter, it doesn’t have to have a claims team, it doesn’t have to do sanction checking,” Neal explained, accepting the description of this as a “virtual syndicate”.

“I’ve spoken to all the managing agents and I’m yet to find the one that runs a follow syndicate – they all lead apparently,” he said. “But you don’t have to lead. You could have a follow-only syndicate.”

Neal said that such a syndicate could commit $1bn of capital and run with an expense ratio of 2 percent, paying leaders fees in the way you would see in banking. In principle, the regulators are happy with this sketch, he added.

This embrace of a multi-track market mirrors Lloyd’s embrace of follow-form facilities such as Aon Client Treaty, which have seen managing agents like Beazley establish “beta” strategies alongside stock-picking ones.

Neal said that more flexible underwriting models such as those described above could “simplify the cost structure dramatically”, with an ambition to halve costs where appropriate.

The Lloyd’s CEO said he was also likely to create a “fast-track” application process to enter Lloyd’s, with the relevant story in the teaser prospectus seeming to suggest Lloyd’s would look to speed up the approval of new products or lines of business too.


In its teaser prospectus, Lloyd’s asked its stakeholders to think about ways it could create a “more dynamic capital environment”.

Neal talked about turning Lloyd’s into a capital exchange, allowing capital providers to trade in and out in real time and flexibly access risk at even a highly granular level.

This vision would draw new capital to Lloyd’s including lower cost-of-capital money, and would recast the market as an asset manager, with an attendant increase in fee income.

Neal said Lloyd’s was looking to "create greater flexibility for capital to connect to risk”.

Capital providers – which could include investment funds, pension funds or individual Names – would still be required to pass through an accreditation process before they could attach to risk.

But after that Lloyd’s was open to a high degree of flexibility around how they access risk, and the vehicles by which that capital would be brought to market.

“I’m saying that third-party capital could say if it’s a complex, large property risk, if it’s Hiscox or Beazley or Brit then we want to be accredited to follow that capacity. And it could be predetermined consortia, it could be facultative on a risk basis.”

Capital would also be able to move in and out rapidly rather than have to deal with a coming-into-line date once a year.

Neal said the technology for capital exchange platforms was in use elsewhere, suggesting there was no reason Lloyd’s could not get one up and running quickly.

As a £36bn- ($47.1bn)-premium market, Lloyd’s also has huge access to data and Neal has said that this could be used to create an “ecosystem of services”.

Neal said that, including the business Lloyd’s quotes, it is probably seeing roughly a third of the global flow of business.

“You are creating a data set that should inform you of the entire market, so why can't we make that data set available to every participant?”

Some of this data could be monetised, Neal said, adding that it could also bring down operating costs.

“If we provide a lot of the related services through the ecosystem, and it is a value proposition that the market offers, you don't need to pay for those services elsewhere,” he explained.

“Doesn’t matter if you’re the biggest broker in the world or one carrier, you are going to benefit from those services. And you don’t need to pay for them because they are being facilitated by the market.”

When Marsh & McLennan Companies acquired JLT, CEO Dan Glaser said one of the appeals of the deal was the new data it brought into the system, and the virtuous circle created by having a bigger pool of data. (See graphic).

Service and product

Neal said that insurance as a whole is currently “challenged in terms of its relevance”, with so much risk being retained.

“A broker like Aon or Marsh is probably managing more business placed into captives than is put on the Lloyd’s platform,” he said, suggesting this was evidence that the market was not serving the customer well.

Neal said price may be one factor driving that outcome, “but I think it’s more likely they don’t see the type of cover and type of solution they are looking for”.

“And number two, some of the obligations around speed of payment for loss aren’t what they get from themselves. So let’s solve those problems and I think then there’s a bigger marketplace.”

To improve client service, Neal said that Lloyd’s needed to look to some of the developments in the personal lines space and establish rapid, automated claims payments, complementing its 300-year record of paying legitimate claims.

Lloyd’s has also stressed the need to “supercharge innovation” as it looks to provide “more relevant solutions” for customers.

The executive told this publication that Lloyd’s needed to be at the forefront of solving problems arising from the inversion of the balance sheet, which has seen intangible assets rapidly overtake tangible assets over the past 40 years.

“How are we tackling reputational risk?” he asked. “How do you deal with IP? What does the insurance look like for that?”


Neal also restated his ambition to grow the Lloyd’s market, rejecting any idea that the market should look to shrink to the status of a profitable hub for niche and specialty business.

Instead, he said, Lloyd’s should drop the idea that it is a market for specialist business only – noting its strong position in delegated authority business – and define itself more broadly as a marketplace that also serves standardised risk classes.

In passing, Neal twice illustratively talked about major growth potential in the market, at one point mentioning the £6bn of business it could add if it was able to urge the big three to lift their 14 percent allocation to 20 percent. And a second time, when he said that if the market was twice as big it would be able to offset the headcount reduction that would be necessary if remained its current size.

Neither was a target – or a definitive direction of travel even – but both indicated that Neal thinks a revivified Lloyd’s could play a much bigger role in the global P&C market if it could establish itself as the platform of choice for brokers, clients, carriers and capital.

The Lloyd’s CEO said that the market has “the opportunity to be much more significant”, adding: “The opportunity [at a macro level] is terrific.”


If the performance gap process is seen as a complement to these seven steps, Lloyd’s has presented a comprehensive vision to the market that would add up to a compelling value proposition to all of its key stakeholders.

However, it requires market buy-in and execution at a level far above anything that has characterised the market’s recent change programmes.

Success needs the creation of an effective standard risks exchange platform to mirror that seen in, say, the FX market. And it requires a second technology project to either enhance PPL or build PPL-plus.

It also requires current market participants or new entrants to embrace a new model around underwriting and syndication. This would most likely require significant action around headcount reduction, or major new premium volume to feed new beta carriers.

Lloyd’s would need to fix the bureaucracy that surrounds new entrants and business planning, re-establishing itself in a new guise as fast-moving, efficient and entrepreneurial.

The technology around the capital exchange would need to be got right, and Lloyd’s and the brokers would need to successfully pitch the opportunity to investors – in the face of a weak recent underwriting record.

To deliver on service, automated claims processing would again require a successful technology build.

When it comes to product, Lloyd’s will need to find a way to encourage increased investment that has been hampered by the limited benefits accruing to first movers and the perceived inhibiting effect of over-regulation.

And, at present, that kind of cultural change does not seem to come with the creation of a central Lloyd’s research and development department focused primarily on creating new products.

Lloyd’s has a massive amount of data but it also has a lot of ground to make up if it is to successfully utilise what it has to improve decision-making and drive new revenue streams. And it could find that regulators hamper its efforts in this area.

All of which to say is that there are many hurdles where Lloyd’s can fall, and significant dependencies between the different endeavours.

Regardless, Neal has had an incredibly productive start to his tenure at Lloyd’s. After a succession of reverses, the market had lost a clear vision of its future direction. Neal has now provided that.

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