On the eve of the launch of the Lloyd’s Exchange, Tim Evershed reports on how a flagship technology project could be made or broken by the participation of two of the market’s largest brokers.
The phase 1 business pilot of the Lloyd’s Exchange is due to begin on 1 June, but without Marsh and Willis on board, and with question marks remaining over its potential success.
The Lloyd’s Exchange is a messaging hub which aims to “allow the electronic exchange of standardised information throughout the insurance process”. The first stage of the pilot, delivered by IBM, will involve a cross-section of market participants including managing agents, company market carriers, cross-market carriers and brokers. Brokers participating in this first stage include Aon & Aon Benfield, Miller, Tyser and Alwen Hough Johnson. But no Marsh or Willis.
Alex Letts, CEO of RI3K, the paperless trading service for the (re)insurance industry, says that brokers will certainly make or break the Exchange. “They need a trading application to carry out the transactions, because merely sending a message or receiving a confirmation adds little or no value to their business. One major broker standing alongside Aon in this respect will define its success.” He says that RI3K has a crucial role here. “There is still work to do with the brokers to persuade them that the value in moving their business to an e-trading model outweighs the disruption involved in getting up and running.”
Managing agents participating in the first stage correspond to more than half the Lloyd’s market by capacity and include Catlin, Brit, Chaucer and Liberty. Sue Langley, Lloyd’s director of market operations and North America, who is responsible for the Lloyd’s Exchange, says: “We have gone with those that were keenest, because they are the most likely to make it work, but we have tried to mix the classes of businesses and mix and match the brokers and managing agents involved.”
She says more than 63% of Lloyd’s managing agents by volume and 78% by capacity have now been signed up to take part in the next phases of the pilot. “While stages two and three are subscribed for managing agents this is not the case for brokers.”
According to sources, Willis declined to get involved after endorsements were deemed to be outside the project’s scope. “Marsh has not got any IT resource in the pot and letting Trevor Madison [former senior vice president, now at Lloyd’s] go sent a message to a lot of people that they should be concentrating on their day jobs, rather than a project that could help their competitors,” says an IT consultant. “When you consider that Marsh and Willis control almost half of Lloyd’s premiums, that is going to make things hard.”
Langley says the two major brokers are “supportive” of the Exchange. However, Letts says it’s vital that a major broker now stand beside Aon and say “we will make it happen. Three years ago when the technology was so poor, Marsh and Willis, were prepared to do this. Now the ball is in their court again.”
Neither Marsh or Willis would comment.
Small and mid-sized brokers are represented by Millers, Tyser, Windsor and Alwen Hough Jonson and London Market Insurance Brokers.
The Lloyd’s Market Association has praised the progress that the Alphabet Group has made in bringing Tysers and Windsor to the Exchange, while other market commentators have noted that The Insurance Workplace provides an option for smaller brokers that does not exist for managing agents.
Letts says: “The pilot group is made up of companies that have some exposure already to messaging. They know the shortfalls, pitfalls and pratfalls and will be able therefore to ensure things are done properly, without shortcuts. Without this level of experience being on board there would be room for scepticism. Having the large companies involved would also deliver credibility.”
“Marsh has not got any IT resource in the pot. Letting Trevor Madison go sent a message that they should be concentrating on their day jobs, rather than a project that could help their competitors.
The big three brokers have led previous reforms in London, with the smaller brokers showing more reluctance as the required investment has often been prohibitive and the rewards unclear.
Martin Eves, director at Total Objects, says: “The mid-sized and smaller brokers are not yet fully engaged with many of the market reform committees and, as a result, the risk is that many of the key reforms are being solely driven by the biggest brokers. If this continues, we’re in danger of ending up with a reform programme that may not reflect or satisfy the needs of the smaller players.
“We’re urging our own mid-sized and smaller broker clients to get involved in shaping these crucial reforms to ensure their input is taken into consideration.”
Overall the Lloyd’s Exchange has been well received – particularly by managing agents and IT suppliers.
Jeff Ward, business development director at London Market reform technology specialists TriSystems, says that the Exchange has been well thought through and planned. “Any project of this size is going to have issues, but it is going extremely well.”
Eves adds: “Lloyd’s and IBM have made the root access to this very easy. It is like the food has been put on the table, you just have to eat it.”
If Lloyd’s has got the technology right this time, as the IT suppliers suggest, and the pilot is successful, then the debate will move on to whether or not insurers will use the system.
“The more important aspect is how much of this enthusiasm is real and how much will actually translate into real action,” says the IT consultant. “Cost savings come at the back-end of the business, but the cultural change must happen at the front-end.”
Letts agrees that cultural change is the “last hurdle”.
Market commentators say that some of the managing agents involved in the pilot already have IT systems with “straight-through processing” that only require human intervention to authorise placements.
Tim Evershed is a freelance insurance journalist.