Simon Sperryn reviews the achievements of the London Market Principles programme in 2003.
Achieving effective and successful reform in the London market was never going to be easy. A glib phrase, it may seem, and one used to preface any programme of change, but it is the truth. Even as little as twelve months ago there was a lot of scepticism about the likely success and impact of the London Market Principles (LMP). But today, after what has been a year of significant progress in a number of areas, no one in London now disputes the need for reform or the benefits it can bring. The market now faces the biggest challenge of all - implementing change across a market of several hundred individual businesses.The year 2003 has, in fact, proved to be a major milestone in the evolution of the LMP programme. There has been progress in the development of the LMP slip, resulting in the move towards mandating at Lloyd's, and the establishment of agreed standards of content and measures of quality. In other areas, market consultation on proposals to reform London's accounting and settlement processes have been welcomed, and progress towards the use of recognised international accounting messages is gathering pace. The thorny subject of insurance documentation has been tackled head-on by a cross-market group of practitioners whose proposals were released to the market towards the end of the year. Finally, a major step forward in the development of a market-wide claims repository was achieved. While it may seem that LMP has been around for a long time, it is easy to forget that the reform projects themselves have only existed since 2001. This makes the progress in 2003 all the more significant. Such a fruitful year now lays the foundations for further significant progress in 2004.
Standing up to be countedCompetition for global risk business has been hotting up for a number of years. A number of pretenders to London's throne as the pre-eminent marketplace are emerging which claim to offer competitive rates, greater flexibility and a more responsive service to the client. There should be no doubt that London cannot be complacent - tradition and a long history cannot protect us in the future. London's 'antiquated' systems and 'outdated' processes are regularly called in to question. This is understandable against a backdrop of false starts and worthwhile projects that never seemed to get off the ground in the past. So what is different about LMP? Will these reforms be any more successful - or unsuccessful - than previous projects?The evolution of the LMP reforms is London's response to the current and future threats to its business and market position. Despite what the critics say, the progress of reform has been strong and focused on delivering practical benefits, creating an environment where more efficient and streamlined processes deliver value to the businesses in London and their customers. London is really tackling the engrained working practices, in terms of efficiency and less than acceptable levels of customer service.
Perception v realityThe perception of LMP is very much one of image versus reality. By far the most recognisable element of the programme has been the LMP slip. In a recent survey conducted by the three London market trade associations sponsoring LMP, just over 83% of respondents said they were familiar or very familiar with the LMP slips. However, it is important to recognise that it is certainly a lot more than a 'one horse race'. The specific projects under the LMP banner are focusing on achieving improved service standards in the placing of business, the production and provision of insurance documentation, and the faster settlement of claims. Alongside the LMP slip is the use of general underwriter agreements (GUA), replacing leading underwriter agreements. The other projects are: delinking; accounting and settlement; insurance documentation; and claims. Since the framework for the reforms was first laid out in 1999 in what became known as the 'Green Book', the principles driving these projects have been clarity and certainty of contract terms, faster premium payments, earlier policy production, and improved claims processing with faster settlement of claims. The focus on improving and streamlining London's processing to remove difference and align the market with international practices also played its part.
Slipping forwardThe past year has been pivotal for the progress of LMP, with a number of these key projects coming to fruition or achieving significant milestones. The evolution of the LMP slips has been at the heart of the reforms, though it has also been the subject of lengthy and valuable debate amongst practitioners. The course of 2003 saw the development of much clearer definitions of what constitutes an LMP slip, in terms of content and quality. Regular quality checks provided evidence for the increased use of LMP slips and highlighted areas where a greater emphasis on improving content was needed. That said, the reductions in broker small print and points to be advised meant that general LMP slip quality improved over the period.The wider issue of maintaining the quality of LMP slips has also been the focus of attention for a number of practitioners. Debate has centred on important questions such as standard content and how levels of quality can be maintained. Discussions around establishing a mechanism to enforce the use of LMP slips imposing penalties for non-compliance were raised. A significant step forward in the area of placing reform came in the shape of a mandate from the Lloyd's Franchise Board. The mandating of the LMP slip paves the way for a global standard for the placement of all risks, substantially improving the market's ability to process risks electronically. The Lloyd's Market Association (LMA) is setting its sights on an ACORD-approved LMP slip in 2004.
