Bloomberg Audio Studios, Podcasts, radio news. What's the coolest thing you've ever ensured?
I remember guy turning up once and a blind man was trying to break the land speed record in a car and you're thinking, right, and he was doing it on Maplin Sands. So actually it's the biggest sand stretch you could imagine and about as safe and as managed. So actually the risk is awesome, but it sounds nuts. You got a blind man trying to break the land speed record, and then when you hear the story, you're thinking,
this is absolutely fine, so you insured it. He needed insurance for Ruffian hour and was prepared to this is back in the day, prepared to pay two hundred and fifty.
Quick Welcome to in the City, a podcast from Bloomberg about the stories important to the city of London. I'm Francin Laqua. Now you just hearde a bit of our exchange with this week's guest, John Neil. My co hosts David Merritt, Alegra Stratton and I sat down with John a few weeks ago. He's a chief executive officer of
commercial insurance market Lloyd's of London. Now the marketplace is basically made up of more than fifty companies who underwrite a large range of risks, from accidents to war to climate change. They also saw over fifty billion pounds worth of premiums pass through last year. He's been in the business for more than forty years, giving him a front
row seat to the changing risks facing global business. So we spoke to him about those changing risks, how Lloyd's has continued to adapt and what challenges he sees next. Welcome to the City of London.
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Welcome to in the city. Stand clear of the door.
Thank you so much for joining us on the show.
John, that's great to be with you.
Our Dave Merritt was dreaming working at Lloyd's of London in insurance growing up.
Well, you know, my dad was a broker who was a shipping broker a Lloyds, So I think it was the first. If you asked five year old me what he wanted to be when you grew up, it was basically your job.
John, Wow, I was the opposite. I did languages all the way through college, and then stupidly thought I'd trained to be an accountant, which clearly I wasn't going to be any good at, which I wasn't, and then ended up in insurance thinking what am I doing here? And I've been there ever since.
Well, it was always my dream.
We're making your dream happen.
This is it that as close as I've ever got.
I mean, it's a very complicated job. How much do you love your job?
You've got to be right and ready to do the job. And I thought I was right and ready. So I've underwritten, so I've been an underwriter in Lloyd's, I've run insurance companies, so I just felt I was ready. And you're at a stage in your life where you can cope because you're right. You've got fifty insurance companies and four hundred broking firms, all of whom have got at least that many number of views on how you should do things.
So you've got to feel at a point where you can be valued, but you can give some clarity as to the direction you want to want to give or get.
It's a unique place, Lloyd, ye, isn't it? And there's no one like it.
In the world.
There's got a confidence of companies and underwriters and brokers. Some people have said over the years that it's outdated that concept, but it seems to be flourishing, Like what's the sort of health check of that unique institution From where.
You're sitting, insurance is It's slightly odd, isn't it? Because you get people competing tooth and nail with each other for the business they want to win. But then the business is so complex and of such a scale you've got to participate to solve the problem. So actually somewhere where people can genuinely gather to create the solutions and co participate has a unique value proposition. You've got fifty insurance companies, most of whom you'd recognize so are represented
at Lawy's, and you've got four hundred broking firms. So I think we see four hundred billion dollars a flow, and we've got sixty three thousand insurance professionals within two kilometers of our front door. So you can talk about the licenses and the global reach and all sorts of stuff that people talk about, but it's flow and talent are the two things that are utterly unique.
This is what I've always found so fascated about. It's about that building, that confluence of experience, of talent and the pedigree or the history hundreds of years built up, and the fact that that is still pre eminent in an age went so much stuff has gone electronics, so much stuff that's done transactionally across different continents, but actually just everyone being in the city or congregating, and that still matters for insurance.
It does still matter because you know, I think the flow of the data and the digital information you get is all incredibly helpful in measuring the risk, managing the risk, pricing the risk. But ultimately there's a conversation, what is the solution you're trying to create. Why is it a little different to what the piece of paper's telling you. It's important, and I think that conversations actually become more important.
It feels like I've been in insurance four hundred years, let's say forty, and I've put this picture up on the wall of the last two hundred and fifty years of history, and so insurance has mattered three times in two hundred and fifty years. Eighteen fifty to eighteen seventy world was at civil war with itself to world wars consequences. Now, because you've got everything. Now, we've got financial risk, you've got systemic risk evidenced by an industrial disease called COVID.
You've got war on lands, you've got climate. So I think the world is in a risky space, and suddenly insurance is interesting and matters. So I think, oddly the value I'm phound to say this an't I Oddly, I think the value proposition's going up.
How much are you using AI?
