International insurance and reinsurance is finally embracing electronic placement. David Banks finds out how much it will change the life of a broker.
“The London market will see more changes in the next three years than the previous 300.” How’s that for a bold statement? Here’s another one: “The demarcation between broker, underwriter and client is merging and we are moving towards a system that captures the risk at source, which creates a system without the need for a broker.”
Both statements come from an insurance IT specialist to emphasise how market reform and new electronic placement systems such as the Lloyd’s Exchange being trialled this year will alter the landscape.
They are explosive views and he prefers to remain anonymous for fear of losing face (and business) among his broker clients. Indeed, it is the fear of upsetting brokers that he believes has prevented others from going public about electronic placement reducing the role of intermediaries – or at least completely altering it.
To understand exactly how much brokers’ lives might change, look at the precedents. Big Bang in the London Stock Exchange more than 20 years ago made the role of some intermediaries obsolete. In retail, the rise of cheap clothes and sportswear imports in the 1990s, and online ordering, reduced the intermediary role fulfilled by distributors.
However, Michael Graham, director of insurance software specialists Sequel, argues that there will always be a place for brokers. “In Lloyd’s and the London insurance market, the type of risks we see are complicated and are not personal lines where you can hit a button and get a quote.”
Graham, who counts Willis among his clients, says:
“If you are trying to place a super-tanker or doing the contingency for the World Cup you can’t just enter 15 fields on a screen; it requires people with specific expertise.”
And Jeff Ward of TriSystems, says: “Disintermediation is a wonderful, evocative, damning word, designed to stir up the fears and insecurities lurking in the hearts of every broker. It is utterly wrong and it has no place in the ePlacing debate.”
Seven intermediary companies are involved in the first pilot of the Lloyd’s Exchange. Tysers is one of them. Jonathan Macey, managing director of the company’s’ marine division, says there is opportunity for the early adopters and that brokers will maintain a central position in the network. “We are part of this because you have to have a very strong claims service and a synergy when it comes to placement, but clients will always need people who know their business,” he says.
The Lloyd’s Exchange is similar to the tried-and-tested technology used by the Polaris initiative, launched in 1993 by seven leading personal lines insurers. Far from replacing brokers, Polaris enhanced productivity and profitability.
Many brokers have sought to be seen more as “risk advisers”, providing data and modelling services to their clients. However, electronic trading gives market participants greater access to information and analytics, making the boundaries of this new role less distinct once again.
Martin Eves, director at Total Objects, says mid-sized and smaller brokers are not yet fully engaged with many of the reform committees. “If this continues we’re in danger of ending up with a programme which may not reflect or satisfy the needs of the smaller players,” he says.
David Banks is Deputy editor of Global Reinsurance