New Lloyd's Reform Move Draws Positive Response

By Lisa S. Howard, International Editor

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

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

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

LMP is a market-wide initiative supported by the underwriting and broking communities at Lloyd's and in the London company market. Through a process of reforms, it aims to create an efficient and streamlined marketplace with improved service provided to clients.

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

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

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

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

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

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

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

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

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

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

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

The LMP placement slip is designed to provide contract certainty, said Stephen Cane, chairman of the International Underwriting Association in London, in an interview at the NAII meeting. (Mr. Cane also is CEO of Alea London Ltd.)

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

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

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

"No one doubts the urgency of modernizing London market processes," said Robert Childs, chairman of the Lloyd's Market Association, in a statement issued by Lloyd's. (Mr. Childs is director of underwriting for Syndicate 33, managed by Hiscox Syndicates Limited, which is part of Hiscox plc).

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

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

"We are determined to continue to streamline business processes in the Lloyd's market and to ensure that the terms of insurance contracts are agreed and clear before they come into force," he continued. "Mandating the use of LMP slips is another significant step along this road."

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

Addressing the LMP slip during the interview at the NAII meeting, Mr. Cane said there is no reason why basic data shouldn't be available up front.

"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 the minimum amount of information required and the way it's set out."

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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New Lloyd's Reform Move Draws Positive Response

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