Defining training and learning at Lloyd’s

The transfer of knowledge and how information gets “passed down the generations” is a fascinating topic. As part of my MBA research undertaken at Henley Management College, I had the opportunity to look at the way knowledge is handed down within Lloyd’s, an organization often misunderstood both in the UK and overseas but, paradoxically, one of the strongest worldwide brands.

 

How does Lloyd’s train and develop underwriters so that it “contains the best and highest concentration of underwriting talent anywhere in the world”? What could we learn, and what could other organizations learn from us? In this article, I’ll explain how the management and transfer of knowledge is so critical to the past, present and future success of the Lloyd’s market and describe the learning and apprenticeship method that’s used to train underwriters, outlining the official elements of and also the various informal sub-methods within the apprenticeship model, including situated learning, storytelling and communities of practice (CoPs).

 

This research is relevant to those inside and outside the insurance industry and the Lloyd’s market, because the blend of a traditional apprenticeship model with more formal training is still creating world-class underwriting talent in the 21st century. Furthermore, as training throughout the world increasingly becomes more formal and “electronic”, the merits of learning by observing, in close proximity to an experienced practitioner and over a significant period of time, remains an incredibly effective way to transfer knowledge.

 

Why should Lloyd’s be interested in KM?
The apprenticeship model, as a means to transfer knowledge, has been used within the Lloyd’s market for over 300 years to train and develop underwriters. In many ways, Lloyd’s is seen as a very traditional “old English” institution, but it has managed to survive and flourish in an extremely competitive worldwide insurance (and reinsurance) marketplace, so that in 2007 it has a capacity to underwrite in excess of £16 billion in premiums.

 

Ultimately, the skill and knowledge of the underwriters remains a major source of competitive advantage as Lloyd’s prides itself on its entrepreneurial culture and its ability to provide bespoke solutions to its worldwide clients for risks that cannot be underwritten by other companies. Adopting the best ways of transferring knowledge from experienced underwriters to new trainees will be essential to keep us in this position.

 

The Lloyd’s approach
The starting point for my research into defining our knowledge transfer model was to ask what kind of tacit knowledge and experience is necessary for an underwriter to effectively carry out their trade.
It’s commonly stated by market practitioners that an underwriter’s skill remains very much half art and half science. An individual needs to have, among other skills, an understanding of their particular line of business and, legal, accounting, tax and compliance issues as well as a keen financial/mathematical mind and a good memory.

 

The latter point is of particular interest for this article. The transfer of tacit knowledge remains a key challenge for the knowledge economy, for companies in general and for Lloyd’s in their efforts to attain or maintain true competitive advantage.

 

My research sought to analyze the existing apprenticeship model (using the concepts of situated learning – for example, “learning on the job” by observing a more experienced person and communities of practice first introduced by Lave and Wenger) – and assess its appropriateness for underwriting organizations operating within Lloyd’s. The research involved in-depth structured interviews with a range of underwriters working within Lloyd’s.

 

Explaining the Lloyd’s apprenticeship model
It’s crucial to stress that there are over 40 managing agents operating syndicates within Lloyd’s, and all have differing approaches, thus there’s no such thing as a “Lloyd’s apprenticeship model.”

 

However, based on my observations of the organizations whose underwriters I interviewed, a typical apprenticeship model can be broadly summarized as follows:

• graduates are recruited with no previous underwriting experience,
• the individual then spends the majority of their apprenticeship sitting next to an underwriter in the underwriting room at Lloyd’s,
• the trainee is expected to listen and observe negotiations between the broker and underwriter; and
• the trainee is expected to carry out a number of fairly mundane tasks, such as data entry of risk details and photocopying slips.

The findings from these interviews showed that underwriters continue to be trained and developed via the apprenticeship model and by a process of situated learning on the underwriting box. Underwriters learn “tricks of the trade” and “market gossip” by joining respective communities through socializing and the sharing of technical knowledge and market information. Training and development remains informal, and learning often comes about by being “thrown in at the deep end”.

 

Within the Lloyd’s market there’s historically been a heavy reliance on situated learning to transfer underwriting knowledge. Yet, in the last 20 years, there’s been a move to require trainee underwriters to attain the ACII (Associate of Chartered Insurance Institute) – a formal insurance qualification. The background data collected suggests that underwriters are increasingly degree-educated and supplement their knowledge through situated learning via the ACII exams and, more recently, MBAs. Thus, in the last 20 years, the current apprenticeship model has significantly evolved from pure “on the job” learning into a blended approach requiring formal qualifications and more traditional learning.

