The London market's inability to settle on common IT standards is well documented. From time to time, initiatives have arisen threatening to introduce state-of-the-art standards of efficiency and cooperation on the market's various participants. But, one by one, most of these attempts have underachieved, come to nothing or faded into obscurity. The one notable exception to this rule has been the central processing bureau for Lloyd's and the International Underwriting Association (IUA). This, whilst somewhat archaic, succeeded - where many others have failed - in coordinating at least one of the market's essential central functions - the centralised processing of accounting and settlement of premium and claim transactions. However, technological collaboration on any meaningful scale between the individual broking, insurance and reinsurance companies - true 'e-commerce', in other words - has yet to be achieved. This is not to say that efforts have not been made. Many senior people in the market have spent many long hours over the years sitting on committees attempting to progress one initiative or other (the list is too long to detail them all here). Nor does it indicate any general lack of investment in IT by participants in the London market. Each year companies in the market spend millions of pounds on the latest technological developments trying to make the transaction and processing of reinsurance business easier, quicker and cheaper. However, much of this investment is directed towards 'point' enhancements of old systems or as a response to the consolidation of companies that has been such a prevalent feature of the market in recent years. So it is probably fair to say that too little of this investment has been directed towards the key challenge of establishing better technological interaction between individual market participants and their trading partners.

Sharper focusHowever, there are some signs that this situation is starting to improve. The reinsurance industry has sustained some heavy blows in recent years - both to the asset and liability sides of the balance sheet. This has resulted in a sharper focus on the need to realise cost savings and to introduce more efficient working practices, tighter underwriting controls and improved data sharing between companies. At the same time, effects of Moore's Law, the dot.com bubble, and the global economics of computer hardware production are all driving down the real costs of computing. And, of course, we have that priceless commodity of experience - we have seen which concepts work and which do not, and the best ideas have evolved.Technology has taken on a new significance as one of the most effective ways of achieving these goals. Unfortunately there are a number of choke points preventing this. One is human, one is process related, and one is technological. The human choke point is a tendency to Luddite behaviour in even the best meaning of people. But that is changing under the sheer pressure of technology now in people's lives. Twenty years ago programming the VCR was advanced nuclear physics to most people, but now we all are texting, emailing and surfing the net (although we still tape the wrong TV show). Where people used to fear technology, now they are simply annoyed with it when it does not all work in unison: "I want the same address book on my email, mobile phone and PDA!"The process-related choke point is that all players in the market are roped together by the need to agree on common data exchanges. Anyone who has sat on a committee will know what this means. Compounded with this is the tendency to repeat the mantra, "I'll do it, if you do it". Past experience has left a bad taste in most people's mouths, and no one is keen to be an early adopter of something they suspect will never get off the ground. Unfortunately, this often turns out to be a self-fulfilling prophecy. Two things should offset this. The first is the work being done by ACORD to produce a global standard for data exchange. This not only provides a much- needed standard, does it in an apolitical way that everyone can adopt. Established in the 1970s, ACORD is a non-profit organisation that has become a champion for XML and other standards for electronic data sharing. The ACORD standards are a set of guidelines providing a common framework for communication. They allow different organisations to transact business electronically on a relatively seamless basis, thereby increasing the efficiency of the entire industry. The second offsetting factor relates to the flexibility of XML as a toolset. The old EDI formats were complex and arcane, and needed extensive amounts of specialised knowledge to understand. XML is understandable and more importantly extensible, i.e. it is built to be changeable.

Technological choke pointThe technological choke point was amply demonstrated by the millennium bug issue. When systems were written back in the last century, hardware was expensive but the systems were not expected to be around when the clocks rolled into the next century. But old systems are hard to kill. The economics for patching are always better than those for replacing. However, these economics do not factor in the costs of future changes. The costs of replacing one system's architecture with another and the associated migration will always be high, but unless this is done, the cost savings of that new architecture both in terms of reduced hardware costs and future changes can never be realised. Many companies have realised this and are starting to make their moves.As a relatively new entrant to the reinsurance sector, the Alea Group had the benefit of starting without these choke points, or at least with an acute awareness of them. Beginning a new lease of life in 1999, we were able to set up with the 'best of breed' hardware and software, and to design our systems to meet the challenge of constant change. We knew that much of the early growth in Alea's business was to come through acquisition of other business units. This meant taking on a variety of operating systems in different countries and adapting these to talk to one another in a way that supported efficient operating procedures. This is not a unique challenge in the market in fact it is very common but above all we have attempted to build in flexibility to change through a component-driven approach. This was possible because we could take advantage of the latest evolution of technology and development concepts.

Clarity and controlTransparency and control are key watchwords for Alea, which is why we have developed a consistent underwriting system across all of our business units, and a reporting suite that can gather together all of our data across separate data sources. We developed the underwriting system to use XML natively. The XML language may appear to the jaded eye to be just the latest fad in computer 'technobabble', and only time will tell us otherwise. However, we have found that XML has a huge amount to offer in terms of flexibility, performance, and portability - in addition, of course, to the possibilities of data exchange with our business partners.Using an XML-based system has allowed us to build a technologically connected organisation and also laid the foundation for smoother and closer interaction with our partners and clients - one of the key challenges that many London-based reinsurance companies are still struggling to overcome. A driving force behind our efforts to develop these capabilities has been Alea's membership of the US-based IT standards developer ACORD. Although the majority of its 15,000-plus members and affiliates are based in the US, more and more reinsurers and brokers from the UK and other parts of the world are becoming aware of the benefits of adopting common standards. In the future, as a growing number of companies develop their e-commerce operations, more and more of them are likely to make use of the ACORD standards, particularly if they are doing business with US companies. There could, and arguably should, be a single process and a single language for insurance industry companies when they transact business electronically.Talk of paperless offices tends to invite a certain amount of cynicism these days. But the adoption of common electronic standards in London does hold out the possibility of reducing the market's costs significantly by cutting the number of documents that have to be printed off. This would remove much of the need for the army of brokers who spend much of their days carrying piles of documents from office to office. These individuals can then be redeployed to more profitable pursuits, with productivity benefits to all parties. Allowing different systems to communicate will significantly reduce the amount of re-keying currently required - reducing error rates, speeding business flows and reducing expense.Most of us have heard this e-commerce utopia described before. It has been promised time and again, but not until the everyday adoption of technology, the advent of ACORD and messaging standards like XML, and the lowering of technological hurdles has it been economically viable. What is needed now is a general acceptance within the market that the landscape of the 21st century is different and makes e-commerce possible - and the will to make it happen.We have learned from experience, through the progress made at Alea, that disparate systems can be configured to interface with each other. We are now moving on to build connections with our trading partners. We have begun proof of concept tests with a number of our trading partners for differing parts of the process in the UK. We are also talking to other trading partners outside the UK about ways in which we may be able to interact using 'e-commerce' initiatives in our other offices to improve efficiencies and thereby strip away some elements of our operating costs. This has been possible largely because of our membership of ACORD and our use of its standards. As more organisations agree to start similar initiatives, aimed at levelling the data transfer playing field, the companies which make up the London market can at last begin to exploit its strengths to even greater effect.By Patrick TalbotPatrick Talbot is Senior Vice President at Alea London Ltd.