Getting the best use out of technology has at times felt like an enigma at Lloyd's But with managing agents group, the G6, taking a new approach, could real change be on the horizon? asks Helen Yates.
Nostalgia is arguably one of the favourite pastimes of the Lloyd's market. And with good reason. Its 318-year history established many of the business practices and traditions that make those who work within its walls feel proud. But while there is no getting around the fact that the insurance and reinsurance industry in London is steeped in history, it would equally be a mistake to say it is stuck in its ways.
Visit Lloyd's today, housed in one of the most innovatively designed buildings in the City, and it quickly becomes apparent that this is a modern market. There are flat screens, BlackBerrys and other must-have gadgets aplenty, and not a monocle or bowler hat in sight. It might still be a relationship business, but Lloyd's is not an antiquated market in that sense. However, there is a constant urge to innovate, to become more technology-focused and gain more efficient business processes as a result. There is also a genuine fear that if it does not, it may lose its competitive edge to younger markets. "Once upon a time the technology was paper and pen, and now the technology that's appropriate for this task is web-enabled workflow applications, databases and data communication networks," explains Igor Best-Devereux, chairman and CEO of eReinsure.
The Kinnect mourning period
With the demise of Kinnect, frustrations peaked once again that Lloyd's was just not getting it right. "Generally speaking, with most of the efforts that have taken place in the London market during the last 20 years there has been some dynamic at play that's prevented them from being successful," says Rupert Swallow, head of global operations at Benfield. Recent regulatory scrutiny - demands for contract certainty and the Spitzer investigations - have added more pressure to update tired old systems and find better ways of communicating and disclosing information. More recently, Hurricane Katrina put cost inefficiencies under the microscope and London watched as the bulk of new capital flooded into the Bermuda market. For many, change does not seem to be happening fast enough. "The real frustration from a technology point of view is we have the technology available to us today," says Bart Patrick, global reinsurance product manager at SunGard.
Kinnect was an initiative "given oxygen" by the FSA's contract certainty requirements, according to technology consultant Roger Foord. When Lloyd's bid to develop an electronic trading platform failed after six years and in excess of £70m the criticism flowed quickly. "It gives technology a bad name," says Foord, pointing out that G6's peer-to-peer solution can be up and running in four months and with minimal cost (the G6 comprises six Lloyd's syndicates - Kiln, Beazley, Catlin, Hiscox, Wellington and Amlin - and was set up to push process reform in the Lloyd's market). "Kinnect was broadly supported in the market so perhaps there is still some disappointment about the whole thing," surmises Best-Devereux. He adds that despite failing, the sheer scale of the project indicated a realisation at Lloyd's "that technology was going to be very important".
"The impetus behind Kinnect was when everyone recognised that it was such an old-fashioned market - the cost base was so high but the service levels were so poor" explains Sue Langley, COO of Hiscox and chair of the G6. "The only way to improve service is to take the manual part out of it." While Kinnect had buy-in from the market, it fell down in trying to cater to so many different needs. "While Lloyd's is fantastic at innovation, it's constrained by the fact that it has to take into account the views of all their members," explains Langley. Once these issues became apparent, Hiscox and the other syndicates in the G6 were quick to vocalise their concerns. "We did not think Kinnect was going to deliver in its current form," Langley admits. "Lloyd's as an organisation is not set up to run large technology projects - it's not their skill set."
Since 2001, processing and settlement at Lloyd's has been the domain of Xchanging Ins-sure Services, which provides services formerly offered by Lloyd's Policy Signing Office; and Xchanging Claims Services (providing services formerly offered by Lloyd's Claims Office). While this has helped improve efficiencies in the back office, the same cannot be said of basic workflow functions. G6's peer-to-peer solution is one step towards rectifying that problem. Set up in January 2005, the G6 has only become a real driving force since the demise of Kinnect. While it has been accused in the press of being anti-Kinnect, Langley insists the project had complete support from the six syndicates and was never designed to go head-to-head with it. "The six of us, which make up 33% of the market, decided we could make a difference," explains Langley. "We wanted to start with something really small, to take some baby steps, see what we could do and and build on that."
The idea behind the G6 initiative is that while underwriters and brokers will continue to use their existing internal systems, they will be able to communicate electronically on a one-to-one basis using the same language in the form of ACORD's XML data messaging standards. "The most exciting thing for the underwriting fraternity is the work we're doing with the G6 in the live environment, which is actually loading information directly into their underwriting systems," explains Swallow.
