With rumours that Lloyd’s could be developing a new central platform, Marcus Alcock asks if the ghost of Kinnect has been finally laid to rest.
It almost makes Heathrow’s Terminal 5 fiasco look good. Kinnect, Lloyd’s centrally-funded project costing some £75m and taking five years to develop, turned out to be one of the market’s most high profile failures. First announced in 2001 as the mysterious “Blue Mountain” project, Kinnect was supposed to herald a technological revolution by converting brokers and underwriters to an electronic platform. Yet by the end of 2006 it was ignominiously binned, an expensive and ill-conceived failure. 18 months down the line, then, has the market managed to pick up the pieces and move forward?
Outwardly, actually, the signs are reasonably encouraging. Broker-led initiatives – in particular those of Aon and Benfield – and peer-to-peer trading have seen reinsurance transactions change significantly in recent months, with some 80% of 1 January treaty renewals channelled through these routes conducted electronically. So does this mean the market has moved on?
“Kinnect, was it a waste of time?” asks Michael Graham, director at insurance software specialist Sequel. “It will definitely have historical value but practically you have to forget it.” He says that ACORD has made great strides given that ultimately anything that requires multi-party agreement will need to have agreed standards. Most syndicates and brokers are now able to communicate via ACORD’s XML standards. “The lifeblood of insurers and reinsurers is data and the ability to have this properly structured at the correct granular level of detail is a pre-requisite for any transaction with a third party. You need data in XML format and ideally ACORD format.”
Denis Mahoney, chairman of Aon Global, agrees with this assessment. “I had curly black hair when this all started,” says the completely bald broker. “We’ve got to agree a common set of standards. I wish everyone would accept ACORD?standards.”
“The focus on electronic trading has been about saving costs, but the biggest cost of all has been in claims
Jeff Ward, a director at reinsurance IT specialist TriSystems, feels it’s important not to dwell on the past: “I have to say that Kinnect has been dead and buried for a long time now. Actually, spread across the market it didn’t cost a lot of money; it was a tiny sum and we wouldn’t be here today without that route. Besides, Kinnect wasn’t the first time that a project like that was tried.” Ward first began using electronic messaging in 1989 and says there has been a lot of progress since then. Many lessons have been learnt and some valuable technology has been developed. “Now the market is focused on achieving specific goals, not on a big bang approach,” he adds.
It’s not as if Lloyd’s is the only market to have experienced problems with its attempts to introduce a market wide technology makeover. The London Stock Exchange’s own attempts over the years which have been “terrifically expensive and one hell of a bumpy ride,” says Ward. Now, Lloyd’s is focused on implementing “bite-sized chunks” of technology in terms of a market repository; placing; and accounting and settlement.
There is still a long way to go though, says Mahoney. “Just go and stand on the corner of Leadenhall and Lime Street and watch the thousands of brokers walk past with armfuls of paper,” he says. “There are still members of the Flat Earth Society.” Mahoney has in the past threatened to stand in the lobby of Aon’s Devonshire Square London headquarters and question every broker leaving the building on whether they are going to Lloyd’s to transact business face to face, which could be dealt with electronically. He believes the culture of change is hard to implement.
Leading the march
Brokers are crucial, suggests Ward. “Aon justifiably wants to do business electronically, and Benfield ditto. But the two of them see things differently from a technological point of view. Aon started off down the ‘peer-to-peer’ route and seemed to realise this is quite a painful process, so they outsourced that pain to RI3K. Benfield have instead said there will be Darwinian evolution over the next few years.” The reality of course is that most Lloyd’s and London market players lack the scale for a big bang approach.
“The other finding from the recent renewals concerned the issue of integration, and this is key for the future
So where is the market at the moment? It’s clear that progress is being made in some quarters as Alex Letts, chief executive of RI3K, explains: “What’s happened post-Kinnect in the London Market is huge. G6 data messaging, awareness of timely and accurate processing, that has all been very important. And the G6 really got the ball rolling in the data messaging game. Perhaps, though, their approach was a little too mathematical, a little too theoretical.”
The big change came when Aon approached RI3K saying the broker had the ability to link up with central services. With the major brokers on board many of the syndicates, which are already sending and receiving electronic messages with their brokers, are starting to think about linking in with RI3K services.
Letts says the focus on electronic trading has been about saving costs, but the biggest cost of all has been in claims, which has perhaps held back the development of electronic trading for risks themselves: “The cost of eliminating paper trading is minimal compared to the cost of making the claims process more efficient. But good electronic trading can modernise the whole way we do business, and is helpful in all sorts of ways with regard to issues such as contract certainty and reporting standards.”
