Bridge the human-tech divide

The following blog by Bernie de Haldevang, Head of Specialty at Canopius, expands on comments he made at Insurance Day’s panel-debate webinar ‘The future of the London market in Europe’.

If the Credit and Political Risk portfolios of all the Lloyd’s syndicates and company-market insurers that underwrite the line were examined in turn, it would become apparent that portfolios labelled ‘Credit and Political Risk’ vary dramatically. The nature of the risks they contain depends on each carrier’s risk philosophy, its line sizes, and its focus – as well as the specific expertise of the individuals who underwrite them.

This diversity has made London the global leader in the broad class known as Political Risk. Even major players in the class such as AIG reputedly write more of the class out of London than they do from their headquarters, or anywhere else. That broad approach is why London will remain the world’s leading market for what are inherently esoteric covers for the foreseeable future. The same might have been said of cyber risk: the sheer diversity and flexibility of London’s offer are unmatched in any other location, however the sheer volume of business in North America has shifted the centre of gravity for premium to local markets, particularly in the SME area. Bermuda is also a big market.

Writing Political Risk is an individualistic pursuit. Carriers’ risk appetites, the assessment of clients’ risk appetites, and the assessments underwriters must make about what they think may happen in a distant country, based on their own interpretation of collected opinions and formal as well as informal intelligence about its politics and economics, are all extremely subjective. People carry not only their own baggage of opinion, but also a welter of subtle societal constraints arising from the place they live, its politics, religion, and mores.

For example, a French insurer would probably have a very different view of Latin American risks than an American carrier; each will probably have very different opinions about specific Eastern European risks and locales. Those preconceptions seep into political risk underwriting decisions. London encompasses a confluence of cultures which yields a wide range of risk appetites and tolerances. That enables customers and their brokers to find appropriate cover for risks of all sorts.

London does, of course, face challenges. Our cost-base is high. We must address that problem through technology, as the London Credit Consortium/Toredo has done through its web-based specialised trade credit insurance trading platform. However, technology in isolation is not the entire solution. We need to focus on our ability, as partners in transactions, to adapt to it.

Technology has driven the globalisation of insurance availability. However, we as human beings still prefer to buy more complex and tailored insurance from companies whose names we know and whose origins we understand. By default, we are more likely to trust such firms (which is perhaps, in some countries also another Lloyd’s advantage). Familiarity is not easily bred through the ether, which makes it much more difficult to achieve cost benefits through digitalisation at the distribution-end of our market.

Further, as Lloyd’s comprises a market, first and foremost, of face-to-face traders, we find the challenge of adaptation even greater. Our need to cut costs through technology is therefore trapped in a juxtaposition: technology is quicker to change than the human mind, versus the ability of human beings to adapt to purchasing complex insurance (or anything complex) across borders in different languages, or down wires. To be effective, we need to address both ends of that spectrum.

The challenge will no doubt be met as generational change continues, and the mismatch of technological change and the speed of human adaptation defaults to the lowest common denominator. However, we can and must do better, and attempt to adapt more quickly by embracing technological engines such as PPL and Toredo. Doing so will allow us to reduce our costs more quickly while granting decision makers, with the involvement of their brokers, direct and convenient access to London’s extraordinary market for Political Risk insurance.