Claims has long been regarded as a poor relation at Lloyd’s, forgotten by the boardroom and unrecognised by the investor. Emma Jones investigates whether this is still true.

Until heavy losses castigated the market in the 1990s, Names treated Lloyd’s more like a “glorified building society, with a guaranteed return”, than the liability-prone insurance market that it is, as one claims expert puts it. Punishing asbestos claims and side-crunching catastrophe losses, such as Hurricane Andrew, sparked a sudden realisation that claims form an integral part of insurance.

Today, claims is firmly back on the boardroom table and since late 2003 Lloyd’s has been developing its first claims strategy – hard to believe considering the insurance market made its name on Cuthbert Heath’s famous words, “pay all claims”.

The increased frequency and ferocity of natural catastrophes and the rise in competition have only helped to crystallise the importance of handling claims both quickly and efficiently. “The difference between success and failure can be the effectiveness with which those claims are managed – from a profitability point of view, a cash flow perspective and from the reputation perspective,” says Kent Chaplin, head of claims at Lloyd’s.

It is little wonder claims now forms the central pillar in Lloyd’s three-part strategy for achieving a modern and efficient marketplace. They do, after all, account for 80% of Lloyd’s expenses.

Progress so far

In the last 12 months the process of dealing with claims has been given a modern touch and the way claims’ performance is monitored has been further refined. In short, claims is no longer the poor relation. “There has been a huge step forward in the way in which Lloyd’s views claims and handles claims,” says Angus Tucker, director of insurance claims services at Grant Thornton. “Fifteen years ago is was not quite quill, pen and ledger, but not far off. In the last five or six years it has made a huge move forward, something that the market wanted and is now beginning to support.”

Given that claims is the reason why people buy insurance, it is no coincidence that it is the first business process to be developed into an electronic practice. The Electronic Claims File (ECF), a document repository that enables claims and premiums to be handled quickly and efficiently without the need for paper files, was introduced by Lloyd’s and its partners last year. Richard Ward, chief executive at Lloyd’s, says some users of ECF are already reporting a 40% reduction in the time it takes to process a claim. Insurance heavyweights including 31 managing agents and 19 brokers, such as Aon and Marsh, have already begun using the system.

“It is little wonder claims now forms the central pillar in Lloyd’s three-part strategy for achieving a modern and efficient marketplace. They do, after all, account for 80% of Lloyd’s expenses

Trevor Maddison, senior vice-president for claims and market services at Marsh, insists the company will submit all new claims electronically by the fourth quarter of 2007 and by 1 January 2010 he expects the market to be entirely electronic. Maddison, who also chairs the London Market Brokers’ Committee’s broker electronic file implementation team, says: “By the end of this year those broking houses signed up will be processing all new claims electronically. But this is a huge culture change, potentially taking out the broker and removing paper.”

The technique of ECF clearly has its merits, although development is still ongoing by a designated working group at Lloyd’s to address the issue of legacy claims. The immediate challenge for Lloyd’s is to embed the process into the entire market. Some argue there is a need for a “robust two track reform agenda”, allowing the fastest to move at their chosen pace, while providing a slower channel for others to join when they are ready. But Chaplin insists: “Once the benefits of a modernised function have been recognised it is much easier to gain the necessary commitment. The advantage of the Lloyd’s claims strategy, for developing effective claims management, is that most of the benefits are self-evident and make commonsense.”

In May, a fifth of all new or “in scope” claims were being processed using ECF – an increase on the 5% being recorded at the beginning of the year. Progress is being made, but for Ward it isn’t fast enough. “There are no more excuses,” he says. “The system works and is available to everyone.”

For the first time, the chief executive has laid down a series of measures aimed at meeting his target of transacting all new claims electronically by the end of the year. These include publishing league tables – showing relative performance; mandating the use of ECF; loading syndicates’ capital; lowering transactional costs for electronic transactions; and making ECF compulsory for newly-registered UK brokers.

