Comment: Thirty years of hurt and a Lloyd’s blueprint going nowhere slowly

Years of failure, false dawns and broken dreams is a familiar sensation for England football fans, who once again tasted disappointment on Sunday after losing to the more deserving winner Spain in the Euro 2024 final.

It was also a reminder that some jobs are difficult to deliver because the weight of expectation combines with the obstacles to success. It takes a highly focused and talented leader, a sprinkle of good fortune and a team all pulling together in one direction to deliver in these circumstances.

England’s national football manager is going that way: a high-profile role garlanded with many perks but which remains immune to success (there is now a vacancy following Gareth Southgate’s exit this week).

Closer to home, there are perhaps parallels with the Lloyd’s CEO role and the battle to “modernise” the Lloyd’s/London market – a challenge taken up by almost every One Lime Street boss of the past 30 years.

In June 1994, for example, the then Lloyd’s CEO Peter Middleton addressed the market on his annual business plan, which included the aim to “streamline Lloyd’s business processes” along with an “acceleration to full electronic processing” and a “major redesign of claims processes”.

Sound familiar? They are words that could have come from any Lloyd’s CEO in the last three decades – as could the misplaced optimism that followed.

“We are going to transform between now and the end of 1995 the way in which we exchange data,” he boldly added.

But the following year he did a “Southgate” (of sorts) and was replaced by market outsider Ron Sandler. Middleton’s 1994 business process plan went undelivered while Sandler formed an effective double act with chairman Sir David Rowland to firefight the financial and litigation crisis that had engulfed the Society.

Sandler stepped aside shortly after delivering on what was arguably a far more challenging task than back-office upgrades – the 1996 Reconstruction & Renewal rescue plan – but his successors, like Middleton before him, have all grasped the modernisation nettle and faced its sting.

Perhaps it is an inevitable calling. After all, the Lloyd’s CEO can only have a modest impact on the market’s underwriting performance: arguably the performance head and the vicissitudes of the pricing cycle have a much greater bearing.

This puts the onus on other areas that can be directed such as regulation, values, the provision of core services – including the efficient and robust processing of premiums and claims – and the adoption of new technology.

Which brings us to the present day and the current incumbent John Neal. When he arrived in October 2018, Lloyd’s was clearly struggling. It had expanded too aggressively during the soft market and was paying the price as cat losses thudded in. But if the eyes were off the underwriting ball, then they had also struggled to focus on the back office. As CEO, Dame Inga Beale had overseen an estimated £70mn of investment into the Lloyd’s Target Operating Model (TOM) with little achieved for the outlay – insiders realised its time was up.

In a world of big tech and the emergence of AI, London’s back office was still stuck in the analogue era. Brokers and underwriters would renew or bind risks and behind the scenes there would be a plethora of duplicated processes involving repeated rekeying of data and manual checking of records and entries to correct errors or missing information fields. There was little standardisation, no core data record and no ability to centrally place or trade risks digitally all the way from submission and bind when using its central systems.

Neal wasted little time in defining his mission. The Financial Times was chosen for his first interview as the Lloyd’s boss.

“We must be the global marketplace for commercial corporate and specialty (re)insurance. And we must be the world’s most technologically advanced marketplace that delivers outstanding value and products for our customers,” he declared.

It wasn’t long before the market saw the extent of his vision. On 1 May 2019 – at a slick presentation across the road from Lloyd’s headquarters in the WTW auditorium – Neal unveiled his prospectus for The Future at Lloyd’s to an audience of more than 300 market executives.

The result – following a consultation of “unprecedented scale” and authored with the assistance of McKinsey & Co – was not so much an evolutionary upgrade as a radical rethink structured around six main pillars:

Neal presented the vision with brio, seemingly undeterred by the market’s traditional struggles with far less ambitious change efforts. Committees were soon formed and hundreds of market volunteers were co-opted to advise on the details, while dozens of McKinsey consultants finetuned their spreadsheets and slideshows.

