By: James Orford, managing director, Lombard Insurance
This quote from Lenin captures the fundamental changes being wrought daily by the Covid-19 pandemic.
At Lombard Insurance Company, our decision cycles have compressed from months to days as we’ve battled to keep pace with the seismic shifts in our risk landscape.
Our business virtualised itself overnight in response to the lockdown; many less flexible businesses were less fortunate. I can’t see us going back to our legacy work habits once the pandemic has been contained. Most of the team think there are less distractions at home, and productivity seems to have increased.
Firm-level changes such as these will ripple through our economy and society for decades. We expect demand for commercial buildings and transport to urban centres will remain subdued, while demand for fibre and data centres will increase. If any trend has been accelerated by the pandemic, in our view it is digital transformation.
At Lombard, we generate a third of our premium from helping our clients manage financial risk. We are therefore an aggregator of risk, most of which we, in turn, distribute to global reinsurers. We are therefore planning for significant losses arising from a wave of business failures brought upon by rolling lockdowns and their aftermath. This planning process is depressing but vital, as we want to emerge from the crisis on the front foot.
Our view has necessitated a drastic reduction in the capacity we provide at the very point it is most needed. Our team has been working diligently to explain our approach to each client.
These are not easy conversations, but this the Lombard way. We hope to convince all our clients that we must recalibrate our risk-sharing arrangement with them so we can serve them for the duration of the crisis.
Much as I would like to assist, my role is to develop strategy and to convince our stakeholders – be these employees, shareholders, reinsurers, regulators or lenders – of its merits. Each of our teams hold these relationships, and we need to rely on them to get their clients across the line. Flat organisations like Lombard have their strengths and weaknesses, but in a time of crisis, the distribution of responsibility and decision-making has enabled resilience, responsiveness and adaptability.
The digitisation of our credit insurance lines has long been a key objective; we’ve talked about it at strategy sessions for years. Our trade credit offering provides insureds with cover on 20,000 debtors. Given the compression of events in this crisis, we need to understand how the financial position of these debtors is changing in real time.
Such insight is simply not achievable through our existing processes. Two years ago, we provided seed capital to an artificial intelligence start-up that has grown astonishingly. Their team is now helping us build the guidance systems that we will need to navigate this crisis. I am a great believer that these capabilities will make our credit insurance businesses a force to be reckoned with for years to come.
So, first we must survive this crisis, but we are certainly not wasting it.