The insurance market may increasingly be dependent on data, statistical analysis and catastrophe modelling, but underwriting at Lloyd's remains an art rather than a science– but only just. That's according to the result of a vote held at Lloyd's last night at a debate hosted by the Lloyd’s Market Association.
An invited audience of Lloyd's practitioners voted 49—45 in favour of a motion proposed by Barnabas Hurst-Bannister that underwriting is an art. Paul Jardine spoke against the motion, losing after a recount. Both are former chairmen of the LMA.
Hurst-Bannister argued that underwriting at Lloyd's was grounded in good judgement and common sense. "Science can help the underwriter but it is not the essence of underwriting," he said. "We should use science liberally but not slavishly. Ultimately, we pay underwriters to exercise good judgement and the essence of judgement is not science, it is art."
He went on to note that many of the attributes Lloyd's uses to promote itself to customers–innovation, imagination, speed and accessibility–were not scientific in nature. He also warned against a market in which science was so dominant underwriters felt it was safer to decline a risk than accept one.
Paul Jardine based his case on the notion that good underwriting had to find a balance between art and science but that balance was shifting in favour of the scientific approach. He said "It's not about whether it's art or science, it's the relative weighting of the two. Judgement and innovation have to be conducted in a disciplined and controlled manner.
Science is playing an increasingly important role. We must treat data as a strategic asset because harnessing data increases profit and market share. Unless we use this scientific approach we cannot provide the rate of return our capital providers require. Learning from the past and improving is the fundamental essence of science."
The debate, held in the Old Library at Lloyd's, was the first alumni debate to be held by the LMA's Lloyd's Market Academy and was chaired by the LMA's head of Professional Standards Terry Hayday.
Hayday said "It was an extremely lively and often very amusing debate that the audience found most stimulating."
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