Late Policy Issuance: Norm, Not Exception

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By Lisa S. Howard

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Third of a Series

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International Editor

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London

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Late policy issuance is still the norm in London, not theexception, despite the lessons of the World Trade Center coveragedispute, according to London market underwriters.

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However, these underwriters affirm that the mindset of theentire industry needs changing because process problems arehappening throughout the entire length of the insurance andreinsurance buying and selling chainand not just in London.

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“Have we changed post-9/11? No, not really,” said StephenCatlin, chairman of Catlin Underwriting Agencies Ltd., whichoperates a Lloyds managing agency. Mr. Catlin is a member of theCouncil of Lloyds.

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While people are a bit more aware of the problems with latepolicy issuance, Mr. Catlin emphasized there hasnt been afundamental change in mindset. “Its a disgrace,” he emphasized.

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He said it was inevitable that the industry would experience amajor loss before the “is” were all dotted and the “ts” were allcrossed on a policy. “It was an accident waiting to happen” whenits a common industry practice to have an insurance contract beissued and be effectively open-ended until such time as thecontract has been agreed properly, he said.

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“You would never see that in any other industry, actually,” hesaid.

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“I am sick and tired of people complaining about it and notbeing prepared to do anything about it,” said Bronek Masojada,chief executive for Hiscox plc, which owns a Lloyds managing agencyand a U.K. insurance company.

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“At Hiscox we try and track how many wordings we dont have andwe try and chase people up on wordings that arent finalized,” hesaid. “But we are, in my view, a minority in the Londonmarket.”

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Mr. Masojada said when he speaks with underwriters in the Londonmarket, everyone agrees that late policy issuance is a problem. “SoI ask them, are they tracking late wordings and have they gotpeople chasing the brokers to finalize the wordings,” he said.

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But the underwriters are afraid that if they upset the brokers,then the brokers wont bring them business, Mr. Masojada said.

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Mr. Catlin thought that most people would like to see changes inthis area. “But nobody has actually yet found a way to change themindset of the global marketplace.” Although London is often blamedfor being the worst at timely policy issuance, Mr. Catlinemphasized its a problem for the entire industry.

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Who needs to correct the problemthe brokers or the underwriters?The underwriters agreed that everybody in the industry needs to dotheir part.

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“Its not just a broker issue, although they have a lot to dowith it,” said Mr. Catlin. “Its also a carrier issue and a clientissue. Everybody involved in the process has a responsibility,” hesaid

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He noted that clients frequently will sit on the policy wordingwhen its been sent back to them and wont do anything with it fortwo or three months before they return it to their broker.

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Much of the problem relates to process and quadruple data entry,he said. “This industry absolutely needs to embrace the benefits ofITso that we can actually get to single data entry and startthinking in terms of getting a policy wording agreed prior toinception,” he said.

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“Until that happens, there is always going to be massive riskaround,” Mr. Catlin emphasized.

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“Sooner or later, there will be real tears, and sooner or later,a broker will be taken out of business because [its] going to besued by a client,” he said.

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Mr. Masojada said the entire buying chain needs to demandprocess improvements. “If youre a lawyer advising a bank, youshould say its not enough to have a cover-note [binder]; you want asigned policy before inception, before the money is lent to aproperty holder,” he said. “I can promise you, if thats what thelawyer says has to happen, it would happen.”

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Further, he said, if every insurance and reinsurance buyerdemanded to see the policy at inception, then it would quicklyhappen. “If the buyer said to Aon and Marsh, we will only dobusiness with you if you guarantee us that we will have the policysigned before inception, theyll do it,” he said.

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“Buyers should stop doing business with those people who dontprovide slips in a timely fashion,” he said. But people put up withit and therefore cant expect the behavior to change, he said.

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“If the customers said, well pay $10 more to an underwriterbecause they get the paperwork done on time, it would happen,” hesaid. “But if the customers say, we dont care who we buy from, aslong as they have a high enough rating, and we dont care if we dontget the wording, then the bad behavior will continue.”

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Mr. Masojada emphasized its not good enough for the broker todecide the final terms and conditions on Dec. 30 and expect apolicy to be issued on Dec. 31. “What it means is the buyer has tomake his decision on Dec. 2 or 3, which gives a week or so to issuea policy.”

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Robert Childs, director of underwriting at Hiscox plc, agreedthat the problems with late policy issuance will require somechange in buyers habits as well process changes by the sellers.

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The process improvements need to start all the way down thechain, he affirmed. “If the buyers dont give an order until one daybefore inception, on a complicated layer program, how on earth arethey going to get a policy?” he questioned. Mr. Childs also ischairman of the Lloyds Market Association.

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He emphasized that buyers have got to give an order a reasonableamount of time before the inception or renewal of a policy. “Thebuyers wait too long because theyre hoping for a better price orcondition.”

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“If youre buying an absolutely standard policy, then of course,the timescales could be short,” he said. “But if youre askingsomeone to manuscript a policy, its not possible to produce itinstantly. You need time.”

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During his tenure this year as chairman of the LMA, Mr. Childssaid hed like to see policy production within 30 days, claimspayment in 30 days and premium payment in 30 days.

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On the claims side, that may not be possible in the short-termbecause it is difficult to settle a complicated property claim orliability claim within 30 days of notification, he said.Nevertheless, Mr. Childs emphasized, it is important for the Londonmarket to continue to improve its performance in this area.

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(See NU, May 5, page 30 and May 12, page 39 for firsttwo parts of this series, giving buyer and brokerperspectives.)


Reproduced from National Underwriter Edition, June 9, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.


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