London must brace itself for more fundamental change
29 July 2020
The market has been forced to transform its working practices, but it needs to better understand the nature and scope of the changes to build on the progress already made.
The impact of the Covid-19 pandemic has been described as prompting a revolution within the London market. There is little doubt global society has been required to change the way we live and work to simply keep the lights on. However, the industry, and the London market, must take a good deal of encouragement from the way in which it has responded to being forced to switch almost overnight to a system of remote working.
It has been a step change for many in the market, given the centuries of tradition the industry has built up in terms of the way it conducts its business, particularly for the bespoke and complex specialty risks on which the London market has built its reputation. But this is not the sudden revolution some in the market believe it to be. Indeed, it is simply the industry adopting strategies that have been apparent in other sectors of the economy for some time.
Senior figures within the industry have quite rightly said the London market’s ability to react so quickly to the changes forced upon it have been significantly aided by the use of PPL. The figures for the increase in the use of the system – which enables the placement of risks electronically – in recent months have been significant. Many in the industry believe without the ability to place risks electronically the London market would have struggled to maintain the as-close-to-business- as-usual performance we have witnessed, so far.
However, it needs to be considered that PPL placed its first risk in 2016. Since that time, it had struggled to gain any meaningful adoption until the Covid-19 pandemic and the steps the market was required to take to ensure socially distanced working. We have also seen Lloyd’s and Acord reach an agreement on the standards for use of email and electronic signatures. Again, their use before the pandemic was spasmodic but since the move to remote operations, we have seen a leap in adoption levels.
Steps to change
The technology behind these systems is not new. They have been around for some considerable period of time and are more heavily used in other sectors. Therefore, we have viewed the changes we have seen to the market as an evolution rather than a sudden revolution, where previously unused systems and technology are rapidly introduced to radically change the way the industry operates.
The biggest issue in terms of the industry’s change management efforts has been overcoming resistance to change. The industry has seen far too many initiatives hailed as the catalyst for real change fail to make any impression due to the reluctance of the market to adopt them.
Dr John Kotter created a theory there are eight steps to change. The first step is to create a sense of urgency, second build a guiding coalition, third form a strategic vision and initiatives, fourth enlist the army required to drive change, fifth remove the barriers to change, sixth generate short-term wins, seventh sustain acceleration and finally institute change.
Interestingly, over the past five- plus years the London market has worked hard on developing a vision of what the future market will look like and a strategy it believes will enable the market to turn that vision into reality. However, what it was lacking was the first of Kotter’s steps to deliver change: a sense of urgency to drive that vision and the strategies around it.
Covid-19 has been the catalyst to the creation of that urgency, given the steps the industry has been forced to take to comply with the rules to reduce the transmission of the virus. It has unlocked that change and driven the ability to redesign the systems.
After talking about change for so many years we are finally able to deliver on that change. However, what we need to do is ensure that change that has been created is not abandoned when the steps put in place to tackle the pandemic are eased, and that we continue to build on the work that has already been completed.
Externally we also face legal and societal changes which will result in further change in demand and the customers’ approach to the products the industry provides.
Looking to the future it is likely the London market as we have known it for so many years will no longer exist. Undoubtedly, given the complexity of the risks the London market writes, there will remain a need and a place for the face-to-face negotiation between broker and underwriter.
It has been interesting to see that while firms have been very positive in terms of how they have adapted to the new working requirements, the biggest issues they have faced have been the inability to interact face-to-face with colleagues and clients.
The June 1 renewals were said to have been relatively seamless; however, brokers say the issue has been the reduced ability to access potential new business opportunities.
All of this points to a more hybrid model of the London market in the future, where people will still physically access the market but not on the scale we saw before the pandemic. Change is now the new normal and we should all assume there are to be further shifts in the future. It is highly likely in the months to come, issues and challenges to the changes we have seen will emerge. These include how we support staff working remotely with issues such as avoiding burnout and accurately tracking performance remotely.
The ability for the market to trade electronically, and remotely, has the potential to enable greater access to markets and intermediaries which are not physically within the Square Mile. This has the potential to put pressure on the market’s wholesale brokers to look to the role they play and communicate the value they add.
What has already become clear is companies and entities that resist change will be those which are likely to struggle to deliver a profit in the new market in which they now operate.
I am personally excited about the digital and cultural shifts that are already being seen around us. However, we must be prepared for the changes that will, inevitably, continue to challenge the industry and its willingness to adapt and embrace the benefits that technology and the growing digital economy can deliver.
The genie is now out of the bottle. It cannot be forced back in, but the ongoing impact of change will depend on the market’s ability to ensure the reluctance of the past does not return along with the ability for staff to return to their offices.
Author: Tom Maleczek
Published in Insurance Day 28 July 2020