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Can the Lloyd’s Market Overcome the Lake Wobegon Effect?

June 30, 2017 | Justin Davies

Ensuring that participants in the Lloyd’s market have consistent sources of risk assessment data is one of the objectives of the London Market Group’s Target Operating Model (TOM). It is slated to encompass the creation of a standard exposure data format, a data cleansing and standardisation service and transformation routines to convert the data into industry models such as Oasis and the other major modelling platforms.

Whilst the “keyed once” capability for exposure data is out of scope of the Data Integration initiative, it is on the roadmap – scheduled for Phase 3 of the programme.

This is a well-overdue reform, and the reasons for the changes are clear. Due to the very essence of Lloyd’s, the risk data (location, COPE information, TIV, and more) for a single account, is currently shared between multiple syndicates, each of whom then cleanses the data and imports it into its’ respective exposure management and/or probabilistic modelling platform. The inefficiencies of a decentralized, independent data integration approach are patently obvious. The objective of TOM is to ensure that the data is cleansed once and then distributed to all relevant parties, thus increasing efficiency, reducing duplication and costs and ensuring uniformity of information for the entire market.

While the purpose of TOM is very reasonable and logical, it could also entail philosophical and business dilemmas for Lloyd’s syndicates. Traditionally, one key element of pride for many syndicates has been what they consider to be their superior management of data. We are better than our peers, the argument goes, because we have more sophisticated processes for managing, augmenting and interrogating data. Our accuracy levels are higher and our turnaround times are quicker, they say – though some may argue this is Illusory Superiority (aka the Lake Wobegon Effect, where “all the women are strong, all the men are good looking, and all the children are above average”). If TOM results in the sharing of uniformly clean data, then some syndicates might feel the process eliminates their competitive advantage and may negatively impact the high service standards they currently provide.

I would argue this is a short-sighted way to scrutinise the reform. On the face of it, uniform data standards might level the playing field, but there is absolutely nothing to stop smart syndicates from augmenting the cleansed data post-receipt, by adding their own “secret sauce.” If, indeed, they do have superior ways of adding value to the data that results in outstanding underwriting, they should be only too happy to leverage their unique competitive differentiator. Also, if syndicates are concerned about service standards dropping, then they can get involved in the process by highlighting their requirements and ensuring a higher bar is set for turnaround times and accuracy SLAs.

Lloyd’s is a unique marketplace, full of highly talented people and organisations but it does have a few unhelpful quirks — inefficiencies around data being one of them — that are undoubted impediments to providing world-class service. Removing some of those barriers to productivity can only lead to an improvement in the market.

Justin Davies is vice president and EMEA region head at Xceedance.

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