These reforms seek to enhance the clarity of contracts and payment terms, and provide the broker with a single underwriter contact. However, vitally, individual organisations will remain in control of their own business decisaions, and safeguards have been built in to protect followers [sic],” declares Section 2.1 of the LMP2001 Green Book.

The paragraph sums up the project: the reformers' proposals frame a perfect world, and market participants, including those who publicly declare their support for LMP2001, can adhere to or stray from the best-practice guidelines as they see fit. However, if most of the major players stick to the new rules most of the time, international insurance and reinsurance buyers should soon be clamouring for London capacity because of the market's service and support, not in spite of it.

Fundamental to the reforms are a number of core concepts, several of which involve the contractual agreement of roles, responsibilities and schedules at the time of placement:

  • The broker and lead underwriter will determine what ‘agreement parties' will be involved in various post-contract issues;

  • premium and claim payment terms are to be agreed during placing, and will become a contractual obligation;

  • contract changes after placement will be the remit of the lead underwriter and any other agreement parties determined at placement, allowing the leader to act for the following market.

    Likewise, the claims agreement approach will be defined during placing, and will be by “leader-only where desired,” the Green Book states, but with procedures to allow for the identification of additional agreement parties. For example, the parties may agree that followers' consent is required for claims exceeding a stated reserve amount. A nominated lead underwriter will be the single point of contact with the broker and client during claims administration. Uniform standards will allow a market-wide contract management register, and a new benchmarking scheme will let participants compare their performances to the rest of the market.

    London market policy

    The guidelines will allow realisation of a long-standing goal: a single insuring document for all IUA/Lloyd's participation on a given contract. It will begin when the broker prepares the contract according to new “slip creation guidelines,” due to be issued shortly. The leader will then ensure wordings are either referred to using a standard reference number (allowing increased use of the existing London market wordings database) or attached if necessary. Then, in the words of LMP2001, the underwriter will ensure that ‘responsibility for actions to resolve issues and schedules for resolution [are] clearly shown' in the contract. The broker and underwriter will complete the contract after allocating responsibility for endorsement and claims agreement, settlement and single-policy production. (contd. p28)

    The leader will record the risk for the entire market in an appropriate repository, and apply a risk code according to a new, market-wide coding convention currently being created. The allocation of responsibilities will be laid out in a contract management register. Followers and other authorised parties will have continuous and concurrent electronic access to the data but the policy will be signed just once, by the leader on behalf of all IUA and Lloyd's underwriters. According to the principles of International Process Compliance, premium advice will be de-linked from broker instruction to settle all direct, facultative and excess of loss closings, for both original and additional premiums. In a shift from current practice, underwriters will be responsible for accounting splits.

    Claims issues addressed

    On the claims side, LMP2001 envisions a single claims process for the entire market. It promises faster decision-making, ultimately leading to speedier claims, and “insulation of clients and their intermediaries from the complexities of the subscription market” by allowing them to deal with a single underwriter. A single claims leader is the preferred option, although other underwriters or designated third parties may be included. Market-wide agreements would be limited to rare cases, such as ex gratia payments.

    A claims management leader will be agreed at placement to handle the process for the entire market, including the provision of all information to followers during the advice process, although the claims leader alone will be responsible for settlement authorisation. As agreed at placement, either the claims leader or the placing broker will be responsible for the entry of claims data into a designated document repository and the market's Claims Loss Advice and Settlement System (CLASS), which has been rolled out from the company market to Lloyd's, or Lloyd's Outwards Reinsurance Scheme (LORS), which will be used, when appropriate, for contracts between syndicates and London market companies.

    Claims management may be outsourced by claims agreement parties, and the broker need not be involved, provided such intentions are stated during placement. Followers will have 24 hours to voice objections to claims prior to the agreement of advice; if no concerns are raised in the time, the claims leader or broker will create the appropriate entries in CLASS and the depository for settlement, after which the leader will initiate expedited claims payment.

    It is hoped that all contracts going forward will be agreed under the guidelines, and a facility is under development to migrate post-1993 legacy policies into the new claims model.

    While its architects are keen to emphasise that LMP2001 isn't all about technology, some information technology (IT) developments will be needed to ensure it works. As well as expanding the trusted e-mail network, a single contract management register for the market and a counterparty register will need to be developed, alongside the creation and maintenance of document registries. These may be managed by almost anyone, but will have to follow common standards and be described in a central index. In addition, the new joint bureau, announced in late 2000, will have to make extensive amendments to the processing systems it inherits from the Lloyd's Policy Signing Office and the London Processing Centre to allow for the new London market policies.

    Big brother?

    A charge frequently levelled at London is that the flaws of the slowest, weakest or most obstinate London market insurer are assumed by the entire market. LMP2001 hopes to efface the impact of the weakest links, and is fuelling the process through the creation of the London Market Standards Agency (LMSA). “The aim is to develop a world-class benchmarking scheme for the London market that allows participants to understand how their performance compares with others across a broad range of measures,” the Green Book says. Consultants have been hired to set up the LMSA, which will publish market averages, anonymous best-and-worst figures, and will provide individual market participants with details of their own performance against the market average. The numbers produced by the LMSA will also tell the whole story: over time, a clear picture will emerge of the success of LMP2001 at improving London market performance.

    Adrian Leonard is a freelance insurance journalist and a regular contributor to Global Reinsurance.