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Building innovative capacity

Lloyd’s Syndicate in a Box, three years on

Innovation has always been at the heart of the Lloyd’s insurance market. From the earliest days of marine insurance to the first motor policy to space insurance, the market’s ability to convene so much insurance talent in the heart of London has led to Lloyd’s providing the knowledge and leadership to tackle the risks society faces. But sometimes those innovative ideas take shape with great rapidity. They emerge from smaller businesses, often in response to world events or new technologies – businesses that might not consider Lloyd’s with all its scale as a potential home. That’s a notion we’re dispelling with our Syndicate in a Box initiative.

“Back in 2018, we realised we needed to be more welcoming of smaller, entrepreneurial businesses. Agile startups and challengers are the foundation of what Lloyd’s stands for and also the source of so much disruptive thinking. For smaller underwriting businesses, it would be hard to find a better place than Lloyd's to begin trading. From day one, you get access to a global brand, international trading licences and an A or higher financial strength rating. It would take years for a new insurance company to achieve that because of the regulatory timeframes.”
Tom Allebone-Webb, Head of strategy and innovation, Lloyd’s

The challenge for Lloyd’s was to find ways for smaller, fledgling businesses with exciting plans and products to establish themselves in the Lloyd’s market while retaining sufficient income to pay claims and make a profit. The market’s regulatory, capital and reporting requirements, designed to ensure policyholder security, tended to load new underwriting businesses with high start-up costs which were difficult for smaller businesses to absorb.

The solution was Syndicate in a Box (SIAB), unveiled in 2020 as part of the Future at Lloyd’s strategy. SIAB makes the Lloyd's market more responsive, agile and quicker to respond to new risks. It is a streamlined admission process and regulatory environment created to allow a start-up business to secure a solid footing in Lloyd’s, by reducing reporting requirements and front loaded capital for an initial period of three years.

SIAB works by effectively offering smaller, innovative syndicates that had very limited exposure to Lloyd’s peak perils (North American wind and quake, Japanese wind and quake and European wind) and no long tail risks without a track record a simplified operating environment for their first three years of trading with some costs deferred and a reduced regulatory burden. In return, the SIAB has to prepare a resolution plan – a process for concluding its underwriting in an orderly manner should the business fail to achieve its goals. Assuming all goes well, by its third year of trading, the SIAB should have achieved a projected net operating expense ratio (operating and acquisition cost) of less than 35%. At that stage, it can be considered for full syndicate status.

Insurer Munich Re was the first to launch an SIAB in 2020. Called Munich Re Innovation Syndicate, the SIAB underwrote a range of emerging risks including renewable energy and parametric insurance for weather risks. Carbon Underwriting followed shortly afterwards and subsequently transitioned to full syndicate status in 2023.

Arguably the most well-known of our SIABs to date is that developed by US instech firm Parsyl, a specialist in the transportation of perishable goods. In late 2021, in the midst of the pandemic, the SIAB was launched to insure the shipment of Covid-19 vaccine to emerging economies. Notably, Parsyl was a graduate of the Lloyd’s Lab initiative, our incubator for innovative and disruptive insurance-related businesses.

Three years on, 10 SIABs have launched with further proposals under consideration.

“All SIABs are very different,” observes Tom Allebone-Webb. “The commonality is innovation. What’s also clear is that the SIAB model reduced cost, increased speed, reduced capital and made the SIABs more likely to succeed. It shows we’re willing to tinker with the Lloyd’s formula to get the right result.”

Nigel Williamson, Lloyd’s senior manager for market development, agrees: “The SIABs that have been successful have demonstrated that it’s possible to develop a small-scale, profitable business with an expense ratio in line or better than that of traditional syndicates.” Nigel’s one of the key players in the SIAB initiative and is instrumental in assessing new applicants to ensure their proposals are sound and chime with Lloyd’s own risk appetite.

“I’ve worked in the market for over 40 years but some of the most interesting conversations I’ve had have been in the last two to three – with Syndicate in a Box. And the next steps? I think SIAB could be a channel for technologies we’re seeing in other sectors to come into the commercial insurance space. The initiative allows small businesses to use and leverage Lloyd’s, which is of benefit to both parties. And that idea will continue to be appealing.”
Nigel Williamson, Senior Manager, Market Development, Lloyd’s