Lloyd's has a chequered history when it comes to technology initiatives Can its latest venture be the one to finally come to fruition?
There are more than 300 years of tradition at Lloyd's. At the rostrum, a red-coated 'waiter' reads out messages for brokers, standing beneath the famous Lutine bell. Those brokers still wander from 'box' to 'box', lugging slipcases full of files related to the risk they are explaining to underwriters.
It is this latter tradition - brokers with vast files and physiotherapy bills to match - that Lloyd's has for years tried to modernise. Too many ill-fated technology initiatives such as EPS (electronic placing system) have littered Lloyd's corridors over the past three decades; the last truly successful technology initiative implemented by the market would appear to be the introduction of punch cards in the middle of the last century.
Impetus for change
Where some organisations may have thrown in the towel, Lloyd's has remained steadfastly fixed on its goal of achieving a market-wide risk data transfer facility. The rationale for this is obvious; for many years, Lloyd's has acknowledged that the costs of doing business in the market need to come down. Speaking in New York in December 2002, Nick Prettejohn, Lloyd's CEO, commented that "frictional costs (at Lloyd's) are simply too high, driven by multiple data entry and lack of contractual clarity." As part of Lloyd's efforts to address this position, it had invested in 'Project Blue Mountain', he explained, "which aims to create connectivity between the myriad different systems in the market and the industry to enable single data entry and see through processing to become a reality. In this, we are working actively with a number of major broking houses, underwriters and industry systems providers. In particular the project is making good progress to develop interfaces with systems used widely in the broking and underwriting communities. This represents a pragmatic technology solution that will enable businesses to change their processes, rather than prescribe one particular way of doing business. As such it stands a better chance of success than many previous attempts, and deserves widespread support."
Since then, Project Blue Mountain has changed its name - it's now called Kinnect - and its CEO, with the departure of Ashok Gupta after three years with the project, and the importation of Toby Davies. Mr Davies was previously with the UK Debt Management Office, and prior to that was at CREST, also the alma mater of Iain Saville, Lloyd's head of business process reform and Kinnect's executive chairman.
The 'number of major broking houses' referred to by Mr Prettejohn has settled at two - Marsh and Willis - and four underwriting agencies - ACE European Group, Amlin, Beazley and Wellington - are signed up to the system.
Towards the end of last year, Lloyd's proudly announced that Willis had placed the first risk through the Kinnect platform, under the Kinnect 'facility product' for risks being placed into established facilities with pre-agreed terms and conditions. Then at the beginning of this year, Willis again took on the role of pioneer when it placed the first complex open market risk with Amlin at the beginning of February. Since then, there has been no perceptable activity at the Kinnect platform.
If all goes according to plan, there should be more functionality provided on the platform in the second quarter of this year, with a new risk class added. The third quarter is scheduled to witness more underwriting agents - and possibly brokers - joining the platform, and renewal functions introduced to it. By the end of the year, Kinnect should be rolled out to more UK customers, and could also be made available to US clients.
Central costs of £40m
So far, Kinnect has cost Lloyd's centrally £40m (although some in the market suggest the costs have been as high as £70m), and there is little prospect that it won't be requiring further Lloyd's support in the next year or so. "Kinnect needs to move to a position where it is not reliant on external funding," said CEO Mr Davies. "It is going to be a gradual change in finances," he continued. "In three to four years, we have to be self-supporting." The intention is that Kinnect will be divested from the Corporation of Lloyd's, but rather than IPOing or being purchased by a technology specialist, its customers will also become its owners.
"We will be offering our customers an opportunity to gain shares in Kinnect... they need confidence in how Kinnect is governed. It's more of a collective model." As far as the demands of future investment are concerned, "that will depend on the speed of uptake," said Mr Davies.
There is little doubt, however, that funding - past, present and future - remains a sensitive subject, both at Kinnect and its sponsor, Lloyd's.
Although Lloyd's CEO Mr Prettejohn has made bold statements about Kinnect's central role in Lloyd's reform, on other occasions he has been circumspect about its future viability.
Ultimately, it is the market practitioners who will decide the future of Kinnect. There is a fair degree of cynicism about whether Kinnect will make it to the finish line, an attitude which is reasonable when set against the background of EPS, WIN, LIMNET, RINET and a host of other acronyms of failed yesteryear projects. Lloyd's track record in undelivered market systems is unparalleled, but this is partly because the market practitioners took umbrage at being dictated to by Lloyd's centrally, and, aided by a somewhat Luddite attitude towards technology in the past, refused to implement previous initiatives. Kinnect appears to have taken heed of the former failures. It has changed the way it communicates with the market, "probably because (in the past) we've not been explaining it very well," admitted Mr Davies. Rather than supplanting the broker in the trading relationship, it will provide a means of transferring risk data between the broker and underwriter. No more stacked slipcases, no more rekeying errors, no more lack of audit trail.
"The broker and underwriter will need a conversation on the most complex risks," said Mr Davies. This mantra is repeated by all in Kinnect; this is not about cutting out the broker, but about improving the process.
For example, explained Mr Davies, most of the risk data submitted to underwriters does not originate from the Lloyd's broker but from a broker further up the chain - a US retail broker, for instance. "Customers will be able to use Kinnect in many ways," he said. "It will support the business process involving risk submission/discussion/passing into following market syndication." In addition, it is to be developed for use in mechanisms such as lineslips, and there is every intention of rolling out beyond the boundaries of Lloyd's to the London company market and beyond. "Our reputation will be founded on delivery," said Mr Davies. "We need to restate the Kinnect proposition, and want to bring it out hand-in-hand with a roadmap of what we are going to be doing over the next couple of years." The market awaits.