 

Structure and balance in training

The underwriters I interviewed believed that tacit knowledge – for example, understanding of Lloyd’s customs and practices, historical background and market precedents – was essential to be a successful Lloyd’s underwriter.

The interviewees believed that a Lloyd’s underwriter needed to have the right balance between technical underwriting skill (explicit knowledge) and “market feel” (tacit knowledge).

The apprenticeship approach seems to be very effective in passing on such technical underwriting and tacit knowledge, but it’s more limited with regards to other competencies, “softer skills” and the ability and willingness of underwriters to train junior staff. However, the assumption from these interviews must be that the current apprenticeship model can be supplemented and improved.
A more structured approach to recruitment and future training would also certainly help Lloyd’s to develop future underwriting talent. Trainee underwriters would benefit from having specific timelines for their apprenticeship so they have a clear idea of “where they are going” and how long the apprenticeship will take.

 

Communities of practice
The concept of CoPs was very useful in discerning the way the Lloyd’s underwriting community operated and learnt at different levels. There were some different views expressed but most underwriters felt part of the wider underwriting community and, in most cases, recognized the benefits of being in that community.

 

Younger participants stressed the importance of social events as a way of networking and building up contacts – and hence their standing – in the wider community. There was also a remarkable collective memory of the first time an underwriter “put pen to paper” and most could remember the first risk that they underwrote. It could be argued that it was at this point, when they made the transition from observer to practitioner, that they really felt that they had “arrived” and “belonged.” It’s the actual participation within the community (putting the line down) that allows an individual to be labelled as an accepted practitioner.

 

In common with most areas of the financial services industry, the underwriting community is under regulatory pressure to improve and develop the calibre and training of its underwriters. The move to more professional underwriting at Lloyd’s is naturally evolving, but the inconsistency of approach and the heavy focus on purely technical aspects of underwriting does suggest room for improvement.

 

Transfer of knowledge
Most underwriters learnt their trade via situated learning and guided observation, and there’s a strong belief that the only way of actually learning how to underwrite is to observe it in practice.

 

The need to ask questions was cited as essential to obtaining knowledge from senior underwriters, and this must not be ignored in any future, more structured development programs. Underwriting cannot be learnt from a book, but transfer of knowledge still relies heavily on the trainee being hungry to learn – and the practitioner being willing and able to transfer their knowledge.

 

The view was mixed with regard to tedious and repetitive jobs, but I felt that most people learnt something from doing these sorts of jobs in the way that most people learn the basics in any industry by performing the mundane task such as filing and data input. It was clear that most respondents learnt much more about the way things work than they realized. The Lloyd’s market – as it’s still predominantly based on face-to-face trading – tends to use oral debriefings at the underwriting box, team meetings in the office and internal seminars and teaching to transfer knowledge, and makes limited use of more structured techniques to learn lessons from the past.

 

Storytelling and narratives
The use of stories is widely adopted within Lloyd’s to support and enhance underwriting ethos and wisdom by “bringing concepts to life” concepts.This makes ideas more memorable because they’re engaging and more easily related to personal experience than rules.

There were many underwriting stories, fables and anecdotes that will no doubt stay with an individual throughout his or her underwriting career. It’s interesting to note that most examples of stories told by underwriters revolve around what went wrong and therefore the need to learn from mistakes. The findings of my research strongly support the theory that stories are used very effectively to understand why things went wrong and thus enable a trainee to (hopefully) avoid similar pitfalls in the future.

 

Training and development
There’s a strong belief within Lloyd’s that competitive advantage in the underwriting environment is almost totally reliant on the strength and depth of the intellectual capital of the organization.

 

There’s also a strong feeling that it’s a key part of a senior underwriter’s job to develop, coach and train junior underwriters, which supports the view that one of the key elements for the successful implementation of the apprenticeship model is the manager. Indeed, one of my key findings was that when this works well between trainer and trainees in close proximity, and over a significant period of time, this approach is one of the most efficient, if not the only way, to transfer tacit knowledge, commercial flair and history of accounts, individuals and brokers. However, this approach relies on senior underwriters who are willing to transfer knowledge rather than hold onto it and trainees who are inquisitive and hungry to learn.

