Q&A: Lloyd’s of London CEO Dame Inga Beale

Dame Inga Beale, Lloyd’s of London CEO, talks to Chris Evans about pushing the market into the modern age, tackling diversity and dealing with Trump and tornadoes.

What are your key responsibilities in 2018?

We have a massive modernising project going on at the moment at the Lloyd’s of London market. We are effectively moving from analogue to digital, transferring everything from paper to data. If I was to make a comparison with the banking world, and the fact that I have been able to control my money online (transferring funds in milliseconds) for some time, and now Open Banking is taking over, we’re so far away from that. We’re in the cheque world still. There is paper everywhere, which increases the opportunity for error and duplication, triplication and quadruplicating of effort. So, the market has been gradually transferring everything to technology, as part of a five-year plan, with the intention that every single piece of data only gets entered once.

How is it going so far and what has the reaction been like from staff?

The reaction has inevitably been mixed, but, surprisingly, not along generational lines. You might assume millennials automatically want to adopt, but they too can get used to the way things are done and quite like it. It’s a very convivial atmosphere here at the Lloyd’s building on Lime Street because it’s face-to-face, thousands of people congregate in a physical space every day. People enjoy the environment. We’re not trying to do a Big Bang like the Stock Exchange. We are introducing technology without eliminating the face-to-face negotiations. Because of the complex transactions that go on, you need that face-to-face - underwriters discussing with brokers the intricacies of the deals - but we need the technology to be utilised to just send the details through to everyone else’s systems.

However, it won’t all be done on one system. That was considered too complex; having around 350 different companies within the London Market all trading on the same system. So, instead it will be a modular approach. As soon as technology is introduced to replace a certain element, it will then be pulled out and replaced with a new one.

But there will be agreed global standards for definitions of all the data. This allows everyone’s systems across the insurance sector to talk to each other.

This digital transition has already been done with claims hasn’t it?

Yes. Originally, people were just walking into Lloyd’s with a paper file under their arm. Then it became suitcases of documents being wheeled in. Then people realised it’s got to change, so we digitised claims and made electronic claims files. It still means the claims broker talks to the claims adjustor about the claim, but everything is digitised in terms of information and data. And it’s working!

Is it generally hard to instill change in such a historic institution?

It can be, yes. I’ve been surprised by the number of different stakeholders I have to engage with. As a market, it’s not only policy holders, syndicates, underwriters, brokers and capital providers, but also, as a neutral body for the insurance sector working globally, the government is also very interested in our practices. Fortunately, we’ve had a lot of support from the UK government. When we wanted to go into China, open up there and get licenses, we had full support. That was when David Cameron was prime minister. Then this year we opened in India and Philip Hammond was there.

What about dealing with the tricky business of Brexit?

The government understands our unique issues and the Treasury knows how Brexit is impacting us. Because we are in the risk business, we’ve been planning it for ages and are now implementing because we are the contingency plan for many of our players. This is why we’ve gone in early and set up a subsidiary in Brussels to service our customers in the EU 27. We are anticipating about €2bn of business to pass through this subsidiary.

The other trading rights that Lloyd’s has, such as in the US and Asia, are unaffected by Brexit because they don’t get those rights as part of the EU, but as Lloyd’s uniquely.

However, putting a lot of effort into managing the Brexit changes has cost the market time and money, and distracted us from doing innovative things. It’s taken our eye off the ball in terms of looking at new markets because we’ve got to defend our position and make sure we can service our existing customers.

When we think of the rapidly growing markets, such as China and India, they are going to be very important. About 60% of the world’s population lives in Asia, and the region’s contribution to GDP is going to massively increase. We know the insurance markets there are going to grow rapidly. China’s insurance market is growing at double the pace of GDP in that country. Insurance is new and very needed. The country is very exposed to natural catastrophes. So we see huge opportunities and must focus on these places.

Speaking of catastrophes, are you still feeling the effects of all the natural disasters in 2017?

When you have a long period of inactivity where there haven’t been many big catastrophes around the world, people can forget what our social purpose is. So now we are able to fulfill that promise and are paying out already from the major US catastrophes – nearly $2bn in claims, which is helping people get back up and running.