I think if you think of AI or the complexity of AI, I mean it'll be significant in everything we do. But it's a digital transformation program, which means it's flipping hard and it will be expensive. So everyone thinks it will save it won't. What it'll do is it'll create an ability to manage the flow more elegantly and manage more, you know, because I'm so flipping old now, you know, I started life with no PC. All the investment in technology, it has not saved a dollar. In fact, it's cost
a lot. But what it's allowed us to do is to be much better at scale. And I think AI and jen AI and the flow of information, the manager information will do exactly the same. It's not to say money. I don't think and I don't think there's going to be this mass loss of jobs that everyone.
Thinks, John, what are you experimenting with AI?
Because you can either you know, you can have recognition of whether patterns, which I imagine that helps, or it's actually whether claims are real or not.
So the front end, how do we identify the risk to be able to measure the risk, manage it, and price it without having to ask people seventy two questions? The reality is, you know, if you can answer one question, and that question is who are you? Everything else is there. It's somewhere, so it is quite it's actually quite a hard question to answer, funny enough, and that's why it'll
take us time to get there. So if you can answer that question, you can find everything you possibly need to know about the risk to be able to say, yes, we can accept that risk and yes we'll price it.
Just because when you're saying who are you, so you say your name, you say your age, and immediately the AI can crunch enough about you to price price whether you're a good insurance risk or not.
That the problem is is not that easy a question to answer you think it is, but it's not. So that's where that flow's going to work. And then when you get to a claim at the end of the day, you want to find a way to pay the claim as quickly as you possibly can. So is the claim a valid claim? Do you need someone to investigate or
assess the circumstances? Again, if you can use a form of tech and data to help you with that, it's going to save an awful lot of process and time and the value proposition of insurance and being able to pay a claim.
The concern is always biases.
Is that if you make a machine do something that there's a certain pattern and so you basically replicate some of the biases in society.
When it comes to insurance massively, and they get accelerated or accentuated.
Massively, and they're hard questions. Let's take so of auto insurance or motor insurance, and you get the regulators looking at that and saying, hmm, you've got to be careful that you don't create a bias. So the classic example was EU law saying you couldn't differentiate around people's attributes or characteristics if you were male or female. So we know that female drivers are better than male drivers. There's enough statisticalle and the answer is no, you can't use that,
And so you think, well, hang on a minute. What you've got to do is be satisfied that you can solve for risk. You've got to ensure that society's covered. But to allow us to do that, you've got to allow some form of differentiation.
Mick Lloyd's was always prided itself, hasn't it on the fact you could ensure anything. So are some parts of the world now becoming uninsurable or is there anything possible Alloyd's.
I don't think anything's insurable. I don't think it ever was, honestly. So if we do sort of weather related stuff, I mean, we've got all the measurement tools in the world, but we don't know. You had more hurricanes make landfall in the US than they have done for decades, but they didn't really cost very much. So wind is really quite difficult to predict. Actually, water and fire isn't. So when you think of flood and fire and everywhere in the world you look at flood and fire as being a risk,
it's all ensurable. It kind of needs a different form of public and private partnership. I'm desperate to call it something else because everyone hates it. Everyone hates it. But when you really think about it, the one thing we've got to work out societally is the government can't ball its out every time something happens and industrial disease comes along, it's a form of fluenza vaccinate you know, it's not you know, but we've shut society down. We borrowed twelve
trillion dollars. You borrow twelve trillion dollars interest rates at four percent. Can't do it. So somewhere in this story we've got to work out how the partnership works. And as insurers, if you look at the complexity of flood and fire, we can help. But it's going to need the government. Where we were going out on the regulator, the bank and the insurer all in the room. How are we going to solve this problem?
But John just on that.
I mean thinking of the example of Tenbury Wells, which is the Worcestershire town which where the people up and down the high street are saying and the question really is about cost. It is insurable, but they can't afford the insurance and just wondering how what you say to people in a town like that.
So I think that's why I think everyone needs to be in the room. So you know, and I'm not trying to be provocative for the sake of it, but if you know, nine times out of ten the banks loan the money on the basis of the asset being available, so they've got to take some responsibility for the risk that's there in reality, you know, they can't just leave
that bear. And I think therefore, you know, can the insurance if there is some sort of protection offered by those that are providing finance, and the insurer can sit behind that, And then if it gets particularly fraught and complex, then we've got to leave the government right at the back in a very last resort situation. If you think of the UK, we're fluvial. We live on rivers. I mean that's what we do. You know, we draw maps of the Thames where we are. We're sat in London.
By the way, it floods two miles south and half a mile north. I mean it floods completely. So we know these things are going to happen, So we just need to take a step back and say we know they're going to happen. So how do the various constituents, those that are in the asset, those that provide insurance, government, how do these components all fit together? Because they can.
But Premium's right, even if you look at geopolitics, I was told of, you know, a big tanker carrying I think Ukrainian grains in the Black Sea that was still ensurable at a million a day.
And that's not really.
