Douglas Shillito reports on the development of information technology in the London market.
We are fortunate, or unfortunate, depending on your view, to live in a world of rapid change. Increasingly, it is difficult to decide whether the changes in the insurance markets are driving information technology, or vice versa. With the emergence of the global village, today's technology enables brokers, underwriters and reinsurers to differentiate. We are not far away in both wholesale and retail markets for two types of player to emerge - the quick and the dead.
A more leisurely pace
Today's world is very different from the one I entered in the mid fifties when I joined a large UK composite insurer. Most processes were manual and the punched card was regarded as leading edge. It took two decades for mechanisation, and then data processing, to evolve into information technology. It wasn't until the mid seventies that screens appeared on desks, and many of those were early word processing systems which were developed quite separately from mainframe applications.
In the first 20 years of computing, batching of work and specialised data input departments were the order of the day, with pitched battles on where the fault lay if the input was rejected on the overnight mainframe run - usually the computer took the blame in correspondence if there had been any delay. Users had very little say in the development of in-house systems and the gap between them and the computer specialists was wide.
My first experience of the London market in the mid seventies came as quite a surprise as it seemed some years behind retail. London had numerous market bureaux with pioneers such as Sherwood, founded in 1971, offering overnight batch processing. However, with the advent of the mini-computer, software houses began to offer affordable systems to medium sized organisations, although for many in the London market, their processing was often run on a “bureau” machine owned by the package supplier and housed in their premises.
In the early eighties, I chaired a series of events called the Insurance Information Exchange, organised by Kluwer, which comprised a series of presentations by users and suppliers alongside an exhibition of software packages for the market. Out of those events came the first directory of insurance software packages, Insurance Computer Systems, which first hit the streets in 1984 and has subsequently been published seven times (now European Insurance Computer Systems). Looking through the suppliers in the first directory, it would appear that there has been more traumatic consolidation of suppliers in retail rather than wholesale markets. CSC is an amalgamation of Continuum, Computations, Capsco, Paxus, Insurance Software & Systems, and Inscom. GEAC became Real Time, then Teleglobe, and now Certis. Policy Management Systems (PMSC) still retains its name, having bought Creative - 15 years ago it had a single UK representative who was at the US headquarters most of the time.
In the wholesale/reinsurance market, Datasure, the data processing department of brokers C E Heath was offering broking and underwriting packages as was EPG - they came together a little while ago to form Rebus Insurance Systems. Sherwood, then known as Sherwood Computer Centre Limited, had a client base of over 180 Lloyd's syndicates and 40 insurers and reinsurers - key products were Spartacus and Sabre, and in those days they were in the Lloyd's motor syndicate sector as well. MCS straddled both retail and wholesale broking providing systems on Digital mini-computers. Also on the broking side,T & ACS became Bross, and Trace are also still in the market. Most of the large brokers tended to write their own systems and were mainly IBM mainframe based. Several were sold Wang hardware and word processing - generally speaking, as brokers merged over the years, systems convergence has been quite a problem. On the global reinsurance front, there wasn't a great deal on offer. Peter Cross's Solar had some sites in the United States and was eventually sold to BIS. Mr Cross was one of the pioneers of international reinsurance systems and is still involved with smaller niche players around the world through Computer Turnkey.
Even as early as the Insurance Information Exchange events, talk of a value-added network for the London market had started. Terry Dicken of Sherwood had suggested that it might be called “LIMENET”. LIMNET was created, run by IBM, as was RINET, backed by the major European reinsurers, which followed shortly afterwards. Lloyd's was quoted in the Guinness Book of Records as being the biggest user of punched cards in the world, therefore there was scope for streamlining the accounting transactions at the Corporation and elsewhere in the market. LIMNET was successful in that it moved back office transactions from card and tape to electronic data interchange (EDI), but that very technology was to become the cause for much pain. Attempts were made to move it to the front office on a mandatory basis, and it is now generally acknowledged that electronic placing support (EPS) was a disaster. There was no doubt that, on this occasion, the market was asked to fit in with the system. In a series of market interviews I conducted on behalf of Lloyd's with managing agents and brokers three years ago, the brokers and underwriters both thought each other had benefited. In fact, neither had achieved measurable business improvement - the only difference was that brokers knew how much money they had spent but the managing agents were not too sure.
The mega-brokers got together to form the World Insurance Network (WIN) because of their frustration over the slow, consensus approach to London market electronic trading, and LIMNET entered a joint venture development with RINET and the US. WIN was going to streamline the front office in a more flexible way than was possible with EDI, but never really took off. Coopers & Lybrand, as was, issued a damning report on the London market suggesting that major economies could be made if the processing chain internationally could be streamlined. In spite of this warning, the market continued to bicker and blame each other for the lack of progress.