But it does have an impact on competition and whether we are charging the right price. We are an extraordinary sector in that we don’t know the price of our goods sold. We have to price the product, but don’t know what the claims will be in the future. So we have estimates on estimates. Natural disasters allow us to calibrate our pricing again and think about whether we understand the costs involved in storms, earthquakes, tornadoes etc around the world. So it’s a reminder we must focus on that.

What about all the regulation post-crisis? Has it proved burdensome?

It’s certainly an extra burden and there’s a lot more cost in the insurance industry because of the regulation. Some of it though, I have to say, is a move in the right direction. So, for instance, when we used to think about capital modeling and how much capital is required to support our business, we used to do it in a simple way, based on revenues (which was a bit too simple). But now we model capital according to the exposure we’re taking on. So we’re moving in the right direction.

But it can feel a bit penal, particularly some of the data requests. For instance, Solvency II reporting requirements run into thousands of paper documents. You think, why are you collecting all this data and what are you doing with it? If it’s not being used, it’s just an extra burden.

What about the troubling US political climate? How is that affecting Lloyds and the insurance market generally?

The US is Lloyd’s biggest market by a long way [over 40% of business comes from the US] and we play in a very specialist arena there. That is a long-standing, strong relationship and I don’t think any of the current uncertainty is going to damage that. But there might be some things that change the economics of it. We’ve got to look at the tax reforms Trump is pushing through and what effect that will have. There are certain elements that might affect transferring business out of the US to a foreign affiliate. So we have to take that into account.

Also, more broadly we look at the protectionist approach, where we have that anti-globalisation backlash, and people hunkering down, and borders closing. That has an impact on the sharing of risk, particularly in the re-insurance arena. Over 30% of the business that Lloyds does as a market is re-insurance – so laying off the risk usually within one country to other countries. That is how the model works. You see the benefit of that sharing when disasters happen and foreign money pours in. So it’s a really important part of the dynamics and economics of re-insurance. The more protectionist measures you get, the more restrictive people are about keeping risks within a country, the more it starts to put them at risk because they’re not allowing foreign money to come in to support them when something goes wrong.

Diversity is another hot topic at the moment. Would you say the Lloyd’s of London market workforce is diverse enough?

If you look at the underwriters floor, it’s not especially diverse and that is something we are trying to change. However, if you go through the floors in the corporation of Lloyds, we’re far more diverse. That is more in our control. We have a very open and inclusive culture. In our latest Employee Engagement survey, the group that came out top was our gay men.

You came out as bi-sexual 10 years ago, what has the reaction been like?

It’s been mixed. You have a lot of people for whom you’re seen as a role model and they’re very supportive. They give me the courage and desire to carry on with a positive approach. But it’s not all been positive. I’ve had some negative feedback, mostly anonymous.

Are attitudes changing in financial services and society generally?

If you look at what they’ve done in Premier League football with the Rainbow Laces campaign, and the work that Stonewall is doing, these are encouraging signs. Maybe the progress doesn’t feel fast enough and as a woman who worked in a predominantly male environment for the early part of my career, does it look as though we’ve got enough females running insurance business? No, it doesn’t. But there are networks across the insurance sector, like The Insurance Supper Club [of which I was a founding member], which supports women in finance. So progress is being made.

What are you most proud of in your career?

In 2006 I was offered the opportunity to fix the Zurich based re-insurance company Converium as its CEO. It was suffering difficult times, seeing its rating decline dramatically. It was an exciting, but daunting undertaking. This was the first time I was running a public limited company. Before I’d only run divisions within a massive conglomerate (General Electric).

Suddenly I was facing angry shareholders who’d lost fortunes with the company. Instead of rushing head first into making changes, I took 100 days to listen to everyone and learn. Using that knowledge, I then galvanised all the staff around a clear strategy and vision. I also brought in a few of my own people, including shifting half the executive committee, so that there was new blood and figures around that knew how I worked.

The important thing I learned from my time at GE was to empower appropriately. Converium employees had been through tough times and were too scared to make decisions. I changed this and made sure not all decisions had to go through me.

What are your plans for the future?

We’ve got the continuing of the modernising programme. Also looking at how we can stimulate innovation, including on the product side. When I contrast insurance with other sectors, the amount we spend and resources we put into R&D is pitiful. If we’re not careful we could be left behind.

Read the February issue of FS Focus magazine for a fuller version of this interview.

Originally published in Economia, January 2018.