Interesting, No, it's not. It was quite an interesting conversation at the time of you know, the ability to move. I thought it was grain. Actually the problem was fertilizer. So you know, we had the UN approach. US Secretary General approached us and said, look, the problem with solving the problem here is you insurers not being prepared to provide insurance. So I didn't know the Secretary General at
the time. I wrote a nice letter back saying, I think the problem sanctions actually because it's a little tricky. And he wrote back and said, we'll sort the sanctions out the pathway, we'll make sure that Rusha's on the pitch. Can you provide the insurance? And the answer is yeah, And then we move thirty million tons of grain and several million tons of fertilizers. So again, that to me
is about the partnership. If you've got the governments involved in that story able to say there is a form of a framework that we can permit, then the insurance genuinely can apply. How much, so it's going to be more so on average, when we were moving the grain through the Black Sea, it was probably costing half as much as it normally would have, not twice surprise or three times the price. But I think, don't get me wrong, I think one of the things we're not great at
is selling ourselves and explaining the value proposition of insurance. Yeah, because everyone thinks the same done, we will think it's not us that's going to be burgled, it'll be somebody else. But that's the principle of insurance, isn't it. The premiums of the many paid for the losses of the few. But we've we've kind of got to be able to sell the value proposition. It's just starting to happen. We've
been selling cyber insurance policies foot almost thirty years. But you know, when you think about it, it's just now that people are thinking about cyber insurance. You know, if you looked two years ago, ninety percent of the cyber policies were brought in the US. No one else in the world was buying them, no one else, So you say, well, we're partly responsible there because we need to explain why it's slightly different and why the value is what it is.
One of the stories that's gripped the world the last few weeks was the murder the executive in New York. Horrible story. Also, the reaction from a lot of the on social media has been fairly shocking and but very compelling to look at. How did you feel when you saw that? To your point about the image of insurance, obviously, I think the question of health insurance in the United
States is particularly different. It is different, but that was an event where we're seeing people change their behaviors or executives that started to think we're particularly about the insurance industry. How did that make you feel?
The bit that worries me is you want the smartest people to be leaders, you know, whether that's government or business or whatever you want, and societally we're making it really difficult because you don't want to pay them. So everyone talks about the pay and yeah, well, why are we paying them, and you want to pay them, They get regulated in a manner which is frightening, and then
they are exposed. You know, whether that exposure is is social media or whether it's terrifyingly some form of attempt on your life. And that's the bit that worries me. And we've got to work out how to get the balance right on.
Climate change and some of the things you're talking about with that, with fluvial nation and so on. Do you find as a company that you're wanting to get involved in policy around adaptation in a particular area to help a community head off these problems, or do you find that isn't useful.
I think it is useful, and I think we've got to have a noisy voice in it because I think I've said this to your leadership as well. Yeah, and I think you're never going to get an insurance to deny climate change. So if you look at our data, the severity and frequency of natural power losses has doubled in the last twenty five years, doubled, and we think it's going to double in the next tent. Does that trouble our ability to provide some form protection. It does not.
I mean it goes to a bit of a cost argument, which is why I think we've got to get everyone around the table. I think if we can then tell and tell that story more clearly, then I think society will understand the value and be prepared to appreciate the cost for it. If you look at say California, nine percent of the population by earthquake insurance, ninety one percent don't and we don't think, my god, John, the San
Andreas fault, you must buy earthquake insurance. And they've taken a step back and said, well, it's not happened this year. But we've got to work out without telling people they have to do something. You know, we will buy car insurance. Why because the law says you've got to buy car insurance. But that can't be the answer to everything. We've got to work out that there is a risk and that you can spread that risk differently, which is why I think we've got a bit of a job to do
in this. So your adaptation question is right, so we should get in the conversation.
I always think insurance actually is on the front line of climate change because I think you're you're the ones having the very, very bread and butter conversation with a household about whether you know everything you've been talking about in this podcast around affordability and whether it's worth it and so on. Whereas I think banks it will change in the years ahead, but at the moment they're still in that place where they can choose how much they invest.
I think for you, are these are really really linked to your bottom line?
I think you end up with the societal problems that you end up reporting on. So I think it's seven million homes that are not properly covered flood in the UK.
But it's a trust problem, yeah, because you'll go through insurance or you'll get a new credit card or something. If a friend says, oh, they're very good, it's worth it. So how do you, I mean, how do you change the conversations around it.
We've got to change the way in which the product's presented. If you think about the complex climate related covers we've got, you end up with these odd things called parametric covers where the trigger is predefined, and they've now got quite clever ones where it's a variable trigger. So in advance you turn around and say, let's pick the Caribbean. So
you've got a hurricane that will go through. We can measure what's happened, and you can categorize the wind speed or the severity category one versus two, Calgary three, and you can say in advance, if it's category one, it'll be a twenty five percent payut, if it's category two will be fifty it's category three or more one hundred,
and it could be variable. And I think we've got to get a bit more there on insurance products where it's not perfect, but the customer is at the outset what will actually happen, and then bang it happens and then the payment is immediate. So some of those covers, so just give you a feel that the two big it's brokers in the world that deal with that type of cover have sold two hundred covers of that ILK
this year. So I think it's starting to happen because we can't end up in the situation we did in a COVID world with business interruption insurance of people saying have I got cover? I thought I got cover? No, you know, we've got to create policy covers of certainty because that's the trust point you mentioned.
