The plumbers have been hired, the renovation plans drawn up, and the timetable set. The London insurance market's ‘Victorian pipework' is to be removed and replaced in an ambitious, industry-wide renovation of standard operating procedure. All that remains is for the market's participants to install a few new mains, then turn the taps on.
Those ageing pipes, the adopted metaphor for the plethora of procedural anachronisms which hamper London's efficiency, currently dictate predominant practice for placing, claims and processing. They include conventions specifying who does what, how and when, and who gets a hand in making each decision. And although the status quo by no means dates from Victorian times, as the London market's well-oiled PR machine has suggested, it is clearly well past its sell-by date.
The urgent need for reform was made painfully evident at the IUA's most recent biennial conference, held in Stockholm in May 1999. In a blistering condemnation of reinsurers' practices, Alan Fleming, now Chairman of the Association of Insurance and Risk Managers, called for improved clarity and transparency in London's claims payment system, and a return to follow-the-leader principles. Based on a poll he had conducted of leading international risk managers and insurers, 57% of London's clients were dissatisfied with reinsurers' claims services, he said. Poor response times, the need for excessive documentation, and, worryingly, a deficiency of consensus regarding intent were all cited as problems by discontented buyers.
“There appears to be a lack of willingness for supporting reinsurers, or indeed in some cases co-insurers or co-reinsurers, to support the decisions of leading underwriters. Thirty-five per cent of the respondents to my questionnaire had adverse experience in this area.... There are strong concerns about claims attitudes being adversarial, and arguments about policy intent unacceptably delaying settlements,” Mr Fleming said.
Since then, powerful forces have banded together to overhaul the creaking conduits that apparently channel so much dissatisfaction. Scant months after Mr Fleming's Stockholm diatribe, the International Underwriting Association of London (IUA) and Lloyd's struck a collective committee dubbed the IUA/Lloyd's Forum to address market reform issues. Soon after, the committee enlisted the essential participation of the Lloyd's Insurance Brokers' Committee (LIBC), a body representing the vast majority of London's commercial intermediaries. In early February 2000, the IUA and Lloyd's jointly pledged to have new procedures in place in time for year-end renewals. A set of draft proposals was issued in April.
The timing slipped as market reaction to the Forum's initial proposal to require sole leaders for all placement and claims issues (the so-called ‘leader-only' principle) landed like a lead balloon on a market fiercely protective of underwriters' autonomy, even on following business. However, after an extensive consultation and voluminous feedback, the Forum produced London Market Principles 2001 (LMP2001), colloquially known as ‘The Green Book'. It contains fleshed-out, slightly watered-down proposals covering everything from the controversial terms of trade to the ambitious goal of web-enabled slips. So far, the lip service paid to LMP2001 has been impressive. If the practical implementation is as comprehensive, London will have successfully re-plumbed its market.
Most market leaders are confident it will work. Max Taylor, Chairman of Lloyd's until the end of last year, said the Forum's efforts have yielded an environment of “enlightened self-interest” and the realisation that London could be a better place for all market participants to do business. “The whole process is aimed at ensuring the London market is able to offer dramatically improved service, delivery of documents, payment of claims, and receipt of premium. We want London to be not only world class in underwriting, but world class in service as well,” he said, adding that the process so far has made “tremendous progress” in restoring London's image and reputation of being leading-edge in terms of technology. However, he noted that much has yet to be implemented. “The plans are there for the Lloyd's/IUA Forum, but a lot of execution is to be carried out.”
“We are trying to re-engineer the process completely,” said GE Frankona Re's Tim Carroll, Chairman of the IUA. “It will mean greater clarity and transparency for those looking at our processes and procedures from outside London, and it should make it easier to place business here,” he said. Alongside improved customer service, the reforms should deliver greater efficiencies for brokers and risk carriers too. “The win is a big cost take-out from the market, and a big benefit for people who come to market to place their business,” Mr Carroll said, “which hopefully will secure London's position, and keep the vibrant marketplace we have now.”
“I see the roles changing for broker and underwriter alike,” declared LMP2001 Steering Group member Nigel Roberts, a Lloyd's broker with Norman Butcher & Jones. “The idea of a single lead for the whole marketplace is something which is badly needed. It makes the London marketplace one, a virtual entity. It is ridiculous that we have any other system,” he said. Under the proposals, intermediary participation will be streamlined to better match international practice. “If the presence of a broker in the chain on simple claims does not facilitate the timely settlement of that claim, there is no reason for them to be there,” Mr Roberts said. “You see countless claims brokers with great wodges of files. I see them diminishing in number, allowing brokers to focus on the resolution of more complex claims.” The field of underwriting leaders will likewise be narrowed. “The weak leads will be flushed out, and only strong leads will remain. That is the way it should be,” Mr Roberts said.
Adrian Leonard is a freelance insurance journalist and a regular contributor to Global Reinsurance.