New Lloyd's Reform Move Draws Positive Response

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By Lisa S. Howard, International Editor

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NU Online News Service, Nov. 12, 12:45 p.m.EDT?Lloyds as part of its latest reform initiative isplanning to require that underwriters and brokers fill in certainbasic information on underwriting slips--ending a practice ofreaching agreement on some of those details after a policy'sinception.

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Details of the latest reform action, part of the so-calledLondon Market Principles, were explained by members of the LondonMarket interviewed at the National Association of IndependentInsurers annual conference, which ends today in Atlanta.

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They said the move has been well received by the London market,although some concerns remain.

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LMP is a market-wide initiative supported by the underwritingand broking communities at Lloyd's and in the London companymarket. Through a process of reforms, it aims to create anefficient and streamlined marketplace with improved serviceprovided to clients.

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Starting in January 2004, Lloyd's will require the use of theLMP underwriting slip, with information included on the insured,reinsured, territory covered, type of coverage, limits, slipleader, premium, minimum deductible and rates, to name a few of themandated requirements.

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"I think this is a great step forward?when LMP is fully inplace, we will achieve certainty of contract at inception," saidAndrew Carrier, active underwriter for Syndicate 510, which ismanaged by Kiln Group.

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He called the change "a giant leap forward for mankind and thereinsurance industry in London."

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"At least we're coming to vaguely near the banking community interms of having our documentation being in decent shape," hesaid.

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The only problem with the LMP slip is that a reinsurancecontract can be very complex, with a lot of customized terms andconditions that go well beyond the standardized parts of the slip,he explained.

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"Every broker's interpretation of LMP will be slightlydifferent, and it's the customized piece [of the document] which isoften far more pages than the standard piece," he said. "Thecustomized bits will take a long time to read through, so it'sputting increased burden on the lead underwriter to read every wordof that 40-page slip," he added.

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He said he feared a quick decision could lead to seller, buyerand broker disputes within the market, adding, "We'll have tomanage our way around it. We at Kiln offer a 24-hour turnaround.That would be the best way to manage the process."

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In prior years, underwriters would tell the broker that theywould agree on the wording later and then pass the policy on to thesyndicate's wordings division, with a turnaround of up to a fewweeks, he said. "Now the underwriter will be responsible for havingread every single word before he signs off on the policy."

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It puts a huge burden on the underwriter at the negotiationstage to be a customized wording specialist, he said.

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So from the perspective of the underwriter responsible fordrafting a slip, "regrettably I don't think we have achieved thatmuch time and expense saving," he said.

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But the LMP slip will provide the buyer with contract certaintyat the time of the policy's inception, which is a very positivestep for the market, he said.

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The LMP placement slip is designed to provide contractcertainty, said Stephen Cane, chairman of the InternationalUnderwriting Association in London, in an interview at the NAIImeeting. (Mr. Cane also is CEO of Alea London Ltd.)

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Lloyd's decision to mandate the use of the LMP placement slip"is welcome and will go a long way toward helping improveefficiency and raise customer service levels across the Londonmarket as a whole," he said in a statement when Lloyd's announcedits move to mandate the slip.

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Mr. Cane said the IUA can't mandate the LMP slip because "we'reonly a trade association with no such powers."

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"But I've made it clear that I'll do everything I possibly canto encourage the use of the new slip," he said, noting that he haswritten to every chief executive in the London company market,encouraging the use of the slip.

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"No one doubts the urgency of modernizing London marketprocesses," said Robert Childs, chairman of the Lloyd's MarketAssociation, in a statement issued by Lloyd's. (Mr. Childs isdirector of underwriting for Syndicate 33, managed by HiscoxSyndicates Limited, which is part of Hiscox plc).

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"Our first priority must be to give the customer certainty ofcontract. Lloyd's is taking an important lead for the good of thewhole market by making the new LMP slips mandatory," he affirmed."This is only a step?though a big one?toward the solution. We inthe Lloyd's Market Association are now putting our energy towardthe next objective, which is an internationally recognized ACORDstandard slip."

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"Our policyholders will benefit from greater contract clarity,which will help to ensure that the whole process of placinginsurance and agreeing claims is quicker and more efficient," saidNick Prettejohn, CEO of Lloyd's, in a statement.

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"We are determined to continue to streamline business processesin the Lloyd's market and to ensure that the terms of insurancecontracts are agreed and clear before they come into force," hecontinued. "Mandating the use of LMP slips is another significantstep along this road."

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The London Insurance Market Brokers' Committee supports thisinitiative and believes "it sends the right messages to both ourclients and practitioners in the market, namely that London isserious about change and improving client service," said DavidSpiller, chairman of the LIMBC, in a statement issued by Lloyd's.(Mr. Spiller is managing director for Benfield Group in London

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Addressing the LMP slip during the interview at the NAIImeeting, Mr. Cane said there is no reason why basic data shouldn'tbe available up front.

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"We already have a slip that exists and has existed for years,and over the years it has been refined and developed," he said."What we've got at the moment is no standardization as to theminimum amount of information required and the way it's setout."

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With the change, Mr. Cane said, there no longer will be "TBAs"written on the slip, meaning terms "to be agreed" later.

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