Letts is clearly pleased with how the theory is at last translating into something tangible. “RI3K suddenly went bananas at Christmas when 8,000 risks were placed in such a short period. It was terrific, as up until then in the year there has only been 1,000 or so. And the 1 April renewals went swimmingly. Suddenly, 80% of business we received from Aon and Benfield was electronic.” This now means that a number of managing agents are actively encouraging their brokers to send information electronically. “That would never have happened three years ago. And I expect you will see an incredible ramp-up. The medicine has been pretty horrid until now, but it’s beginning to work.”
“Despite the progress being made post-G6, it seems that Lloydâ€™s is not giving up the Kinnect ghost quite yet
Ian Summers, director of change strategy at Aon, agrees that the renewals have gone well, but says there are still a number of difficulties that need to be ironed out. “Since then we have spent a lot of time working with people to try and understand what went well and what didn’t and we employed a third party consultant to help us,” he says. “What we found was that the technology we are working with from RI3K is fit for purpose but the processes around it have to evolve.”
The other finding from the recent renewals concerned the issue of integration, and this is key for the future. For Summers, the end goal is to move from client to broker to underwriter without having to re-key much information. “To do that you really have to take data out of RI3K, but today underwriters have to log onto the web to do this.” He says the real goal is to get that information into back office systems. “So we are going to look at building integrations for a number of underwriters, and we’ve spoken to a number of companies.”
Kinnect phase II?
Although information is sent out at the quote stage, it is not expected to replace face-to-face broking altogether. Relationships will remain a crucial aspect of the business – and much of that will continue to happen face to face, according to most experts. In theory, technology should take care of the straightforward contracts, and that should free up brokers and underwriters to spend time discussing the more value-adding bespoke business. “I don’t want to do away with face-to-face,” insists Mahoney. “I’m a great believer in the physical market.”
Despite the progress being made post-G6, it seems that Lloyd’s is not giving up the Kinnect ghost quite yet, with the likes of IBM said to be waiting in the wings to help with the development of a new hub. “Linking this new hub to Kinnect is a bit naughty,” says Summers. “Kinnect was massively over-engineered but what they are doing now should be encouraged. Lloyd’s will allow everyone to connect with a hub and obtain information, though hopefully it will go the next step and sponsor integration as well.”
Lloyd’s CEO?Richard Ward and chairman Lord Levene are fully backing new market initiatives. “There’s too much money involved for this to be a Cinderella market,” said Levene, speaking recently in Dubai.
Marcus Alcock is a freelance journalist.
London Market: Lloyd's and technology - a timeline
* April 2008 - Benfield announces that for the first time it has transacted its Brit Insurance, Catlin (London and Bermuda) and Kiln 1 April Japanese renewal business electronically.
* February 2008 - The Market Reform Group publishes details of the arrangements which will see the end of paper processing for accounting and settlement submissions.
* September 2007 - RI3K announces the completion of its new message service for the insurance and reinsurance industry.
* September 2007 - IBM announces that a new messaging service to enable London Market insurers to take data electronically from brokers is operational.
* July 2007 - The wordings repository managed by the Lloyd's Market Association (LMA) is made available to all businesses in the Lloyd's market.
* May 2007 - Atos Origin, an international IT services company, pilots a new electronic trading platform in the London market.
* April 2007 - Lloyd's chooses RI3K and Xchanging to provide the key technology for its new China operations.
* January 2007 - The US Financial Services Authority (FSA) recognises the industry's efforts in achieving contract certainty. The industry reported that 90% of contracts in the subscription market and 88% in the non-subscription market achieved certainty at the 1 January renewals.
* November 2006 - Guy Carpenter and Amlin complete the London market's first fully paperless claim settlement.
* May 2006 - RI3K and Xchanging launch FELIX - the Framework for the Electronic London Insurance eXchange.
* April 2006 - The G6 group of Lloyd's managing agents agree to a new process using ACORD data standards to allow the electronic transfer of risk-related data and documents between group members and four leading brokers in the Lloyd's market on a peer-to-peer basis.
* January 2006 - Lloyd's announces Kinnect has failed. As the Â£Â£75m project is shelved, Michael Dawson, interim chairman of Kinnect since the departure of Iain Saville, says: "One of the key factors leading to the closure of the platform is the changing nature of the technological landscape. In recent years, a lot of progress has been made in electronic data transfer. We are particularly encouraged by the progress made with other trading platforms and peer to peer systems."
* September 2005 - Doubts are cast on the future of the Kinnect project as its chairman Iain Saville and chief executive Toby Davies step down.