How much does it cost to secure a future for Lloyd’s? £300m+ it seems

How much does it cost to strategise, design and implement a healthy and sustainable future for the Lloyd’s of London insurance and reinsurance market? UK £300 million, at least, it seems.

Lloyd’s has announced that it has secured £300 million of debt to cover the near and medium-term cash requirements of implementing the Future at Lloyd’s Blueprint One.

It’s a large sum of money that is designed to pay the bulk of the upfront and medium term costs of modernising the marketplace and should be enough to make a significant difference to the prospects of the Lloyd’s market, as long as it is well allocated and spent wisely.

Lloyd’s revealed some governance moves, in terms of senior leaders to drive forwards the Blueprint works, and the sale of £300 million of debt in an update to the market on the Future at Lloyd’s.

The Corporation said it has focused on “establishing a robust governance, oversight and funding framework which will ensure on-time, on-budget execution of the solutions announced in Blueprint One.”

On-time, on-budget execution is going to be a significant challenge, at least if that’s also measured against the effectiveness of deliverables as well.

Just being on-time and on-budget doesn’t mean success, as some of the concepts remain unproven in the context of Lloyd’s and there are alternative ways that technology can be accessed, other than building it yourself.

Buy vs build is certainly a conversation that Lloyd’s leadership will have had, but the risk of creating technical debt can be significant and large technology programs can become a massive cost-sink over time, something the teams working on the Blueprint will have to remain acutely aware of.

Large change change programs and technical modernisation initiatives, such as Lloyd’s Blueprint, also need to be measured on a success basis, with key metrics that define a successful implementation tied to every deliverable, ensuring that money spent on modernising the market delivers a meaningful return and isn’t just creating an ever more complex legacy to be dealt with.

By raising the money for itself, Lloyd’s has removed the need to rely on the members of the market.

The Corporation said it took advantage of low interest rates to secure the £300 million of senior debt to fund the program of work, avoiding any increase in market levies on participants and members.

That’s positive in many ways. But does it also ensure the ongoing buy-in of the market which now has less skin in the game?

Should the implementation prove challenging or be prolonged, keeping the market engaged and on-side with the Blueprint initiatives could become more difficult without it having an investment in its future. On the other hand, too many cooks makes a project like this incredibly challenging to deliver and the Lloyd’s management has enough of that as it is.

“The secure financial position of the Corporation will support the year-on-year costs of the Future at Lloyd’s as the benefits stream begins to be delivered,” Lloyd’s explained

Which suggests that with this financing secured, Lloyd’s believes it can deliver some benefits back to the market before it would ever need to impose a levy.

Whether the debt financing is sufficient to finish the job without raising more capital or imposing a levy remains to be seen, Lloyd’s has not published its project plans, costings and timelines.

Lloyd’s now has 80 Corporation and Market employees engaged across the various Blueprint workstreams and will be onboarding strategic partners in Q1 2020 to support a phased delivery and implementation of the various initiatives.

Lloyd’s said it hopes to deliver Lloyd’s in an “agile” manner (experienced program managers often shiver with fear at the use of the word). By this it means that funding for each quarter will be dependent on the execution of certain planned deliverables, which should give some cost control to the overall process.

Lloyd’s will publish a Blueprint 1a in February 2020, to lay out its detailed plans and deliverables for Phase 1 implementation. It will be interesting to see what’s included here, as it should be the highest priority quick wins, as well as the start of initiatives that are going to take the longest to implement.

Lloyd’s has made some leadership changes to deliver the program of work, forming a new Technology and Transformation Committee that will be overseen by the Lloyd’s Board and Council.

Andy Haste, Lloyd’s Deputy Chairman, is tasked with chairing the committee, while its members are said to “bring a wealth of experience and expertise in large-scale digital transformation,” although the members haven’t been named at this stage.

Jennifer Rigby, Lloyd’s Chief Operations Officer and Executive Committee member, is tasked with leading delivery of the program.

John Neal, Lloyd’s Chief Executive Officer, commented, “Since the launch of Blueprint One, we have focused on designing a carefully structured and managed approach to planning and execution to allow regular delivery of value to the market. With robust governance and oversight now in place, and the funds for delivery secured, we have every confidence in the successful delivery of the Future at Lloyd’s.”

Jennifer Rigby, Lloyd’s Chief Operations Officer and Executive Sponsor of the Future at Lloyd’s, also said, “I’m delighted to lead the delivery of the Future at Lloyd’s. Our dedicated team are working at pace to develop and deliver the solutions we’ve promised to fundamentally transform our market. It’s an exciting time to be at Lloyd’s!”

At £300 million of spend, just for the near and medium-term cash commitments (more may be required, the reality of such an initiative is that it will likely be ongoing), the Future at Lloyd’s is a significant program of works.

It’s large enough and so high-profile that most of the senior leadership at Lloyd’s are going to have the success of their tenure measured solely on the success of the Future at Lloyd’s.

Successful delivery, so the program of work is delivered on-time, as close to budget as manageable and all success metrics are exceeded, could become one of the great turnarounds of an organisation.

Especially as questions on the relevance of Lloyd’s have become more prevalent in recent years, with some (me included) asking whether it even needs to exist.

The challenge of modernising and dragging Lloyd’s kicking and screaming into the current century is a fascinating one and the possibilities could be endless, if the program delivery teams adopt a strategy that seeks to deliver what is best for the end-customer, not just for the market and its members.

Blue-sky thinking has never been more needed than at Lloyd’s right now. That includes asking really tough questions about what is really important in the Lloyd’s model and structure, and what isn’t.

The focus has to be on building out an efficient and lower-cost ecosystem and marketplace for advanced risk transfer and enabling access to risk capital.

Risk transfer and risk capital are the product of Lloyd’s after all (facilitated by expertise).

Now the task in front of the market is to deliver on both, maximising the wealth of expertise and the huge capital interest in risk markets, all while raising its relevance on the global stage to a position where it cannot be challenged.

Lloyd’s has that opportunity and now the money to fund it as well.

How the Future at Lloyd’s is delivered will be the deciding factor in whether Lloyd’s succeeds and flourishes going forwards, or faces a slow loss of stature in the global insurance and reinsurance market. Failure isn’t really an option.

Also read:

– Key considerations for Lloyd’s on third-party capital initiatives: A.M. Best.

– First Syndicate-in-a-Box at Lloyd’s to feature parametric risks from Munich Re.

– Lloyd’s ambitious Blueprint to help ILS capital participate more easily.

– Revolutionising Lloyd’s without ILS market input could backfire.

– Lloyd’s risks irrelevance, harnessing new capital is key: CEO Neal.

– Lloyd’s envisions digital access to ILS investment opportunities.

– Lloyd’s promises capital flexible access to risk in new strategy.

– Lloyd’s wants risk exchange tech. Lloyd’s Lab just selected one.

– Lloyd’s “prospectus” set to deliver third-party capital & ILS friendly message.