The's got a big moments in history or at this moment where the insurance market needs to scale up in a massive way to deal with the new level of risk that we've don around it, specifically about climate.
So we can do it. Honestly, there's no lack of capacity, there's no lack of money. It's the conversation we're having today. It's an awareness and instability for people to co participate. If I look at the climate related and whether related risk, can we ensure them? Yeah, we can, but we've got to create that awareness and then there's got to be a determination that the risk is mitigated. We'd all say
the same thing. I mean, don't get me wrong. COVID was terrible, but was it worth increasing debt to GDP by one hundred percent for almost every country. If you look at the UK government, the overrun spend on the NHS was one hundred billion in two years. That's really fraught for a government in terms of managing its finances. You can insure against it. We do that every day other week. We provide two hundred billion of cover against the North Atlantic hurricane smashing into the East coast of
the US. You can insure against it. There is one big problem with insurance which we've talked about a little bit. Is there is a premium to pay, so it's not free, you know, But I mean most of those most of those types of covers are like one in twenty, which.
Is the British government or the new Ish government. Are they on top of all these issues? Do you think are they a good partner now to you know, custodians of Lloyd's kind of Crown Jewel or the City and the World Center for Insurance? Are they Are they good partners.
That they have? I mean they have been coming in, They've been very active in terms of the conversation. I probably get shot for saying this. They have their meeting of their first Industrial Committee next week. It's at Lloyd's, so they've asked if they could host the meeting there, which I think, which I think is a I don't think it's ours. I think it's a perception of risk. They are trying to address risk, either through the missions or the objectives.
Of that's Chancellor, Yeah, a chance with the heads of companies and industries correct.
So I think whether it's the missions or the milestones they've set, and I think what we would have said to government and industry would have said is the same conversation we're having today, which is, look, just just have the confidence of a two term government because your plan is going to have to be eight to ten years. It ain't going to have to be two weeks or a year or two. And to be fair, I think that's what they're trying to do.
It's talks about reset with Europe. Obviously Brexit impacted Lloyd's a lot. Is that it's could that help or is there something else in regulation? What can the government detail?
So I have to be fair to the regulators. They've had a competitive lens placed on them in the conversations we've been having. They've reacted constructively to that, so that's cool. I think for us and our views a little bit different because eighty five percent of our income is international x UK, so we are a flow tool of which the biggest training partner is the US. No surprise, fifty percent of the entire world's flow comes out of the US,
so we need a strong relationship with the US. Of course we could do with Europe being a little bit easier. And by the way, that's not just a nasty objectionable Brits saying that the Germans would say the same thing. So with the French, you know, how can we work a cross border more efficiently? So I think yeah, I mean we'd want the open doors. We all know what's going to happen in the US. You know, interest rate's going to remain high for longer. You're going to see
a bit more inflation going as consumptions created. I'm not saying it's wrong. You understand why Europe's going to go the opposite direction. Interest rates are going to be taken right down. And then you've got the whole debate around where it's China go in terms of its debt play.
So it's can I ask you a culture actually question?
Because the insurance industry has cleaned up less fast than other financial industries in the city of London, of London has been at the center of investigations, how do you feel about culture now? Has it cleaned itself up?
I think there are two things that matter, which were saying earlier on One is the conversation we're having a minute ago about flow. The other's talent, and I think we just got to get it right because we've got to attract the best talent. So for me, near the debate, we started with you actually pointing out, hey, you're not great in terms of your attitude towards women was awesome because actually I didn't care whether those stories were ten minutes old or ten years old, didn't matter.
And that was to be clear, that was a Bloomberg story for him a couple of years.
Ago, twenty nineteen, Gavin Finch, twenty nineteen Investigations team.
So the answer was, hey, non acceptable. So we've we've got to be completely different in the way in which we respect diversity. I think we then try to be smart around inclusion, with our inclusive futures ideas around colleagues from a black or ethnic minority background, which goes literally right from the classroom to the boardroom. So again we
tried to take a long term view on that. When the debate arend reparation because of association with the slave trade, But to me, you kind of want to get to talent because you just that's entirely what we depend on.
John, Thank you so much. That was brilliant.
Thanks for listening to this week's in the City from Bloomberg. This episode was hosted by me Francin Laqua with David Merritt. It was produced by Samersadi and Moses and Dam. Please subscribe, rate, and review wherever you listen to podcasts.