The peer-to-peer approach is a simpler solution than other options currently available and does not involve imposing technology on the market. "All that has been defined is a common set of information in the middle," says Langley. With Benfield already live, Aon aiming to be live between now and June, and brokers Willis, Marsh and most recently JLT on board, the G6 initiative is so far looking promising as a quick and easy solution to the technology equation. "Although we're six individual companies, we're united by a desire to make change happen and protect business into the London market," says Langley. "We're not anti-competitive because it's in our interests for the whole market to move forward."
Of course peer-to-peer is not the only solution available to the market. "Really this is just a solution for shifting data and basic documents between them and it should work to a greater or a lesser degree," says SunGard's Patrick. "The actual technology that they use to do this is another matter entirely." Along with hub or platform systems such as RI3K and eReinsure, there are also solutions for updating old legacy systems. Clearly, some options have superior functionality and longevity compared to others. But if opting for the best technology available were the only issue to contend with, Lloyd's would not be a silo technology market.
Changing a culture
Much has been made of Lloyd's resistance to change but the reality is, according to Alex Letts, CEO of RI3K, that completely replacing old technology is a massive job. "The same people who are supposed to have cultural resistance to electronic trading go home at night and shop on eBay," says Letts. "I don't think it is so much down to individuals' resistance - it is just that it's a big job and it is complex to piece everything that exists into the right jigsaw." Nevertheless, he is of the view that at some point the old legacy systems must be replaced. "When you keep rebuilding a house on the same foundations, eventually the foundations need replacing," he explains. "You can't put a Gherkin on the foundations for a Victorian terraced house. The London market's foundations were built on paper processing and you have to get that out. That's happening right now." But Patrick believes an interim step will be embraced first. "The trend at the moment is that people are still using their old administration systems," he explains. "There are a lot of green screens still out there - but this has been quite successfully augmented with things like workflow and integration of these particular systems."
"There is a lot of politics in the market - it's very difficult for the market to agree on anything," says Patrick. "If somebody goes out and does something within the market, they will say 'this is the only way of doing things' and that quite clearly grates with everybody." Langley also thinks technology projects have failed in the past at Lloyd's because they have been imposed on the market. "Unless you make it easy for culture change to happen, I think it's always going to be an uphill struggle," says Langley. By providing an alternative to physically ripping out dated systems she believes the market will be more receptive to the peer-to-peer approach. Benfield's Swallow agrees that "it is a more softly softly approach. One that is more achievable than trying to create a platform that delivers all of the requirements for all the different entities that were driving the Kinnect initiative."
In March, Robert Hiscox, chairman of Hiscox, hit out at the London market, saying that if Lloyd's did not drag itself into the 21st century it would lose business to Bermuda. Since then, there have been some encouraging signs that the market is making headway. Figures released earlier this year by the Market Reform Group - the organisation responsible for process reform and modernisation in the London insurance market - showed that 65% of all contracts agreed in December were certain, far exceeding its target of 30%. The Financial Services Authority (FSA) subsequently decided to take a big step back by declaring it had stopped developing its contingency plan of regulatory intervention. "I think the shake up has happened," says Alex Letts. "I think contract certainty funnily enough had a big role in that. People should tip their hats to the FSA and say, well, it may be incredibly painful but it made us all reassess our way of doing business." The announcement that Dr Richard Ward, a known innovator, will be Lloyd's new CEO also bodes well for a new era in technology and has been welcomed by the market.
The long road ahead
It is never a good idea to try and predict how things will evolve when it comes to technology and the Lloyd's market. RI3K's Letts believes collaboration between providers is the likely way forward. "Post Kinnect, whose closure was another wake-up call to the market, the big theme for 2006 is going to be an acceptance now that the pieces are all available. The task for 2006 is to ensure that the pieces are fitted together in a way that helps the market," says Letts. SunGard's Patrick is in favour of a hybrid system. "I really don't believe there's a system out there at the moment that covers all angles," he says. "Put together online collaboration such as our iWORKS network, the RI3K trading platform and capabilities that Xchanging bring to the party and you've got a really strong solution."
Whatever the ideal solution, Lloyd's has demonstrated plenty of times in the past that it is not always the best solution that gets the market's immediate approval. A long-term solution must also be compatible with the way the market works. "Our business is a people business, driven by personal relationships, enabled by technological expertise," says Swallow. But technology is the only way forward if the aim is to gain cost savings while dealing with greater regulatory scrutiny and the need to improve business processes, insists eReinsure's Best-Devereux. "You can't juggle all of those things at one time and reconcile them unless you use the available technology. That's the message that the market practitioners who are going to be the decision-makers have to hear and have to understand."
- Helen Yates is deputy editor of Global Reinsurance.
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