Their work all came together on 30 September with the unveiling of Blueprint One, a 146-page document on how this revolution was to be realised. Like the prospectus, Blueprint One was unveiled at a glitzy market event but this time it had detail. Lots of it. It also, remarkably, appeared even more ambitious in scope than the teaser documents that preceded it. Now there were even more pillars that would be brought into the fold:

Cynics questioning how the market could tolerate the cost of delivering on an increasingly bolder transformation were answered later that year with a senior debt issue raising £300mn. The Lloyd’s CEO also appointed Jennifer Rigby, the former BBC and telecoms executive who he promoted to COO, to oversee the transformation.

“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,” he exclaimed confidently at the end of 2019.

“Imagine a claim that would be paid even before the customer realises they have had a loss,” was one of Blueprint One’s stand-out declarations. This was indeed a brave new world that Neal was promising: was it really possible that the former QBE boss could vanquish the ghosts of previous costly and failed market upgrades such as Kinnect and TOM and transform Lloyd’s into the most “customer-centric digital insurance platform in the world”?

Unfortunately, 2020 began with the global pandemic, which saw governments the world over impose strict lockdowns to quell the spread of the virus.

One could argue the London market responded with a digital revolution of its own which was entirely outside the scope of Blueprint One. The market successfully embraced the global shift to remote working to such an extent that it was to pose a new question for the change visionaries. With the lease for its headquarters coming up for renewal in 2031, would Lloyd’s still need a Grade I-listed building with four underwriting floors if Neal was going to transform the market into digital exchanges supported by fluid capital and AI-powered claims settlement?

But 2020 was also a year when reality began to bite for Blueprint One. It is true there were some quick wins. Munich Re did indeed pioneer the syndicate-in-a-box with its innovation SIAB 1840.

But there was also strong pushback on other areas – not least from the powerful brokers who were concerned about areas such as the impact of risk exchanges on their ability to control the flow of business.

A new Blueprint (Two) plan was commissioned later in the year with a more deliverable set of solutions. The revolution was being diluted.

Out went the dual risk exchanges and a centralised AI-powered claims platform. Instead, the focus was an end-to-end digital processing of risk data through a digital gateway as an irrefutable version of truth, along with placing standards, a tax calculator and compliance checking.

It also included delegated authority (DA) and risk placement from onboarding through to direct invoicing and settlement, claims settlement through a collaborative workflow platform and data with automated returns, tax and regulatory reporting.

But if this was a more deliverable roadmap then the Lloyd’s modernisation agenda was still finding cul-de-sacs that required costly U-turns. One was an embarrassing misadventure in Manchester, northwest England, in 2021. Identified by Rigby as the market’s new digital hub, regional news outlets were soon excitedly reporting that Lloyd’s had commissioned commercial real estate firm CBRE to find 10,000 square feet of office space. A recruitment drive began to find dozens of tech-focused talent to staff the new digital hub.

Sadly, the hub was never to be. Rigby left (soon to be replaced by Neal’s former right-hand operations man at QBE, Bob James) and the Corporation’s new Manchester employees were swiftly made redundant. The cost of the U-turn was never published but it would surely have been in the millions.

Another expensive setback was a legacy from Beale’s TOM and the DA/bordereaux processing platform built by Charles Taylor known as DA SATS and later renamed as DDM. A key tenet of Blueprint Two’s DA strategy (see above), DDM has recently been declared redundant after years of market user frustration and will now close in September 2024. More wasted millions.

Yet another unplanned cost was the outcome of a decision made a generation ago – back in 2000 – by another of Neal’s predecessors, Nick Prettejohn. It was he that agreed the deal with UK outsourcing firm Xchanging – now DXC Technology – that saw Lloyd’s and the London market enter into a joint venture to operate the market back office. To protect DXC’s investment, Lloyd’s agreed to an evergreen contractual clause that meant it could not use other back-office providers on its core settlement and claims services without DXC’s consent.

With Blueprint now more about process upgrades, it placed DXC in a pivotal position. Many of the changes could only take place with its say so or involvement.

In December 2021, this publication reported that as a consequence Lloyd’s was renegotiating the terms of the DXC joint venture – recently renamed Velonetic – and with it a buy-out option in the future.

But it also places DXC/Velonetic into a mission-critical role. Can the global outsourcing firm also deliver on complicated change programmes?

