Robert Gogel argues that the time for the London market to finally embrace technological and cultural change is now.
Those in the insurance market who thought that all the talk of doing away with paper and improving efficiency was something that died along with 'e' at the close of the dot.com years may be in for a shock. Technology is as crucial for insurers today as it has ever been, and a number of moves are afoot in the market to try to streamline processes and improve working practices.
Lord Levene's illuminating recent interview in a UK Sunday newspaper seems to have fanned the flames of the technology debate, provoking something of a furore in the insurance industry, and the London market in particular. Lord Levene, Chairman of Lloyd's, describes with frustration the '18th-century technology' still prevalent at Lloyd's and recounts how people can still be seen on the trading floor receiving information electronically, printing it out and then re-keying it into other systems by hand.
Suddenly, discussion of the old problem of paper-based processes and lack of straight-through processing that still plagues Lloyd's has flared back into life, and someone - Lord Levene - has pledged to do something about it.
Impetus for change
So what is the relevance of these comments, and why make them now? After all, it's hardly a new subject - initiatives to introduce much-needed market reforms in Lloyd's have been discussed at various times in the recent history of the market, and the 'paper to electronic' debate is an issue for all businesses, not just insurance. Lord Levene has earned himself a reputation as a 'fixer' for both the public and private sectors, and his work on the London Underground should provide him with excellent experience of dealing with creaking, outdated infrastructures. But what change needs to happen - both at Lloyd's and in the insurance sector as a whole - in order for Lord Levene's vision to become reality? And is this the right time to try to engineer change? Personally, I believe it is for a number of reasons. Some of the more worthy insurance commentators have for the last couple of years or so been positing a 'perfect storm' in the insurance industry. By contrast, what we're seeing now - for the London market, at least - is the sunshine after the rain. The market has hardened, with Lloyd's returning to profit for the first time in six years as the cost of premiums has soared and the number of claims has fallen, and evidence exists to suggest that the market is on the up, with insurance brokers being dubbed 'the new investment bankers'.
However, strong revenue performance does not necessarily lead to infrastructure investment. CFOs, having argued against investment in technology when markets were soft, may flip the coin to argue that it is equally inappropriate to invest in technology infrastructure when profits are there for the taking, stressing the need for caution in good markets and employing the line that 'if it ain't broke, don't fix it'.
Such arguments are perfectly understandable, but it is rapidly becoming apparent that IT infrastructure investment is absolutely crucial if the London market is to remain competitive. Lloyd's may not be 'broke' in the sense that archaic technology and practices are preventing it from functioning; much like the London Underground it creaks and crumbles in places but it gets by. However, when mission-critical financial transactions are being conducted on scraps of paper, it is surely only a case of when, not if, a major derailment will occur.
With these factors in mind, 2003 represents an interesting period for the insurance industry and the Lloyd's market in particular. I can admit to having at least one thing in common with Lord Levene - neither of us are insurance 'lifers', much less old London market hands, plugged into the culture and the idiosyncrasies of Lloyd's. However, I do bring experience of a career spent in financial services and technology and as such, may be able to bring a different perspective to the unique challenges of the London market.
One thing is self-evident; this is not a market with room for much error. The business of insurance involves a high volume of crucial exchange of sensitive and valuable information, which can make or break businesses. As such, no one could sensibly argue that reliance on paper and manually re-keying information into different systems are going to remain viable ways of doing business into the 21st century. Lord Levene tells of major US insurers ordering him to 'sort the place out' or risk losing their business. This is the real threat to Lloyd's over the medium to long term, and one that is better addressed in a hard market where the funds are available to enact change than in the downturn which will come. Insurance is an intrinsically cyclical business, and its swings, both up and down, tend to be more extreme than most.
Introducing secure, functional, interoperable technology as the basis of transactional work in insurance should not be an insurmountable task. The technology has been around for some time now - it's the acceptance and ubiquitous use of it that has been slow to happen. Creating policy documents, fulfilling claims and all the other standard administrative tasks that underpin the insurance industry have to be technology-driven in order for the market to reap the efficiencies and potential cost savings that straight-through processing in the back office can deliver.
Initiatives are afoot to engineer a more technologically advanced London market by the automation of key administrative processes. For example, recognition of the need for industry-wide standards (informed by regulatory activity) has come slowly to this market, which has typically viewed information as power and thus held its cards fairly close to its chest. But this situation is changing with the recent news that the Repository Infrastructure Group (RIG), the informal alliance of technology and repository providers, which includes RebusIS, has partnered with the Association for Cooperative Operations, Research and Development (ACORD), to formulate generic referencing and business standards for the usage of repositories in the insurance industry. These new standards will play a crucial role in the efficient usage of document repositories within the insurance industry. The challenge now lies in specifying and enabling infrastructure components to allow the industry to accelerate the adoption of these repositories and thus to conduct business more efficiently.
One notable success of 2003 has been the new LMP slip for renewals, where take-up is reported to be strong. The LMP slip is a key building block for many of the London market reforms, aiming to delineate broker and underwriter responsibilities, bring a more professional approach to the business process and provide greater efficiency and improved client service. The initiative seems to be succeeding, suggesting that old habits can be changed with the right blend of practical application of technology and the clear demonstration of business benefits.
This is not to say that the cultural challenges are insignificant, indeed, as in this case, they often prove far more problematic than business or technology issues - CEOs cannot, much as they might like to, simply snap their fingers and say 'think in this way'. The change agents, then, are likely to be the new, younger breed of CEOs who are beginning to make their presence in the market felt.
Change need not be revolutionary. Indeed, it is extremely unlikely that it will be, and there are peculiarities of London market life that should and will be retained. Many of the factors that make Lloyd's unique, such as the networking culture and the depth of domain expertise, do so in a positive way. These aspects are likely to remain a part of Lloyd's strength and its unique identity. It's only the anachronisms that need to be weeded out - those archaic inefficiencies that are holding back the insurance industry.
The main challenges to the further adoption of technology uptake are the integration of existing and new business systems, the need for industry-wide e-commerce standards, security and authentication and the need for industry collaboration. These are not issues that can all be solved at once, but certainly ones that will continue to hamper the progress of this market until they are tackled head-on.
The 'wait and see' attitude has prevailed in the past, but it cannot do so for much longer if London is to retain its status as the world's premier insurance market.
By Robert Gogel
Robert Gogel is CEO of insurance software house and consultancy RebusIS. He can be contacted by email at:
email@example.com , or by phone at: +44 (0)20 7661 4281.