London market reforms update paper-based processes in favor of modern-age tech tools and standards

When futurists some decades ago declared the advent of the “paperless society,” they might not have realized the tough nut they had to crack in the London market. But times are changing. Soon the sight of 17th century movers and shakers buying and selling coverage at Mr. Lloyd's famous coffee shop will be replaced by their 21st century counterparts conducting essentially the same transactions on their laptops in Starbucks.

While paper may not be quite the idea whose time had come and gone, plans are now to have at least 75 percent of all London market claims be handled electronically by the end of this decade.

Lloyd's Chief Executive Officer Nick Prettejohn put the case for change in stark terms in a recent speech to the Insurance Institute of London. “The need for improvement is urgent–urgent for commercial reasons, urgent for regulatory reasons and urgent for that most basic of all reasons–self preservation.”

The flip side of the hallowed and storied cache that the London market carries in the global insurance industry is a certain resistance to change, which cannot be overcome by mere technical razzle-dazzle.

For Mr. Prettejohn, change must go beyond new data systems to encompass all aspects of human behavior. “Without changes in people, management attention and behavior, technology cannot unilaterally achieve change,” he said.

But that being said, the technological challenges are nonetheless something short of overwhelming to get the estimated 160 brokers, 120 companies and 100 syndicates all speaking the same cyber-language to make this new world a reality.

And that is where ACORD, the insurance data standards organization based in Pearl River, N.Y., with an office in London, comes into play.

ACORD's London market technical expert, Phil Brown, said standards remain a key component to a successful decade-long transition now underway.

“Without standards, each firm would have to develop, build, operate and maintain different ways of working electronically with each of its trading partners,” Mr. Brown said.

The London market includes not just brokers and carriers, but also loss adjusters, attorneys and third party administrators. “By moving from paper-based processing to electronic, the market can improve speed of service through parallel rather than serial processes and, in turn, achieve better validation of all data with improved transparency,” he said.

While London market reform has been a rallying cry for decades, it was only in the past couple of years that the stars seemed to align to make it a reality. The power structure reshuffling within the market, brought about by mergers and acquisitions, along with the changes in the way the Lloyd's marketplace relates to its capital providers, are starting to settle and mature.

In addition, Lloyd's and the trade associations–the Lloyd's Market Association (LMA), International Underwriting Association (IUA) and London Market Insurance Brokers Committee (LMBC)–have consolidated their roles fostering a unity like never before. Those four entities ended up forming the London Market Principles group that has been the catalyst behind the changes.

Moreover, New York Attorney General Eliot Spitzer and his recent probe into the commercial insurance industry can take some credit.

“Following the Spitzer intervention, who can possibly doubt that we need a transparent, auditable and structured record of the process of a transaction?” Mr. Prettejohn said.

In addition to affecting a new claims infrastructure, through the Electronic Claims File project, the London Market Principles initiative also includes accounting and settlement reforms.

And finally, the less technically driven so-called “contract certainty” aspect of the reform also will play a key role in preventing future costly disruptions in business and potential mammoth litigations such as that centering on World Trade Center coverage issues. (See related story.)

o Accounting and settlement reforms have as their main goals producing faster and more accurate data that reduces errors and reconciliation disputes. And here a relatively recent, nearly 20-year tradition will have to face some upheaval.

The London Market has been using electronic data and message standards since 1986 for premium payments, claims advice and payment needs. “The standards for these messages are unique to London, there being no international standards when they were created,” Mr. Brown said.

“London now wants to move to international standards to provide consistency for carriers whether Lloyd's, London bureau or non-bureau, or for brokers, irrespective of carrier.”

