Roger Foord argues that all the technology the London market needs is already in place. Business change, he says, is holding up the e-commerce revolution.
The London insurance market is being led to believe that it is a broken-down system, and that the rest of the world is waiting to pounce with its own innovative technology. This is almost certainly not the case.
London is still one of the world's most sought after markets for insurance and reinsurance, as well as for organisations which provide services, especially technology services. It also is very well placed with its existing technology. However, that is no excuse for complacency.
The problem with the London insurance market's technology at the moment is this: there are a lot of verbal ideas and forward-looking comments on matters such as e-commerce being expounded by various organisations, but there is none with a proven track record of IT success in the market to take these concepts forward.
From an historic point of view, many attempts have been made to deliver electronic solutions to the market, which led to as many failures. This track record makes it quite understandable that further new ideas are greeted with a lack of enthusiasm and, even, a certain amount of contempt. As a result, market practitioners are being made to feel guilty about not accepting new electronic trading methods. At the same time, the drivers of London market IT initiatives have been unable to deliver the systems they have advocated.
The result is a stand-off; London systems are not seen as being capable of taking the market into the next millennium. Can this really be true?
It could be that the London market has problems not because of technology, but because of the changes which are taking place in the financing of reinsurance in London. The whole basis of London has been the subscription market, which 10 years ago ensured that any slip included 10 or more lines written in Lloyd's or the company market. This gave the market, both company and syndicates, the chance to share in the security of any risk, while at the same time the processing bureaux were also raking in profits by providing centralised checking and settlement systems.
The arrival of corporate capital at Lloyd's and corporate reinsurers with enormous capital bases has resulted in fewer lines on a slip. In many cases “singletons” are the norm, rather than the unusual. This gives the main brokers a simple cost benefit, without the perceived hassle of electronic trading, as the costs of a junior broker are dispensed with. This does not apply to all placings, but the current volume of 100% placements is increasing and, even on shared risks, larger lines are being written.
The desire, therefore, in terms of technology will probably be for the provision of better services and information to support the processes. From this point of view, it is likely that individual organisations will take their own initiatives and create their own opportunities for expanding their business internationally.Individual insurance companies, and Lloyd's as a community, may find that individual responsibility will be the order of the day, particularly if the market bureaux such as the London Processing Centre (LPC) have to contend with reduced budgets. The solutions now available to a reinsurance company with international offices can provide technology not just for broker-to-underwriter partnerships, but can also include the client in the technology chain. If organisations encompass multi-media and internet solutions in conjunction with EDI messages to back up the accounting processes, market forces should mean that the companies and organisations which take these initiatives and understand the benefits to be achieved will “catch the early worm”.
The technology of e-commerce is not actually the rocket science which one might be led to believe. Much of it is already available and only in need of fairly simple understanding of its benefits. The whole subject is now an IT growth area, and does not necessarily depend upon long time-scales for implementation. Meanwhile, it is the one area in which large international brokers can begin to dictate new business practices to their carriers on a global basis.It could be that, together with the need for fewer junior brokers in London and non-UK ownership of the large brokers, this technology will be a catalyst for a limited use, initially, of electronic trading in London, particularly for the following markets.
It has always been the case in London that practices will only change when the man at the top is able to dictate change. To date this has not happened, but if a broker is now big enough and far enough from London, these types of decisions might be enforced. London, as we know it, might quickly change from face-to-face to point-to-point.
Roger Foord heads the London market IT consultancy Roger Foord & Associates.