“Richard Ward and the Market Reform Group’s targets are welcome, but the real driver will be the delivery of a world class claims service,” explains Ian Summers, director of change strategy at Aon. “Monitoring a small subset of its accounts, Aon has seen a 40% uplift in claims performance. If this impressive result can be reflected across the entire portfolio, clients will demand that brokers and markets adopt ECF. I believe the transparency and efficiency of electronic claims will form the basis of the minimum service our clients will insist upon,” he adds.

Aon is leading the way in claims management following its landmark decision to outsource its entire back-office client operations division to Xchanging. Broker outsourcing such as Aon’s is expected to bleed into the rest of the market as London bids to reduce the cost of doing business. Currently it is up to 30% more expensive for brokers to do business in London than in other centres around the world. Lynton Hussey, reinsurance claims managing director at Aon, insists: “London needs to complete its reform agenda, unlock the value and get back to doing what it’s best at – delivering world class customer solutions and service from the most efficient global platform.”

The complete picture

“Given that claims is the reason why people buy insurance, it is no coincidence that it is the first business process to be developed into an electronic practice

Richard Ward is regarded as the man who transformed the International Petroleum Exchange from a traditional open outcry market into an electronic trading platform. His task at Lloyd’s is clear: do the same for the world’s oldest insurance market. With an estimated four tonnes of paper circulating around the market each day, Ward must transform the entire insurance process from the back end to the front, eradicating paper and unnecessary practices and introducing technology where appropriate.

That also means speeding up the flow of cash through the use of the accounting & settlement repository; placing business electronically; and ultimately removing paper from the process so there is no longer the necessity for a fixed location. So far, more than 80,000 premium-related transactions have been processed electronically. Lloyd’s wants all premium-related documentation processed electronically by the end of March 2008. The next and perhaps most difficult step will be automating the process of placing risks. David Gittings, chief executive of the Lloyd’s Market Association sees that as the “next major building block” in the market’s drive towards business process reform.

Maintaining Lloyd’s long-standing reputation of paying all valid claims, however, is not just about creating a paperless market. “Trading claims is more than establishing a system by which to trade, the whole culture of claims handling needs reviewing, building trust and transparency between re/insurers and clients, agreeing claims charters and protocols at the inception of the contract are equally important if we are to collectively sell the benefits of the London market,” says Hussey.

The corporation has worked hard to refine the entire claims process, introducing a series of eight claims management principles and supporting minimum standards. It has revised how it monitors the performance of managing agents in dealing with claims, re-looked at the agreement between underwriters and the claims processor, Xchanging Claims Services, and refined the rules for dealing with claims.

So with those achieved, what is next in the drive towards claims efficiency? “The next steps for business process reform include a number of initiatives: continued development of the Lloyd’s Target Operating Model, which includes streamlining processes to enable greater use of the right resources; segmentation of claims to focus on the management of risk and value; further development of ECF and repository usage; and review the current IT infrastructure and contractual framework,” explains Chaplin.


Change is never easy to achieve, especially in a complex market that looks after the interest of countless parties. The biggest problem remains nostalgia and a cultural resistance to change, according to Sue Langley, chief operating officer at Hiscox and chairman of peer-to-peer drivers, G6. Langley joins Lloyd’s this summer as director of market operations and North America. Her role will focus on ensuring the market is a streamlined and easy place to do business. She is optimistic that Lloyd’s and its practitioners will achieve business process reform, make the market like any other in terms of processing, service and costs, but keep the unique strengths it has in underwriting and capital costs. “Globally there is a lot of confidence back in the market and people are investing money again because they can see it is a properly managed organisation,” says Tucker. “The difference is that there is a real willingness and commitment at Lloyd’s to [achieve reform].”

Emma Jones is a freelance journalist.

Claims - Next steps in business process reform

• Continued development of the Lloyd’s Target Operating Model, which includes streamlining processes to enable greater use of the right resources
• Segmentation of claims to focus on the management of risk and value
• Further development of Electronic Claims File and repository usage
• Review the current IT infrastructure and contractual framework
• Implementation of new slip checking technology