 

The current approach to training underwriters in the London market still remains focused on technical underwriting and increasingly on specific classes of business as operations grow in size and complexity. The Lloyd’s approach to training remains largely informal and “ad hoc,” and there’s always a danger with any (apprenticeship) system that if it becomes too structured it can become inflexible and subject to strict rules. The importance of the relationship between mentor and subordinate was discussed by every interviewee, and the strength of that relationship and bond lies at the very heart of the apprenticeship model. The need for strong personal relationships between trainer and trainee is absolutely critical in order to allow the successful transfer of knowledge. There were a number of respondents who outlined the ways in which a mentor instilled self-confidence and belief in the trainee so he or she was ready to make the “leap” to underwriter.

 

A need for more structure
The mentor-trainee relationship can address underwriting knowledge, pastoral care and understanding culture, but there still appear to be, particularly in Lloyd’s, significant gaps with regard to broader competencies (accounting, legal, IT and statistics and so on) as well as softer skills such as negotiation, communication and influencing. It’s currently expected that these skills are picked up on the job or via formal insurance studies.

 

There appears to be significant scope to improve the gaps by adopting a more structured approach to training and developing underwriters alongside the current (situated learning) approach. This could include formal secondments to other organizations, brokers and overseas operations, as well as a more structured professional development timetable.

 

Evaluating training
Formal evaluation of the effectiveness of the combined apprenticeship model and the extent to which the overall training assists learning, behavior and results of individuals would be one way for individual organizations and the market as a whole to improve and develop their current way of training. When asked if a more formal assessment would help develop a better underwriting program in the future, a number of senior underwriters believed that underwriting training needed to be informal because of the very nature of the underwriting process – individual risks, brokers and timing. While there’s some merit in this approach for underwriting, I believe that a more holistic evaluation would probably identify gaps in the overall training of a Lloyd’s underwriter and therefore could lead to a better designed apprenticeship program in the future.

The Lloyd’s market has improved its assessment of training requirements, although it appears more focussed on the individual than on specific tasks and the organization as a whole. I believe that further research into this area would definitely benefit the wider Lloyd’s marketplace by ensuring future trainees bought into the market were not selected solely on their academic ability but also on their interpersonal skills and their appropriateness for the role of the underwriter.

 

An increasingly technical profession

Most respondents felt that one of the biggest changes in the last 30 years had been the increasingly professional and technical approach to underwriting. While underwriting at Lloyd’s has moved away from a “trade” approach to learning – i.e. solely through situated learning – to the hiring of graduates and the expectation of attaining formal qualifications, the existing model still does not address certain technical and “softer skills” training.

The apprenticeship model at Lloyd’s has developed and evolved but as underwriting continues to rely increasingly on actuaries, statistics and catastrophe modelling, then the calibre of underwriters and their training will need to improve. One respondent made the point that your ability to learn via situated learning is limited by the commercial acumen and technical knowledge of the person you “sit inside” and therefore the question that also needs to be addressed concerns whether the current generation of senior underwriters have the appropriate skills and competencies to train the next generation for the increasing complexity and technical nature of underwriting.

 

Successful methods that can undoubtedly improve
The Lloyd’s market remains the leading insurance marketplace in the world for specialist risks.

As with any commercial organization, Lloyd’s cannot rest on its laurels. It must maintain its competitive advantage at the wider market level, but also within the managing agents that operate the syndicates. Its human capital remains one of its true competitive advantages, and while underwriters obtain very effective underwriting training and commercial acumen via the apprenticeship model, the current approach can certainly be enhanced.

In the wider context of the move in financial services to electronic trading and the demise of face-to-face trading at most major exchanges, there must be concern that a great deal of valuable experience, insight and knowledge is being lost and that in the future this may be shown as a limitation to a pure electronic environment.

However, it should also be stated that the Lloyd’s market has been slow to embrace electronic trading and new technology in the way it conducts business. Lloyd’s needs to look at developing a new approach to training, one that embraces technological change, if it wants to retain its pre-eminence – especially in view of increased competition from the new markets of Bermuda, Ireland and Dubai, which rely much more on “electronic trading”.