Reasons to be optimistic about 2022

20 January 2021 | 5-minute read 

While 2021 has been another year of significant change and considerable challenge, successes in key areas of performance, culture, strategy and ESG have helped place the market in a strong position for the year ahead.

In terms of performance, barring any unforeseen catastrophes between now and year-end, the market is on course to make a profit. Efforts to drive long-term culture change have also seen successes, with female representation at both board and executive level within Lloyd’s companies increasing between 2020 and 2021. The LMA achieved the Corporation’s Culture Advisory Group’s three-year target, for 20% of board and executive committee members to be women, this year. We have also committed to achieving our own target, 30% of LMA board members being female and /or from an ethnic minority by the end of 2023.

The Future at Lloyd’s strategy also achieved some important milestones in 2021, not least in laying the groundwork to deliver the majority of Blueprint Two’s planned capabilities in 2022. Core to that is digitalisation and the proportion of risks placed electronically increased again this year to their highest ever levels. Important progress has also been made that will enable the next iteration of PPL to be delivered in the summer 2022. This will be a further significant step toward realising the strategic ambitions of Blueprint Two and is set to bring huge benefits to the market. Another key focus area will be data. The London Market Data Council, which I will chair, is being convened now to help drive digitalisation through the adoption of standardised, high-quality data flowing through agreed process definitions. Building on our comprehensive and highly insightful vision for the future of delegated authority (project DARE), our focus will be working with the market and Lloyd’s to deliver delegated data standards, a digital delegated authority contracting model, and an enhanced oversight and reporting framework and process, which Future @ Lloyd's is set to enable via their Delegated Contract and Oversight Manager (DCOM) solution and Delegated Data Manager (DDM).

The systemic risk posed by environmental, social and governance issues also rose higher up the corporate agenda this year. Lloyd’s ESG Guidance, issued in 2021, is an important document that lays out plans to accelerate the transition to a more sustainable insurance and reinsurance marketplace. With much work for our marketplace to do on climate change, Lloyd’s, through its membership of the Sustainable Markets Initiative (SMI) and the Net-Zero Insurance Alliance (NZIA), is aiming to establish a Development and Adoption Climate Impact Measurement Framework. This is to be refined in consultation with the market through the LMA and will assist managing agents in understanding and quantifying the carbon impact of their underwriting portfolios, which will be an important step toward meeting the government policy objective to be carbon neutral by 2050.

The fact that ESG collectively represents a systemic risk is one we are yet to fully recognise and act upon as a market. It is not about abandoning our oil and gas clients as some may fear but supporting those that want to transition to lower carbon by enabling them to do so in a methodical and measurable way. This will also support the market’s desire to sharpen its customer focus and deliver better solutions for the risks clients face.

When it comes to ESG at a market level, there are those that will lead, others who will follow and some that resist. Work and initiatives such as these are therefore crucial in setting a clear direction of travel to help ensure market efforts are collective and aligned. Further collaborative efforts to bring broad, shared expertise to bear in tackling issues that will only become more pressing therefore remain as vital as ever.

Cyber too, as a systemic risk, has seen action taken by some insurers this year to ensure they can continue to sustainably protect their clients. The LMA’s Cyber Business Panel recently published four new cyber war clauses which address the rapidly evolving risks in the market. There is further in-depth work to be done and Lloyd’s is due to publish a thematic review of the cyber market before the end of the year, while the LMA will conduct a review of developments in cyber wordings over recent years to identify any significant trends.

Regulatory issues will also come to the fore in 2022, with a government consultation on the post-Brexit regulatory framework for financial services currently underway, with potential reforms to Solvency II and a key milestone in the strengthening of operational resilience practices. Additionally, Lloyd’s will move to a principles-based oversight regime and the LMA has co-ordinated a steering group with Lloyd's to define the Principles Based Oversight model (Project Rio) and how it will be implemented. Lloyd's has agreed to soft launch the new regime during the first half of 2022 and the LMA will continue to work through the steering group to ensure these efforts are effective. On the Lloyd’s Brussels side of things, the LMA will continue to provide assistance with ensuring that solutions are implemented which enable the market to continue to underwrite its EU business in a competitive and cost effective way whilst meeting EU and IDD requirements. There will be focus on the LIC UK branch and its secondee model.

Attracting and retaining talent will be a continuing challenge for the London market in 2022 and an additional early talent careers programme will be launched by the LMA to further assist members in addressing that. Recognising the dearth of wordings expertise in the market, the Wordings Apprenticeship programme is being designed to help create the wordings experts of the future. A Lloyd’s focussed non-executive training programme will also be launched to enable experienced professionals to move into such roles and allow the market to retain their expertise.

While 2022 is set to be another year of significant change and challenge, the market enters it with considerable momentum, building on the enormous efforts and advances made this year. This, plus the prospect of being profitable for the first time since 2016, is creating a palpable sense of renewed confidence in the market. It is therefore set to emerge from 2021 stronger, with 2022 promising to be year of even greater progress.