The question has still to be answered. In 2023, phase one of the upgrade was slated to go live on 1 July 2024, with “vanguard” early testing to take place ahead of wider market adoption. But the early testing results were not positive and in March this year the Corporation announced what was already widely rumoured: the cutover date would be delayed until October 2024.

Extraordinarily, this publication reported that only weeks before this decision was made Velonetic CEO Chris Halbard was still telling the market that he was“confident” the deadline would be made, suggesting there was a disconnect between market operators and Velonetic.

Worse was to come.

Last month, it was decided to shelve the delayed October cutover date and replace it with a vague 2025 deadline for what is only the first stage of the upgrade.

In other words, even the much narrower vision of a market creating core data records of risks processed through a digital gateway remains as intangible as it did six years ago when Neal first arrived promising a much wider revolution.

There is also a distinct lack of clarity around the full costs of this stalling and much reduced modernisation project. At the market’s May AGM, both Neal and chairman Bruce Carnegie-Brown were once again cautious on the subject.

They explained that from Blueprint Two onwards, “we will be spending on the order of half a percent of one year’s gross written premiums on the marketplace”.

With 2024 GWP slated at ~$60bn, this fits within scope of the £300mn budget, albeit this is only from September 2020 and excludes the work done in the near two preceding years.

Neal added that the market was “on budget” as long as the October cutover was achieved.

“If we overrun beyond October because it's not safe to cutover, then there will be some additional cost,” he explained.

That deadline has since been abandoned. So what does this mean for the budget? Certainly more cost as the market effectively operates using its multitude of legacy systems while trialling the challenging phase one upgrades.

But it is also unclear what is included in the budget’s scope. Does it, for example, include the Manchester misadventure or the decision to close the DA DDM system? What about all the consultants that have been contracted on various stages of the change programme since 2018? From McKinsey & Co to EY, Bain & Co, Accenture, Deloitte, AlixPartners and, of course, DXC Technology. We have probably missed a few as well.

There is also the tiered ~£30mn investment in placing platform PPL, which this publication revealed earlier this year. Does this form part of the £300mn Blueprint budget?

Absent an official number perhaps it is no wonder that some speculate privately the overall cost of Neal’s modernisation agenda may actually be nearer £500mn-£600mn than £300mn”.

Whichever is more accurate, it is not unfair to conclude there has been little to show thus far and especially when compared to the radical transformation promised in 2019. Indeed, syndicates-in-a-box are arguably all that has been directly delivered from the prospectus, although the London Bridge securitisation platform has brought greater capital fluidity to the market, which was also one of the early aspirations.

Most of the other ambitions have been jettisoned – or at least parked for now. Even the primary focus of the narrower Blueprint Two – seamless risk data processing using a core data record – appears unrealistic at present with no definitive switchover date for even the first phase of the upgrade.

In the meantime, Lloyd’s joint venture partner DXC Technology appears to be struggling. Its share price has fallen heavily as it cites delays by its large corporate clients in committing to new projects. It has reportedly put its insurance services business – which presumably includes its 50 percent stake in Velonetic – up for sale and there are rumours that buyout firms such as Apollo Global are circulating.

Earlier today, we reported that members of the Lloyd’s Council were currently attending their annual strategy off-site.

The drifting Blueprint project must surely be high on the agenda. Are they confident DXC Technology, Velonetic and the current Lloyd’s executive can still deliver the digital upgrades despite the repeated setbacks? Do they even know how much Lloyd’s has spent since 2019 when including all the ancillary projects and misadventures? What happens if there is further slippage to the phase one cutover next year?

Neal – like all Lloyd’s CEOs – has his critics but even they acknowledge that he has restored the market’s je ne sais quoi since his arrival almost six years ago, and with it a return to much improved underwriting performance and a confidence to take a lead on issues such as global risk challenges.

But with the modernisation agenda stalling and costs rising, there is a growing unease about the Blueprint project, its failed promises and its executive oversight.

Earlier this year, the Council approved a live process to find a successor to Carnegie-Brown ahead of his scheduled retirement in summer 2025. As they sit down to contemplate the market’s strategy, Council members will be questioning whether they can wait for his successor to find the answers to the above questions or if they should be demanding greater reassurance now…