Trevor Maddison, London-based senior vice president for Marsh Inc., sees accounting and settlement reforms as moving from a custom-made process to an international one, “thereby providing a firm base of infrastructure for the future with flexibility for future business process change.”

o The Electronic Claims File project will allow brokers and Xchanging Claims Services (XCS) to access claims information at the same time, rather than waiting their turn to see the file. (Lloyd's and Xchanging, a U.K.-based business processing outsourcing company, formed XCS in 2001 with the goal of having the jointly owned company take over the operations of the Lloyd's Claims Office and also provide a full range of claims services to insurance market participants worldwide.)

“The electronic sharing of files will allow brokers to concentrate on those claims where value is added, placing less reliance on their need to act as movers of paper,” Mr. Brown said.

Underwriters will have greater ability to control their work load since they will no longer have to rely on the physical presence of a broker or paper files to trigger action. “But brokers and underwriters will still choose to negotiate face to face when necessary,” Mr. Brown added.

Electronic claims repositories will be used by many firms to hold claims files electronically. ACORD has developed a protocol to enable the efficient and controlled access and movement between such repositories.

“Given the multiplicity of document repositories, our member companies asked us to develop the ACORD Document Repository Interoperability messages to enable the efficient and controlled access to, and movement of documents between, different repositories,” Mr. Brown said.

In March of this year, four brokers and nine Lloyd's managing agents agreed to use the electronic claims infrastructure for new claims from mid-2006. The brokers agreeing to present new claims electronically are Aon, Marsh, Benfield and JLT. Managing agents who will process and review these claims using the new structure are Amlin, Brit, Faraday, Hiscox, Limit, Marlborough, St. Paul Travelers, SVB and Wellington.

Iain Saville, chair of the Market Reform Implementation Board and head of Business Process Reform at Lloyd's, said that he looked forward to London market companies following the lead of the brokers and managing agents.

“Delivering the electronic infrastructure needed to modernize claims processing in the market is an essential step toward secure and efficient claims handling,” he said. “But it is only half the battle and is pointless without the full support and commitment of the market firms.”

From all this talk of the need for dramatic change, one might get the impression the processes in place date back to 1653. That, however, is not quite the case.

Today all brokers and underwriters must have electronic connection to the Xchanging Ins-sure Services (XIS) system, and in addition must be linked to the system for daily settlement items.

At a central bureau, all London slips (preliminary policies) with an XIS stamp must be processed electronically. In addition, there is a central settlement system for all brokers, along with one that provides one electronic payment/receipt for all business.

But there still are many bridges to cross and there is little room for procrastination, according to London-based Standard & Poor's Director Marcus Rivaldi. “It has got to change. Everyone knows it has got to change. And it will change,” he said.

Internet-enabled advances provide too many mandates for the market not to rid itself of those “Londonisms” many people find so charming. “What you could see is a marketplace where people are moving to where you don't have thousands of people walking around with bundles of paper under their arms,” he said.

What might not have been foreseen is the enormous complexity of the project that was originally called LMP 2001. “A huge amount was meant to have been achieved years ago,” he said. “Many people may have underestimated the difficulty of corralling everyone in the same direction.”

The hard market of the past few years with its opportunities for profits may have distracted some players from the challenges, Mr. Rivaldi said. “But certainly in the United Kingdom we are getting some more challenges. And that helps focus people's minds.”

Mr. Rivaldi sees significant progress in the claims arena. “Accounting and settlement has been somewhat more stalled,” he noted.

For S&P, the entire project comes down to making the London market appear to be a more attractive and efficient place to do business, not saddled with antiquated practices of the past.

“Then the capital flows with it because they will want to be there to get access to that business. And the whole thing becomes a self-fulfilling prophecy in a positive way,” he said.

Art caption:

When the more technical projects of London Market Principles reforms are complete, the sight of thousands of people walking around with bundles of paper under their arms will be replaced by underwriters, brokers and adjusters plugging in to work and communicate electronically.

Flag: Reform

The delivery of LMP reforms is managed in a series of projects:

o LMP slip reforms

o Accounting & settlement reforms

o Contract certainty and insurance documentation

o Electronic claims files and repositories

Special Reports /

Out With The Old, In With The New

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