The institution, a marketplace where more than 50 insurers and reinsurers agree to underwrite risks for businesses, reported a combined ratio — a closely tracked measure of claims and expenses as a proportion of premiums — of 84% last year. That was an improvement of almost 8 percentage points on 2022, and was well under the 100% level that separates an underwriting profit from a loss. The performance was helped by a quiet year for hurricane claims as well as a rapid run-up in reinsurance prices over the past 18 months.

Hard markets and the parallel significant increases in premiums by both re-insurers and carriers have all helped. That doesn't mean that commercial insurers have escaped large losses;  rather Lloyds members have avoided risks such as the Turkey earthquake,  convective storms in the US, wildfires in Hawaii, or the hurricane in Acapulco. 

The 2023 net combined ratio of commercial lines was 97.7 according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman. That points to many commercial insurers outside the Lloyds community having suffered adverse combined rations over 100.

Still, a great deal of work to be done to select and write risk better and manage ultimate loss ratios far more effectively. Lloyds itself warns against complacency.

Speaking during the Q1 2024 market message presentation at Lloyd’s yesterday, chief of markets Patrick Tiernan explained that there was a need for “discipline and considered expansion.”

Lloyd’s chief financial officer Burkhard Keese added: “Despite the stellar underwriting conditions, very little fresh capital flowed into the insurance and alternative asset markets and many promising capital raising initiatives had to be abandoned last year.

Data are, as always, at the heart of the matter. There is no escaping the need for the disciplines and processes to manage multiple and disparate data sources which are so often submerged in data silos and unconnected systems inherited over years of mergers and acquisitions. Some hope that GenerativeAI like ChatGPT and LLMs are the panacea but unless an enterprise understands its data it will never be able to leverage these AI technologies. That's the dilemma. 

GenAI and LLM are recently launched on a wave of frantic investment and hype and do not free enterprises from the need to understand data and the pros and cons of the various AI tools required to deliver the fruits of efficiency, effectiveness, improved profitability with combined ratios below 100 while also improving customer satisfaction.

Such AI tools are essential if Lloyds is to maintain this encouraging combined ratio and if other commercial insurers, MGAs, and brokers are to achieve similar results. In the same way the underlying core platforms need to give insurers the powers of adaptability to adopt and deploy the best mix of platforms and software to improve combined ratios. 

A major factor in this is the amount of time people across the industry have to spend on non-value-added control. The wearying drain of trying to find answers from incomplete and often inaccurate data. Pity the burdened Chief Data Officers, Heads of Analytics, underwriters, actuaries, and pricing teams trying to find out why numbers don't add up and across and trying to explain that to the Board! 

From the simple yet often panicky period of trying to renew capacity reporting from BDX based on flawed spreadsheets to the tricky business of explaining why ultimate loss ratios turn out below predicted results. If too much time is spent on control and manual analysis it leaves too little time to spend on performance improvement.  And that means that there is just a tiny smidgeon of time left to focus on growth. How much time does your group and company spend on planning and executing growth strategies rather than just admin and control? Is your current position better than this?

  • Growth- 5%
  • Performance Improvement- 25%
  • Control and Administration- 70%

Or worse?

Technology, consulting, and system integration partners should be focused on enabling the amount of time spent on planning and delivering growth to double. This can only be achieved if the combination of technology and practical support & advice reduces the time spent on control and admin.  In the case above, reduce the time spent on control and admin by 5%, and performance issues by 5% and you can treble the amount of time spent on executing growth strategies i.e. innovation and transformation. 

Why do I make this point? It is well known that many transformation projects based on just technology fail. Instead of freeing up the time to spend more on performance improvement and growth they drown people in control and administration. 

Luckily, there are enlightened systems integrators, consultancies, and technology partners that are willing to put the hard yards into plan and execute transformation successfully to reverse that trend. To leverage technology rather than be constrained by technology.

This is even more important for general insurers, MGAs and brokers as combined ratios are worse than for their commercial cousins.

The 2023 net combined ratio for the property/casualty industry is forecast to be 103.9, with commercial lines at 97.7 and personal lines at 109.9, according to the latest underwriting projections by actuaries at the Insurance Information Institute (Triple-I) and Milliman.

We've seen some GI carriers post bad results during 2023.  I can't help but remember when the late HM Queen Elizabeth II toured the offices of the financial services industry in London sometime after the collapse of Lehman Brothers and the banking sector. Surrounded by the marvels of trading systems and real-time analytics the CEOs proudly showed these leading-edge technologies. Her Majesty asked "Why did nobody notice the "awful" financial crisis earlier?"

Glum silence, shuffling feet, and red faces!  

The fact is that some had predicted the crisis, and seen the outliers that would become the norm whilst the technology just amplified the biases, ignored outliers and helped traders exploit the lack of governance and control. Without people with expertise and intuition to stop GenAI from repeating the calamities of the 2008 financial crash some insurers will see combined ratios going south whilst others will see them below 100.

I'll be writing more on the enlightened companies that can leverage technology for the good of customers, employees, and customers whilst for now concluding with suggesting you ask your technology partners how they will increase the effective time and resources available for performance improvement and growth. 

If you are attending Insuretch Insights in London this month ask the same questions. And drop me a line to to meet up to talk about these issues. 


Further Reading

Report: 2023 Combined Ratio Forecast at 103.9, Commercial Lines Performed Best

Helping insurers cope with general and claims inflation, rising premiums, surging complaints, and adverse loss ratios

Saints & Sinners - proving effective AI use cases in insurance

The dangers of ‘Static vs Continuously updating risk factors’ using car theft examples