New slip-checking technology at Lloyd's has signalled a fresh approach to technological change. But is it enough to stop CEO Richard Ward enforcing solutions? Nick Thorpe finds out.
The well-documented trickle of technology into the London market has received as much press for its time-saving benefits as it has for its stuttering entry into a suspicious marketplace. After the costly failures of all-in-one solutions in the past, such as Kinnect, London desperately needed a change in its approach to the integration of technology into this complex market. And it appears that change is happening.
Recent announcements about the adoption of slip-checking technology by Lloyd's seems to signal a change in mentality from the all-singing, all-dancing solution to the silo or "baby-steps" approach as Kate Roy, managing director of Capita London Markets describes it. But with Lloyd's CEO Richard Ward threatening to mandate change if take-up targets are not met, is it too little too late?
The Ward years
Lloyd's took the helm of the unwieldy ocean liner of technological change with the appointment of CEO Richard Ward just over a year ago. The market was sending out a clear message that it wished to replicate the success Ward had had in introducing technology to the International Petroleum Exchange (IPE).
"I think what I did with the IPE was to understand what the market issues were that they needed to address, understand where business was going, how to respond to competition and then implement business solutions accordingly," said Ward in an interview with Global Reinsurance in May. In his first 12 months at Lloyd's, the market has seen profits of £3.7bn and its lowest-ever combined ratio of 83.1%. But the pressure has still been building for him to replicate the technological transformations that won him the role in the first place.
The basis for much of the change occurring is the contract certainty initiative laid down by the UK Financial Services Authority (FSA) in 2004 which challenged the insurance industry to end the "deal now, detail later" practices throughout the industry. In January, the FSA announced that the insurance industry had met the challenge, with 90% of contracts in the subscription market and 88% in the non-subscription market now achieving contract certainty.
John Tiner, then chief executive of the FSA, was under no illusion as to the importance of the initiative. "This is a major achievement by the UK insurance industry. It will serve as a catalyst for the ongoing wider reform of the industry and will further raise the competitiveness of the UK industry," he said at the time.
However in July this year, Dane Douetil, CEO of Brit and chair of the Market Reform Group (MRG), sent an open letter to the market expressing concern at the current level of take-up of some of the MRG's core initiatives, all of which involved streamlining and increasing the efficiency of the market.
While Douetil could not deny that contract certainty had been a success, he said the market-wide adoption of electronic claims processing and processing for accounting and settlement (A&S) had not reached the MRG's targets. He singled out the broking community for particular criticism: "The new A&S process has been live for some months. It has been demonstrated to work for a high proportion of business by a number of leading brokers, who are already achieving take-up rates in the region of 50%. In this context, it is difficult to understand the slow footedness of other firms in the broking community to follow their lead."
“In July this year, Dane Douetil sent an open letter to the market expressing concern at the current level of take-up of some of the MRG's core initiatives
Ward's response to the letter was swift. "I have no doubt that there is a shared will in the market to improve our processes and much progress has been made," he says in a reply to Douetil's letter. "The pace of change, however, is still too slow." The MRG aimed for an A&S take-up of 40% by the end of the second quarter. Current figures show this is lagging far behind at a "disappointing" 17%, according to Ward. The electronic claims filing figures were slightly better, showing usage of around 28% in recent weeks, but still missed the MRG targets.
"Failure to improve our processes represents a significant risk to the market's efficiency, ratings and reputation and we cannot miss this opportunity to modernise," warns Ward. "While progress has been made, the Franchise Board is committed to taking firm action where necessary to accelerate change, but recognises that it is important to signal its intentions at an early stage so that the market can properly plan for the future." The thinly-veiled threat to mandate aspects of technological change has surprised some market participants, who think it is unnecessary.
Richard Dyke, broking support team leader at Benfield, thinks there will be little need to enforce change. "I think things are beginning to gather momentum. There is a lot of work going on in electronic claims filing and A&S and in my opinion technology is here to stay in the market."
Kieran Flynn, head of underwriting standards at Lloyd's, adds: "I think Richard has demonstrated that where there are areas of fundamental importance he is prepared to mandate with the Franchise Board's support. However there are also a whole series of other areas where he won't be looking to mandate, such as electronic slip-checking, and the technology will remain a matter of choice to participants."
Flynn was referring to the announcement in July from Lloyd's that it had adopted new slip-checking technology from Adsensa. The "Wordsensa QA" technology, which has been bought by Lloyd's and licensed out to all managing agents, automates slip-checking and removes the line-by-line checking process. According to Kate Roy, the efficiencies have been already been apparent, confirming Capita has observed savings of between 30%-50% in pure processing time.
The software is built around the Lloyd's quality assurance (QA) tool. Adsensa developed the 32 contract certainty checks into rules that the programme could apply and Wordsensa QA then sits alongside existing broker and managing agent systems. For brokers, the tool "facilitates checking conformance across the market and speeds the placement process by reducing the number of checking cycles," according to Adsensa.
Certainly from an underwriting perspective as well, it limits the potential for numerous checks and rechecks as the slips shuttle between the brokers and underwriters until each is happy. However as Roy points out, Wordsensa QA is just a tool and is not intended to usurp any of the human elements in the process. "We see the technology as an enabler," she says. "It's very much something that helps and enables the process. It's not a universal panacea; it doesn't solve the wider problems."
“Failure to improve our proceses represents a significant risk to the market's efficiency, ratings and reputation and we cannot miss this opportunity to modernise
From a broker perspective, it has been traditionally considered to be the underwriter's responsibility to check the slips. However, as Benfield's Rick Dyke explains, some brokers are now seeing the strategic benefits of presenting a pre-checked slip to underwriters. "We want to carry out these QA checks on our slips ourselves before we take them into the market," he says. "Ultimately it is the underwriter's responsibility - for them to be absolutely sure that the slip meets their standards - but we want to help them to achieve those standards because it's going to ease the process and increase our chances of achieving contract certainty."
The slip checking technology represents a shining example of "New Lloyd's" in terms of its approach to technology and business process reform. Whereas the past is littered with the expensive hulls of failed all-in-one solutions, the new approach seems to be centred on breaking the processes down into their individual components and addressing each issue separately.
"I think we are looking at a number of 'point' solutions where we can say it gives us real value and real results in a timeframe where we can keep people's attention and commitment," confirms Flynn. "We are starting to deal with elements of the process, rather than an all-singing, all-dancing solution where everyone would have to work in the same way."
The "all-singing, all-dancing" solution in this case is the infamous Kinnect project. Finally laid to rest in January 2006, Kinnect was Lloyd's attempt to update the market with an electronic trading platform that covered every aspect of the broking and underwriting lifecycle. It is now commonly agreed that the solution attempted to do too much and this, coupled with lack of significant buy-in and a market-wide resistance to change, led to the early demise of the project that cost £70m over five years.
"I'm not sure big-bang solutions work any more," adds Kate Roy. "Reform is moving at a different pace now and if we tried to find an all-in-one solution to every stage of the problem now we'd probably be still here now in four or five years. The market needs to break the processes down into bitesize chunks and the key to that is to be able to demonstrate the value. If you can get it right at the front end, it should slide through the whole process chain."
With G6 chair Sue Langley joining Lloyd's this summer from Hiscox, the market should receive some valuable impetus to help it build on the "silo" successes and leave the all-in-one mistakes firmly in the past.
Nick Thorpe is associate editor of Global Reinsurance.