Michael Taylor explains from the inside how Xchanging is transforming the back office processes of the London market and contributing to its programme of reform.
The London market is renowned for its innovative approach to providing risk solutions. But the entrepreneurial spirit and forward thinking that characterise the underwriting of complex risks are less evident in the administration systems that underpin the processing of business transactions. The initiative taken in May 2001 by the International Underwriting Association (IUA) and Lloyd's to partner with Xchanging was a step forward in a programme of radical change designed to deliver improved efficiency and superior standards of service.
The creation of Xchanging Ins-sure Services has provided the platform for the merger of the London Processing Centre (LPC) and the Lloyd's Policy Signing Office (LPSO) to create a single back office that will produce a more efficient, more cost-effective market for syndicates, insurance companies and brokers. Almost one year on - and with the task of integrating the LPC and LPSO operations well advanced - it is an appropriate time to review progress and look forward to future developments.
Although the introduction of an integrated processing service was a key objective for the IUA and Lloyd's, it was only one component of an ambitious plan to transform the mutually owned and managed London bureaux into a stand-alone business that could provide changes in processes and technology needed to contribute to long-term competitiveness.
The relationship between the IUA, Lloyd's and Xchanging is enshrined in a unique `enterprise partnership' concept, based on a co-ownership model that balances risk and reward. A five-year business plan underpins the transition to a commercial operation that will generate profits for its shareholders through additional revenue from new services and customers. Existing customers also gain benefit from Xchanging's investment in improving current processes and building new services to support the adoption of e-business.
The early results of this alliance show that Xchanging Ins-sure Services is on track to fulfil the ambitions of its creators. With a new management team in place, significant progress has been made in streamlining operations, improving efficiency and creating a new IT infrastructure. One of the first priorities has been to integrate the LPC and LPSO operations as the first step towards the goal of achieving world-class standards of quality and service performance. This three-year programme is based on the application of the proven Six Sigma methodology; a rigorous, data-driven system that constantly compares the output of a process to customer requirements. The results are used to simplify, consolidate, standardise and then automate processes. This has been used extensively by the manufacturing industry to drive down costs, improve product quality and increase efficiency in process and inventory management. More recently, it has been used effectively by companies in the financial and service sectors.
Peter George was brought in from the manufacturing sector as operations director of Xchanging. "Six Sigma allows us to utilise proven manufacturing methodology to give predictability and repeatability in a services business," he said. One of the most impressive results from the initial Six Sigma process review and redesign work was the simplification of some of the complex Lloyd's operations, reducing the number of processes from 18 to just three. Peter George can see the benefits: "The combination of process improvement, performance management and new measurement methods has resulted in a 25% overall productivity improvement."
Although this drive for internal efficiency will assist in containing costs and contribute to improving transaction cycle times, it is the creation of a single system for the London market that will bring clear benefits to carriers and brokers. David White, IT director, is spearheading the complex process of integrating the Lloyd's and London company market systems over the next 18 months. As he points out, "We need a common platform to handle our current business more efficiently and to provide the basis for both the market's reform programme (LMP) technology initiatives and new services. For brokers, this will provide the advantage of a single interface to our systems. Insurers are increasingly operating in both the Lloyd's and company markets, and this will be a step that will assist them in creating a common processing infrastructure."
Since joining Xchanging, a great deal of David White's time has been devoted to working with the LMP Steering Group and its programme management group to develop and deliver new facilities that will underpin the market's reform of business practices. His team has developed a new Contract Management Register (CMR) that will, for the first time, provide a single system to record details of all London participants on co-subscription business. Changes are also underway to the market-wide CLASS claims recording and agreement system to handle the LMP claims protocols and to provide a common system to deal with claims handling in both the Lloyd's and company market.
But the biggest impact - in technology terms - will come from the soon-to-be launched Xchanging repository. This will initially be used as a market repository which, coupled with the CMR and CLASS systems, will hold the documents that support placing and claims activities. These fully electronic files will provide all risk participants with the supporting information needed for risk administration, and claims agreement and settlement. The market repository will not replace brokers' and carriers' own proprietary systems; rather it will contain a sub-set of the files that are used for the negotiation, pricing and placement of risks. David White emphasises the benefits: "For the first time in the London market, all subscribers to a risk will have online, instant access to a comprehensive set of risk and claim files, at any time and from any location. An added advantage is the ability to provide global access for other service providers, such as lawyers and loss adjusters, to the repository. We have selected a world-class technology product to power this crucial new facility which we believe has the capability to change radically the way that business is currently handled." In addition to the market repository, an enterprise version will also be available for firms to use in-house, either managed by them or hosted by Xchanging.
This investment in new technology is complementary to the products and services business that was purchased from WISe last year. Andy Edwards, formerly of WISe and now head of new technology for Xchanging, sees the potential for the integrated e-business services that are now available. "Brokers and carriers, both in London and internationally, can use our technology products to build e-business applications that can interface with their current systems." These include the Trusted Trading Plus services, which combine secure e-mail with directory services that provide a single point of access to multiple applications, including the Xchanging repository service.
In addition, the Business Centre has been developed to enable different broker and carrier systems to interface with each other electronically, irrespective of the message standards or transmission protocols used by each. This can also assist in the use of global industry message standards that are being developed by ACORD, as firms will be able to adopt these as required, without first having to modify their in-house systems. A further benefit of this facility is that it will allow Xchanging to receive premium closing transactions from brokers electronically, avoiding re-keying of data and improving accuracy.
However, the achievements to date are not just about IT, management tools and measurement. People are the prime asset in a service business and the key to process change is cultural change. Sir Laurie Magnus, chairman of Xchanging comments, "Xchanging has been critical in providing both management and investment to the new venture. New blood has been introduced that has worked with existing management to oversee the integration process. Most importantly, Xchanging has transformed the culture to one that has customers as its primary focus in a commercial environment."
Forward to the future
Looking forward, Xchanging is developing a portfolio of products and services that build on its traditional strengths in business processing, policy administration, accounting and settlement. As well as the IT infrastructure services and business services - such as credit control - a key element of the business plan is to provide business processing outsourcing services, both in London and internationally. Increasingly, re/insurers and brokers are recognising that outsourcing most of their back office administration enables management to focus on core business activities and to improve profitability. "It is a big leap, but Xchanging are the experts on business process outsourcing," says John Benjamin, managing director. "We can take on back offices from Lloyd's managing agents, commercial companies and brokers that duplicate much of what Xchanging Ins-sure Services already does." The final word comes from John Benjamin in setting out his radical vision for the future. "We will not be satisfied with delivering a service that is simply best-in-class within the insurance industry. We are committed to achieving nothing less than world class, a standard of performance for the back office that will rank alongside the best in any industry anywhere."