London Market Modernization On Track
It has been two years since the International Underwriting Association (which represents global insurers and reinsurers) along with Lloyds announced that they were working together to modernize the London market.
It is almost exactly a year since we announced firm plans to bring together the two bureaus that provided back office work for Lloyds and the company market in London. It has been nine months since we published “London Market Principles 2001,” an action plan to reform the market’s business processes, in cooperation with the brokers.
With the December renewal season coming up, it is a good time to review progress on London’s market reforms, and what they mean to customers.
Our campaign to reform the London market is a unique and ambitious project that has never previously been attempted on this scale, and it was always going to require persistence. It can count some notable achievements to its credit. In some areas progress has been slow, as we always suspected it might be. Nonetheless, the process of reform has gained momentum, which I believe will prove unstoppable.
Possibly the most tangible gain was the completion of the merger of the back office bureaus for the two halves of the London market. The London Processing Centre (for the company sector) and the Lloyds Policy Signing Office have joined forces with Xchanging, a London-based company that specializes in e-enabled back office systems, to create a new company called “ins-sure.”
Unusual for any change in the London market, this development has virtually unanimous support in both Lloyds and the company sector, and its benefits will be wide-ranging. Although it will save money, that has never been the main driver.
For at least the past two decades, London has suffered because of the differences between the two bureaus serving the company market and Lloyds, in terms of information technology systems, wordings and business process. Since most risks in London are shared between Lloyds and the companies, this has been irritating for brokers, underwriters and, above all, our ultimate clients. It has built delay and extra cost into the system.
Part of ins-sures remit is to create a seamless market. This will inevitably take time, but it has already started with a shared document handling center and the introduction to Lloyds of the claims handling system already used by the company market. We are now moving towards a complete solution, so that all London market risks and any resulting claims are dealt with through one process. The result will be a faster, more cost-effective environment.
The second big advantage will be the introduction of browser technology so that the entire insurance administration process can be supported by Web-based systems. This change, which is somewhat longer term, will be offered on a commercial basis, and will not involve the “big bang” approach that has sometimes misfired in other financial services industries.
Turning now to the business processes that support the London subscription market, the LMP 2001 programs objective is to streamline placing and claims procedures of the subscription market, resulting in better and more cost-effective client service.
To this end, the introduction of the new LMP 2001 slip is now imminent. The slip is the document, produced by the broker, which records all the main details of the participants on a particular risk. This is one of the cornerstones for building an e-trading environment. The immediate gain, however, will be a greater degree of clarity at point-of-sale.
Odd as this seems to people from outside London, the current slip does not always make responsibilities clear. The new slip version, which in many ways encapsulates what we are trying to achieve through LMP 2001, will bring much needed clarity. While there will be variations from broker to broker–and even within individual brokerage firms–all the new slips should adhere to certain principles. As of this writing, this is a work-in-progress, with the first LMP 2001 slip due to be introduced later this year.
During the coming renewal season, most business will continue to be recorded on the old type of slip, but by January the new way of doing things will have been well and truly tested. We expect it to become increasingly common during 2002, bringing improvements in speed and service, as well as cost savings.
Also later this year we hope to introduce a benchmarking exercise through the newly formed London Market Standards Committee. The purpose of the LMSC is to tell participants how they are performing compared to their competitors, according to certain client-facing criteria such as speed to pay claims. This will provide the incentive for organizations to boost their own performance. A pilot program has been going for several months, and has helped us iron out the inevitable teething difficulties.
One of the most radical parts of the reform package is the proposed new mechanisms for faster agreement processes for endorsements, which is a proposal that continues to cause concern in both the Lloyds and company markets.
Most important, there is a fear among underwriters that they are being asked to “give away their pens,” and so lose control of their own business decisions. Obviously a balance must be struck between the reasonable desire of organizations to control their own decision-making process and the need to provide faster response times and better customer service and avoid unnecessary duplication.
In this context, it is worth pointing to another achievement–it may be intangible, but it is arguably the biggest prize of all. Even skeptics acknowledge that LMP 2001 has put reform and modernization at the top of the London agenda, challenging market rates as the hot topic for discussion.
We said at the outset that the main aim of the process was to stimulate cultural change in the London market–to make it more customer-oriented. I believe, although this is based purely on anecdotal observation, that this is already happening.
One example was the recent Petrobas claim for $500 million, paid within three days of being agreed. This proves that the London market can combine to move with a speed that is truly world beating. With the additional impetus of LMP 2001, we will be able to deliver this level of service with greater consistency.
Continued efforts such as this to improve service standards, coupled with infrastructure improvements, will make all the difference to the market and its customers.
Stephen Riley is joint chair of the London Market Principles 2001 steering group, deputy chair of the International Underwriting Association, and a member of the IUA-Lloyds Forum. He is managing director of London-based CNA Re.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.