The report pulls no punches. “We believe it is imperative that the London market dismantles the Victorian pipework it uses for the processing of premiums, documentation and claims,” it reads, “and moves rapidly towards the latest generation of business-to-business trading systems. “
Referring to the case for reform as “compelling”, the report warns that London faces the prospect of losing significant amounts of business to other markets unless it improves its service levels to clients and updates working practices.
A London revolution
The resulting recommendations are scheduled to be in place in time for the 2000/2001 renewal season. They are little short of revolutionary in a market where progress has been held back by the diversity of its individual components and the need to obtain consensus before making change. London has also been handicapped by the fact that it has two parallel sectors - Lloyd's and the company market - with different ways of doing business. In a world of shared risks, this has created inefficiencies that have driven up both the speed and cost of doing business.
“For all its undoubted, world-beating strengths, London appears to outsiders to be archaic and opaque,” according to Nigel Barton of D.P. Mann, one of the architects of the reform package. He describes the aims as being, “to clear away the clutter that gets in the way of the London market. To set out standards and an attitude towards clients that will enable us to become a benchmark of good practice worldwide.” The changes are the work of the IUA-Lloyd's Forum, a body set up last July to make the London market more attractive. It consists of the top people from the IUA (the trade association for international insurance and reinsurance companies) and Lloyd's, with active participation from the Lloyd's Insurance Brokers' Committee (LIBC).
Speed, cost and clarity
The proposals are now out for consultation, and detailed implementation is due to start around September. Their main thrust is to reduce the time and cost taken to process business and to create clarity. Probably the five most important points are:
The package will require changes to information technology systems, and will eventually be underpinned by new e-commerce tools. The London market “slip”, for example, will be captured and used electronically, and claims will be handled via web-based technology.
What makes this reform radical is not the thinking - many of the ideas have been in circulation since the 1960s - but the fact that, at last, something is about to happen. Both the IUA and Lloyd's are impatient for change. Lloyd's, having put its crisis of the 1990s behind it, is looking to the future. Of even more significance, the company market is now united for the first time and able to speak with one voice following the merger of two other trade associations that created the IUA.
In January 1999, IUA chairman Tim Carroll pledged the then newly formed association to “make a difference” and “challenge the status quo”. Max Taylor, his opposite number at Lloyd's, has experienced the frustrations of the market at first hand as a broker. Both men get on well personally. As one observer put it recently, “If we cannot do it now, we might as well throw in the towel.”
What will it all mean in practice?
If nearly all the players adopt the new system, its effect will be to transform the market, but here lies the rub. The reforms are voluntary - neither Lloyd's, the IUA nor the LIBC has the power to coerce in these matters. It all depends on the take up, and these reforms are certain to meet resistance in some quarters. Supporters of the principles behind the proposals want to see more detail, which is promised soon. There are questions, too, about whether the ambitious timetable can be met. All in all, reaction has been welcoming, but guarded.
Brokers and underwriters are being asked to forgo some independence of action in the interests of the market as a whole, abandoning rights that have been jealously protected in the past. The idea of a single lead underwriter and, even more, a single claims lead are proving controversial. Even worse, as with almost any business plan that creates efficiencies, jobs are at risk.
The architects of the plan, though, are confident it will gain sufficient critical mass to be unstoppable. They are almost certainly right.
The working parties that drew up the reforms contain representatives from most of the biggest players in the London market, including the key brokers and many of the big hitters in both the company and Lloyd's sectors. Max Taylor of Lloyd's accurately describes the level of consensus as “unprecedented”. In a subscription market, where most risks are shared and brokers are impatient with anything that creates complications, the pressure on “refuseniks” to come into line will be immense.
There is, however, likely to be a two-tier system at the outset, with some organisations declining to play by the new rules. Nigel Barton, chairman of the working party that produced the report, is relaxed at the prospect. Market forces, he says, will determine the outcome.
Another working party member, CNA Re managing director Stephen Riley, puts it like this: “Those organisations that publicly and transparently commit to standards that represent best practice in our industry will have an obvious competitive advantage over those who do not.”
A never ending process
London remains the world's largest international insurance and reinsurance market, despite all the erosion and increased competition of recent years. It has continued to attract several new overseas participants, including ACE from Bermuda, General Re from the United States and Rhine Re from Switzerland. Many existing players, meanwhile, have increased their commitment to London. Despite these gains, it has almost certainly lost market share. To stop, let alone reverse the trend would be a considerable achievement.
The people behind the reforms insist that they are the start of a process, not the end. Tim Carroll of the IUA says they are about changing people's attitudes so that practitioners make full use of improving technology and gear the way they conduct business to the needs of the market's clients.
Indeed, the policies raise even bigger questions about the future of London. Some of the more forward-looking people see the emergence of a virtual global market. In this era, London the geographical entity will remain the reinsurance industry's most important skill and information centre, but the “London market” will become an obsolete concept in its current usage. It is a term that rests uneasily with the changes that have been brought about by globalisation, e-commerce and electronic cross-border trading.
Thoughts of a virtual market may seem a million miles away right now. At first sight, the insurance district of the City of London has changed little. Brokers still scurry from Lloyd's to the London Underwriting Centre and back, negotiating even simple contracts on a face-to-face basis, and then recording them by hand.
The people behind the IUA-Lloyd's Forum know, however, that this cosy arrangement cannot last long. In a world driven by e-commerce, where changes can happen at lightning speed, it is far better to anticipate than to react. The coming year will determine whether London, as an international insurance and reinsurance centre, embraces and implements a radical vision of the future or whether it allows outside forces to determine its fate.