Jacoby Thwaites reviews some of the key issues of the day. He argues that new initiatives are bringing greater clarity and efficiency to the run-off arena.
If you thought you knew run-off, think again. It certainly isn't what it was. It is increasingly becoming a strategic business decision rather than a reaction to business failure or stagnation. The brave new world of run-off is agile, varied and demanding - and has switched-on people working within it and in the related services that support it.
It wasn't always so. Until recently going into run-off was more or less a cut and dried affair. An insurance operation failed, leaving its owners with a business problem. The typical scenario was: doors closed to new business, then the problem of assets, liabilities and how they could be managed had to be addressed. While this can still be the case, run-off has moved on and become a strategic business option. However, for the greater part, in the live market, run-off is still viewed in the traditional way.
Changing opinions takes time and evidence. While it is true that run-off has changed, it is still a rather difficult and uncharted process. Until there is a formal written `how to' guide, it is likely run-off will retain its `used to be' backwater image.
It is only now that this problem of codification is being addressed. Hitherto the `bush telegraph' has been the only way that organisations have had to inform themselves about run-off. For run-off to really come of age, a central point of information is needed where the whole process can be seen and understood. Fortunately industry bodies such as the Association of Run-off Companies (ARC) and the Chartered Insurance Institute (CII) are working towards this.
Managing your run-off successfully means consulting the right people and getting the process right. David McGuigan, chairman of ARC has a clear view of the key organisations and professionals to talk to.
He is working as part of one the CII study groups to put together a guide to run-off. ARC is also examining the possibility of working with the CII on a book covering principles, as well as an examination in run-off practice. I very strongly support this bringing together of expertise and understand that the CII will be publishing the results of the study group's research early in 2003.
In further contrast with the past, the options that organisations going into run-off have available are now much wider. There really is more choice, thank goodness. It's true that it might seem like the same choice - handling the service in-house or outsourcing - but it really is different. There are new products and outsource service providers competing for business. If the operation is to be handled in-house then `off the shelf', open-systems compliant software is available to deal with that, rather than making do and mending old systems or developing expensive bespoke software.
Outsourcing no longer means placing run-off in the hands of dinosaurs who work at a snail's pace, take forever to settle claims and charge a fortune for a lacklustre service. The marketplace is fiercely competitive with customers demanding and getting high levels of efficiency, accountability and transparency.
Indeed, outsourcing has to be one of the main discussion points on the agenda for any organisation contemplating run-off. It opens the operation to the full benefit of competition with the new breed of outsourced service providers becoming increasingly effective and competent with their claims collections. This model will become the way of the market and coupled with the adoption of commodity technology instead of expensive bespoke systems will ensure greater efficiency and transparency for all concerned.
And while it's all very well to talk of all the improvements and advances, once an organisation goes in to run-off it is worth noting that prior to run-off, management information reporting systems and the use made of them is crucial.
These systems have just got to deliver and the resulting reports must be taken note of. These reports tell the organisation that it is heading towards run-off and/or how it is going to handle the transition. This is of key importance because everything happens much more quickly when an organisation goes into run-off. Getting the wrong information or misinterpreting correct information means organisations risk making costly mistakes in terms of how they assess and estimate their assets and liabilities.
It's clear that business leaders have the responsibility to manage a seamless run-off whether they keep it in-house or outsource it. It is their corporate responsibility to their shareholders and stakeholders. However, in some cases dysfunctional management practices lead to outside organisations having to step in and pick up the pieces. The dream ticket is a clear strategy for bringing the operation to a close by finding the most responsible and cost-effective way to handle operations up to finality.
And managing run-off seamlessly can only be helped by complete codification of the process. Then and only then will run-off come of age. Fortunately, a formalisation of the processes accompanied by strong and coherent guidelines is not far off. With this coming of age I believe that the live side of the market will wake up to the potential of run-off. Indeed, it has a great deal to learn from run-off in terms of its processes, dynamism and efficiency as well as the quality of its people.
Meet the experts
Who should you be talking to when you go into run-off? David McGuigan, chairman of the Association of Run-off Companies (ARC) gives some pointers.
It is crucial for any organisation that it is contemplating or is forced to consider run-off to consult the Financial Services Authority (FSA). There are other bodies that can also help, but there is no one-size-fits-all scenario for companies considering run-off.
To an extent it will depend on what type of company it is but, for example, members of the International Underwriting Association (IUA) should be talking to the IUA. Likewise the Association of British Insurers (ABI) will be able to advise its members and Lloyd's syndicates should consult the Corporation of Lloyd's. However, the only specialist in the field is ARC.
Whilst ARC will not advise on whether or not a company should go into run-off, it will talk the organisation through the run-off process, pointing out potential pitfalls and obstacles. ARC is able to do this because all its members have been through the process before.
More recently, companies have the option of whether to manage the run-off themselves in-house or to outsource it. There are now a number of professional service providers specialising in run-off administration which will often give free advice in the anticipation of a potential new client. At this point the accountants, actuaries and lawyers should also be consulted.
Every organisation contemplating run-off must also consider staff morale - who you must keep and who you have to let go. This will be true even for outsourcing because some staff may move with the business. The company must also decide what it will do about IT systems as this can be crucial. All in all, it has become clear that outsourcing is increasingly the way forward.
The decisions taken have to be explained internally and externally, and here marketing and PR specialists can bring their skills to bear in terms of issues and reputation management. In particular, if it is just one book that is going into run-off (i.e. part of a larger live concern) then the marketing and PR specialists will be working in higher gear to ensure that stakeholders and the marketplace understand the strategic nature and business thinking behind the decision.
Making a success of the run-off process means talking to the right people in the right order about the right things - and that means industry bodies, professionals and, of course, the troops on the ground.
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By Jacoby Thwaites
Jacoby Thwaites is joint managing director at technology company Michaelhouse, tel: 020 7256 9256,