Moving the money fasterThe Accounting and Settlement Steering Group published its third report in 2003, presenting the results of a cost/benefit analysis based on a proposal for the market-wide adoption of internationally recognised electronic accounting messages. This work showed that this approach could generate transactional costs savings in the region of £50m for underwriters and brokers. The group also identified a number of other valuable benefits that could be achieved if a critical mass of market practitioners adopted the proposals. Market consultation over the summer has indicated extensive support and a clear indication of the benefits available to market practitioners by speeding up the flow of money, both in terms of premiums and claims. Streamlining and standardisation are watchwords for reform. The adoption of international standard ACORD messages in place of the existing paper and bespoke electronic messages currently used in London is crucial. The benefits available include faster processing of premiums and claims, greater flexibility in transaction processing, improved customer service, and the removal of existing barriers that currently prevent the flow of international business coming to London.Success, of course, comes at a price. For the benefits to be available to the market as a whole, individual businesses must invest in both their own systems and the infrastructure that will enable the benefits to be shared. The Accounting and Settlement report concluded that widespread adoption of the proposed solution would mean that the one-off investment needed to implement it could be recouped within two years. Achieving this critical mass will be important and is possible. Now, more than ever, the market needs to prove itself and put its money where its mouth is.
Getting the paperwork right To an outsider, who may well be a client or customer of the London market, the processes involved in transacting business can be a mystery. One particular area that draws a significant amount of attention is the insurance documentation process. These clients are perhaps less concerned about the internal processes; their measure is based on the tangible elements - the speed with which documentation is issued and claims settled. While comparisons may seem inappropriate, clients will compare the service they receive from their broker and insurer with any other service provider. The ability of the market to produce documents, in a timely fashion, that tell the client exactly what is covered, for how much and how long is therefore significant.The nature of the risk business has to be about providing certainty. That said, there is a need to ensure client expectations are met. No one in the market could deny that many of the documentation processes are unacceptable. Recent measurement of the average time taken to issue a policy at Lloyd's far exceeded proposed standards, though there are valid reasons - reducing numbers of wording technicians, legacy issues and bespoke processes. In the second quarter of 2003, the Insurance Documentation Group was formed with a brief to provide recommendations on how the market could meet future client expectations by providing better quality insurance documentation, more quickly, and on a more cost-effective basis. The group's report and recommendations, published towards the end of the year, provide a clear action plan for addressing the problem, and in particular, identifying client requirements and the greater use of standard wordings as important.Perhaps the most significant recommendation is the introduction of a service standard that will measure documentation production and contract certainty at the inception of the insurance contract. Under this recommendation, the client's requirements are ascertained from the outset and the market's performance is measured against them. It is time for the market to stop measuring its failure and aim at nothing short of contract certainty at the point of inception.
Radical reform?The most radical development of the year has come in the claims area and is poised to transform London's claims handling ability. The market is in no doubt that client service and back office efficiency would be transformed by use of an electronic claims file. However, progress on delivering it has been held up by the lack of a single market repository providing all practitioners with access to claims files.During 2003, the LMA secured the backing of over 90% of the Lloyd's market to negotiate with Xchanging In-sure Services on the development of a single underwriter-controlled repository. At the time of writing, these negotiations were nearing completion and will lead the way to giving London a major competitive advantage. As well as offering faster claims settlement, it also opens the way to London's move from a paper to electronic base - the transformation we have been aiming for is long overdue.
Time for actionAs a result of the developments that took place during 2003, there is no doubt that change will happen in London in the coming year, something all forward-looking practitioners will welcome. The challenge London now faces is to maintain the pace of progress and to implement, both at individual business level and in the underwriter and broker sectors, the changes that will deliver the benefits the reform is designed to bring. Over the last five years the market has worked hard to draw up the blueprint for reform. Now is the time for action.By Simon SperrynSimon Sperryn is Chief Executive of the Lloyd's Market Association and a member of the Market Reform Group Executive.