Late Policy Issuance: Norm, Not Exception

Late Policy Issuance: Norm, Not Exception

By Lisa S. Howard

Third of a Series

International Editor

London

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

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

“Have we changed post-9/11? No, not really,” said Stephen Catlin, chairman of Catlin Underwriting Agencies Ltd., which operates a Lloyds managing agency. Mr. Catlin is a member of the Council of Lloyds.

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

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

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

“I am sick and tired of people complaining about it and not being prepared to do anything about it,” said Bronek Masojada, chief executive for Hiscox plc, which owns a Lloyds managing agency and a U.K. insurance company.

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

Mr. Masojada said when he speaks with underwriters in the London market, everyone agrees that late policy issuance is a problem. “So I ask them, are they tracking late wordings and have they got people chasing the brokers to finalize the wordings,” he said.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(See NU, May 5, page 30 and May 12, page 39 for first two parts of this series, giving buyer and broker perspectives.)

Reproduced from National Underwriter Edition, June 9, 2003. Copyright 2003 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.