Talking to our producers in Middle East this week, they mostly echoed the feedback I heard earlier in the month in Asia. Generally the Lloyd’s Market is uncompetitive on much of the property and casualty commercial business that is traded domestically. Rates and minimum premiums quoted in London are substantially higher than what is attainable from providers located in the regions. Obviously the higher distribution and operating costs have some bearing but rarely accounts fully for the sharp disparity between local and London prices for the same risk. This is not an especially new phenomenon; prices last converged over ten years ago following the market dislocation after the 9/11 World Trade Centre loss but with the required size of a similar market changing event escalating each year and therefore receding in likelihood, the trend of differential pricing looks set to remain.
Viewed from the other end of the telescope, there is no lack of will on the part of London based underwriters to participate in business from the developing areas of the world. Indeed as an obvious diversifier to long established accumulations of exposure, particularly in North America, there is every incentive for London to compete aggressively for local business elsewhere. However, invariably the lack of key information; poor data quality is the constraining factor rather than a lack of appetite which is preventing underwriters matching local prices.
Indicative of how the business of underwriting risk is rapidly evolving in the developed economies is the introduction of telematics technology by the leading motor insurers. By installing a device within a car that constantly monitors and records data about driving conditions, insurers are able to structure product costs intelligently based on real time information feeds on how often the car is used, where it is parked and at what speeds the driver travels at. Techniques such as this will surely improve and extend into other classes of insurance.
Business data is increasingly being seen as a major corporate asset. No different from other industries, insurers are awash with data in many repositories on multiple platforms, structured to varying degrees of order. Mining “big data”; applying sophisticated analytics capable of predicting claims propensity, customer defection, risk dependencies, is set to transform significantly the way the insurance industry is shaped. Combing large volumes of data to forecast and finesse an understanding of future events is viewed by many as being the new source of innovation, growth and competitive advantage in our industry.
Conditioned by a world in preparation for Solvency II; sensitive to the demands of rating agencies who in turn look fondly to advanced capital modelling for their reassurance, specialist insurers in the major global hubs more than ever require the fullest of risk information prior to quoting and binding policies. The gap between what the underwriters now require in London as a minimum level of information and what many in the Middle East, Asia, Africa, Latin America are able currently to offer appears to be widening.
The huge losses arising from the Thai floods in 2011 revealed the extent of risk exposures that lurk in an un-modelled world where the quality of data has been neglected. Specialist insurers and reinsurers are nervous about what Donald Rumsfeld might call “known unknowns”. The extent to which clients, producers and cedants will quench the almost insatiable thirst for high quality data is likely to be the biggest factor in determining whether Lloyd’s penetration of the emerging markets grows; a fact commonly overlooked with so much attention on licensing, regulation, servicing and distribution as a means to develop business in these parts of the world.