Industry sources question the Corporation’s ability to change as much as it needs to in order to maintain its relevance

It has been well documented in recent months that there is an “intervention plan” being cooked up inside the Bowellism walls of Lloyd’s of London.

Lloyd’s is said to be reviewing all aspects of its business. But there is a deep concern among senior executives in the market that this review has come a little too late and that it may be “too difficult” for Lloyd’s to change.

The urgency around this review was in no doubt spurred on by the Corporation’s 2017 results, which saw the market report a £2bn loss and a combined ratio of 114 percent. The news that John Neal will replace chief executive Inga Beale will in 2019 will now align this review.

Jon Hancock, director of performance management at Lloyd’s, is taking a hard-line approach by threatening to close consistently-underperforming syndicates – unless they can prove a plan to turn the business around. But it is safe to say that closing a few loss-making syndicates is not going to fix the market’s wider problems and challenges Lloyd’s faces.

A swollen cost base as a result of increasing regulatory and compliance paperwork, rising commissions from brokers and overly complex distribution methods have weighed considerably on the market’s profitability.

Last year’s devastating losses have thrown the Corporation’s fundamentals into sharp focus, raising questions around the future of the 330-year-old market.

While the issues are not unique to Lloyd’s, more so than ever the Corporation has to prove its worth. Although, as it does so, Lloyd’s must minimise the risk of business leaking out into the company markets as a review of its operations gets underway, market sources have said.

“The performance directorate know what they’re doing and know they have to be careful about throwing the baby out with the bathwater,” says Charles Manchester, chief executive of Manchester Underwriting Management and chairman of the MGAA.

The executive says that the Corporation must find a balance between underwriting profitability and relevance.

“You can’t chuck out too much business otherwise you’ll stop being relevant to brokers and producers, and coverholders will stop looking at Lloyd’s,” he says, adding: “They’re aware of these risks.”

“Will that be enough to safeguard the future of Lloyd’s? Nothing will ever be enough to safeguard its future,” says Manchester. “It would be the epitome of laissez faire to think you could do just one thing and think that will sort you out for the next 300 years.”

Technology, distribution models and the franchise’s future strategy have been regularly cited by market sources as areas Lloyd’s needs to address.

“Lloyd’s has been particularly poor with technology historically, but that’s almost inevitable in the nature of it being a market as opposed to an insurer,” Manchester says.

Toby Esser, chairman of AFL Insurance Brokers agrees. “[Lloyd’s] must fundamentally get electronic trading and its use of technology right and it’s got to be at the forefront of any CEO that comes in for the next couple of years,” he says.

The distribution model has also come under much scrutiny, with one senior Lloyd’s underwriter – who asked not to be named – saying: “It has gone crazy”.

“There are far too many moving parts and the chain is crazy, as are the costs. Something needs to be done to make this simpler and not so burdensome otherwise people will just look at other options,” they say.

However, although there are deep and residual concerns about how the Corporation will go about tackling these challenges, which will inevitably fall into the lap of the new chief executive, commentators are quick to balance the negative attributes with positives in the market.

“Lloyd’s is the only marketplace in the world which continues to create an environment for new products, new thinking, new ideas and will get into business where others might not want to do so,” says AFL’s Esser.

“It is tremendously good with its delegated authority and continues to be a leading light in the world of reinsurance and I don’t see that going away. Lloyd’s does a lot of things right, but it hasn’t moved on with its efficiency and that’s the problem,” he says.

Licensing as well is a clear added value, allowing businesses to enter markets without incurring all the costs they would if they were to go it alone.

But other more cynical market commentators worry that in a world where everything is becoming smaller and more easily accessible through the use of technology, this isn’t enough, with one industry source saying: “Beyond the licensing, you’re really starting to scratch around.”