The mindset changes
In trying to detect when exactly the mindset changed, one can look at a number of factors - increasing threats in the insurance market from new players domiciled in Bermuda; consolidation of reinsurers, underwriters and brokers; Lloyd's recovery and reconstruction; and the sudden emergence of the internet. Corporate capital came into Lloyd's, the Institute of London Underwriters (ILU) and the London Insurance and Reinsurance Market Association (LIRMA) merged to form the International Underwriters Association (IUA), their bureaux having merged earlier, and recently LIMNET, RINET and WIN got together to form a co-operative called the World Insurance Exchange (WISe). Lloyd's and the IUA are working closer together on systems development and a possibility of a single bureau for the London market looms ever closer.
The software houses are also responding to market needs. Rebus Insurance Systems has emerged as a significant global player with more than 200 broking and underwriting clients in 39 countries. Their Trader 2000, to be sold in other markets as Rebus Knowledge Server, is an innovative product that makes the most of the e-commerce environment - with costs of video conferencing coming down, less face-to-face and expensive air travel could well be the order of the day in the very near future.
Sherwood are staging their two-day annual conference around cyber insurance. They have made a breakthrough in the US with their life tool set, AMARTA, which is being adapted for the general insurance and broking sectors. They have also entered into an international partnership with Allenbrook for distribution of their wholesale market product, Senator, which has got considerable London market penetration. Intech, another long term London market player, originally providing bureaux services out of Leeds and known previously as BoxIT, bought internet specialist Netsoft recently.
CSC have a large reinsurer base, particularly in Continental Europe, originating from a system developed by Norwegian insurer Storebrand and initially sold by software house Insurance Software and Systems. Significantly, their new development on Microsoft NT is installed at ERC Frankona as a worldwide database, and another company are running binding authorities worldwide. Also running on Microsoft NT is PMSC's Re+ which is positioned for reinsurers, captives and large risk insurers. It is internet enabled, and has recently been sold to a Lloyd's syndicate.
One of the newer players in the London market, Eurosure, are cutting quite a dash, have recently gone web-enabled for their underwriting systems, launched a standalone outward reinsurance system, and opened an office in Holland. Room Underwriting Systems, also a more recent entrant, is making good progress. Reinsurance specialist, Blem, has recently integrated their offerings with Promark, a retail general insurer software house, who has also just web-enabled their PROGEN2 product. Increasingly, software houses are looking for partners in specialist areas such as workflow and management information systems.
The future direction
As the market begins to evolve the internet as a mould-breaker influencing how and where we work, the global village is upon us. The international insurance and reinsurance process chain will be unrecognisable in a relatively short timeframe. Internet portals are appearing with WIRE at the forefront, including the area of alternative risk transfer (ART) which is seen as both a threat and an opportunity to core insurance and reinsurance business. The bigger brokers are moving from commission to fees, and coveting the risk manager's role for their multinational clients. This position is being contested by reinsurers and specialist consultants, and inevitably those that do not add value along the processing chain will be eliminated.
The internet is enabling market players to differentiate, and while it is too early to comment on the role of WISe as global catalyst, the market has moved on from simply seeking consensus on EDI standards. Increasingly, the front office will be flexible and innovative with back office transactions as a by-product, which in themselves will not be the key differentiator.
We are entering an era of “spread and share” with the development of repositories in the London market being an indication of the change of mindset.The speed of technology change increasingly means “any place, any time, anywhere” for placing and processing the business. Virtual insurers are emerging in the retail sector, with the US leading, and outsourcing of computer operations is still on offer from most mainstream insurance software providers, and specialists such as Eastgate. In the last year, the London Processing Centre (LPC) followed by Lloyd's Policy Serving Office (LPSO) have outsourced their operations to Bull Integris, and growth of third party administration services can also be expected. Developments such at CATEX, although slow to take off, could be the forerunner of screen-based buying and selling of a whole range of reinsurance contracts.
WISe could bring about wider levels of co-operation in the worldwide wholesale and reinsurance market, and it also looks as if London is getting its collective act together with chairman of Lloyd's, Max Taylor, and chairman of the IUA, Tim Carroll, leading the way. Both are opening up new channels to market, with Lloyd's also offering a home for captives. Software suppliers are moving to more modular and flexible solutions, but there is still much to do to embrace the whole processing chain from risk management, broking, placing, underwriting, claims and accounting. Internet protocol is now clearly accepted as the foundation on which voice, video and speech recognition will revolve around, and this gives, in effect, new entrants and existing players an opportunity to get ahead and stay ahead. E-commerce is on the top of every ceo's agenda according to a poll taken at the recent International Insurance Society's annual gathering in Berlin. Time is now the key issue, and the global village will not wait for consensus - survival itself is at stake for all players.
Douglas Shillito, FCII, Chartered Insurance Practitioner, is managing director of Shillito Market Intelligence Limited, and editor of insurancenewslink.com, the worldwide insurance news research database. He is a vice president of the Chartered Insurance Institute and past chairman of the CII Society of Fellows.