Lloyd's embraces enhanced underwriting – report

Enhanced underwriting is not only here to stay – but it will grow substantially over the next decade.

That was the verdict of a new report released by the Lloyd’s Market Association (LMA), in partnership with Oxbow Partners. Titled The Growth of Enhanced Underwriting in the Lloyd’s Market: The New Normal?, the report outlines how enhanced underwriting works and why people are implementing it, its associated opportunities, growth potential, risks and required capabilities.

The report presents findings from research conducted over three months, including interviews with 85 senior leaders and surveys capturing perspectives from 55 organisations, representing 77% of Lloyd’s total gross written premium (GWP) in 2023.

Among the key findings of the report are:

1. Widespread market adoption:

• Enhanced underwriting is broadly accepted as a critical evolution in the insurance landscape, with 35% of survey participants anticipating rapid expansion and 65% expecting gradual adoption over the next decade.
• No participants predicted a decline in enhanced underwriting usage.

2. Four core models identified:

The report categorises enhanced underwriting into four models:

• Augmented underwriting: Human underwriters enhanced by algorithmic tools and risk insights.
• Pure algorithmic underwriting: Fully automated, human-free underwriting processes.
• Digital and algorithmic broker facilities: Automated facilities enabling dynamic risk appetite adjustments.
• Active portfolio trackers: Focused capacity allocation on outperforming portfolios through consortia or quota shares.

3. Projected premium growth:

• Enhanced underwriting currently represents approximately US$5 billion in premiums (7% of Lloyd’s total 2023 GWP).
• Models such as augmented underwriting and digital broker facilities are expected to grow by 50% to 60% annually.

4. Impact on market structure:

• Enhanced underwriting is accelerating a bifurcation between lead and follow markets.
• The emergence of “true lead” underwriters is expected to strengthen control over risk assessment and capacity distribution.

5. Opportunities and risks:

• Opportunities: Enhanced underwriting can increase access to underserved markets, optimise risk selection, and reduce premium volatility.
• Risks: Concerns include algorithmic accuracy, regulatory challenges, and a potential talent gap as automation displaces traditional roles.

“Although enhanced underwriting is in the early stages of its maturity, this report shows that there is almost universal belief that it will be a fundamental part of Lloyd’s future, presenting an opportunity for the market to apply its deep specialty expertise in new ways,” said Elizabeth Jenkin, LMA’s underwriting director. “By thoughtfully integrating these models, market participants believe they will drive efficiency, improve risk selection and access underserved business, while reinforcing Lloyd’s position as a leader in complex, high-value risks.”

Greg Brown, partner at Oxbow Partners, emphasised the structural shifts enhanced underwriting will drive. “This could reshape the dynamics of capacity allocation, and the slip of the future may look significantly different. With leaders seeking a stronger position and more automation of follow capacity, the result could be a significant squeeze on traditional follow markets and more reliance on the lead to ensure robust risk assessment,” said Brown.

Looking ahead

The report indicated that while enhanced underwriting remains in its infancy, market participants foresee all four models maturing over the next five to 10 years but at different rates. It also noted that continued investment in technology, data integration, and strategic frameworks will be essential for scaling these innovations effectively across the market.

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