Global Reinsurance played host to a recent roundtable discussion, which examined how technology advancements have affected the London market. An intriguing debate ensued.
The moderator and the participants were:
David Wilson: I was involved with the LMP project in its early phase. We had high hopes for an electronic slip in a standard format. How is that going Anne? I believe that you're involved in that.
Anne Jenkins: Regarding the benchmarking programme, we haven't been that involved with LMP (the London Market Principles). As far as I am aware, the LMP slips have been successful for this year's 1/1 season. The LMP slip is being implemented. In terms of e-slip, I can't comment.
David Wilson: Has anyone got any thoughts on that?
John Bobin: It's a step in the right direction. It's a clearer understanding of what should be included, where it should be and although there was some resistance initially, that's no different to the resistance experienced when people said, "We must have concertina-style goatskin slips and we hate A4 slips." There will be an adoption of the e-slip but not overnight. It's something that will gradually grow and something that the market has done anyway.
I mean I'm relatively old, but if you go back and you look at cables, then telexes, then faxes, then emails and now people are beginning to use repositories. People should begin to think of it as just another tool. It's a gradual evolution which will make people more comfortable with what's happening.
David Wilson: Do we know how much business is going electronically now at the placing stage?
Ashok Gupta: I can't give figures. The electronic slip is at the heart of what we're doing and there is certainly huge demand for it. But what we find is that people want to use it in different ways. For people who like face-to-face negotiations, all they want is to capture the information electronically at the end of the process. Some say what they want from the electronic slip is to be able to support the negotiation throughout the process. And others who want to do as much as possible electronically, particularly in situations where they agree the terms upfront and then use technology to support the process once it has been set up.
I don't think there's a homogeneous usage of the electronic slip. What we're trying to do is to make sure that we can adapt to the different ways in which people wish to use the electronic slip and to support that.
John Benjamin: I think that's right, and if people can take a more holistic view of the way they use systems to make certain that they do use recognised international standards, the ACORD standards, or move towards that. If they are actually driving production of an electronic slip or lodging documents in a repository, they want to be able to do that as a byproduct of what they're doing every day in their core system, rather than having to do something different for this market and something different for these people.
John Bobin: Absolutely. So when you offer people an additional piece of functionality out of, say, a broking system or an underwriting system, it's much easier to sell that to them than saying, "You've got to do something totally different and change everything that you're doing".
Ashok Gupta: Absolutely. If you say to people, "Here's your back office system, and here's your system for the electronic slip," that's a big turn-off. It's a new system and they've got to learn to use it. Whereas if you say, "Here's your back office system, the data is extracted from that to produce the electronic slip..."
John Bobin: So you don't have to re-key it. You don't run the risk of re-keying it wrong.
David Wilson: The key point to that is that you've got to have recognised data standards and identities and descriptors. And that was always a challenge. Is it still a challenge?
John Bobin: I think it's still a challenge. But at least ACORD have been very supportive in that process and various people around the table are already working with ACORD on the London market process analyses. The repository infrastructure group has been working with Xchanging as well. But that also needs to be tempered with a commercial reality. So if someone said to Amlin, "Would you like a brand new system that's 100% international ACORD standards?", they'd probably say, "Yes, but how much will it cost and how long is it going to take to deliver?" It's a question of moving towards this realistically rather than doing it overnight.
David Wilson: John, how do you manage in identifying counter parties without a definitive kind of registration system?
John Benjamin: Where transactions are simple, it is highly structured, the fields are highly defined, and you can do that; perhaps because those are easier messages to describe.
But I think you're talking about degrees of complexity sometimes within the risk. You can draw a scale of complexity, and then consider manual to electronic processing. There's a real recognition that there are different kinds of risk complexities that we're dealing with. The reason perhaps why people have balked in the past is because, if you design a highly complicated system, people carrying out simpler tasks see it as way over the top. We need to accept different ways of handling things.
One final thing about commercial reality, one other strand that I see is the issue of ambiguity. Many people will avoid thinking through the ambiguity of something preferring to put `TBA' or a squiggle. My guess is that the FSA (Financial Services Authority) is going to say, even in our world which is largely business-to-business, that's not acceptable or it is illegal to do so. It will see the end of the pencil slip. I have no insight on this, but if I were in the FSA I would be looking at something like electronic slips as an alternative method.
David Harris: From our perspective we're recognising that. We're putting together a combined structure now to prepare ourselves for the time when we have electronic slips. I think the point about complexity is a big issue, because defining what is complex and what is not complex is extremely difficult.
John Bobin: I think we all agree the commodity stuff, the repetitious stuff, etc, need to be automated as much as possible using rules-based engines, using straight-through processing, automatic claims payments for small items. They are worth handling, but you've got to actually cut the cost on most kinds of risks otherwise nobody wants them. In the middle you might have things which suddenly pop out which don't quite fit the rules that need to be dealt with by a person. And perhaps at the very top we can actually enable people to spend quality time on your big hydroelectric dams and your multi-layered treaties and things like that by automating the lower level things.
David Wilson: Anne, you've done some sampling of these slips and we need to look at these timescales for the benchmarking. How many of the slips sampled had all of the fields collated that you needed?
Anne Jenkins: We didn't look, in terms of the slip, at the exact detail on the slip and whether it had been entered correctly. We looked at the time taken to process, when placement was complete, etc, and also the policy documentation. So in terms of what is complete, that side we haven't looked at. We have had discussions about what is driving the process. In order to get to a standard slip format, moving towards the LMP slip, that has to be a change of mindset. So in terms of translating that to an e-slip, there is going to be another step.
Particularly for the simpler operations, it is going to allow people to invest time on the complex activities and take away the time for the transaction-based activities that will go through. But there still remain issues with changing the slip.
David Wilson: Subsequent to the attachment?
Anne Jenkins: Yes.
John Bobin: The quality of slip production is quite often not very high. I've spent a long time working for Heath and then for another broker. Some of the slips I saw were awful. I was talking to one of our clients, a large and well-respected broker. Their back office people maintain that about 80% of slips that come through to them need to be rejected back to the business units. There should be some way of using a rules-based expert knowledge system to state that for this kind of slip you need this policy or that clause. This makes life easier for people to say to the underwriter, "We know we've got the right information on the slip." And there will be less ambiguity about what's covered. You don't want people to say later on, "Is this claim covered?" You want them to know.
David Wilson: What's your take on that, Alex?
Alex Mattalaer: Effectively, yes. These things have certainly been experienced by our people. What John was saying about having different categories of complexity could help catch those ambiguities, those omissions earlier in the process, making it easier to extract reasonable data.
David Wilson: How far have we got with definitions of risk categories, of counterparties? There was always a problem, having worked with Equitas, of identifying the successors of the original risk carrier because of changes, mergers, or pools. Is there a definitive?
John Benjamin: Not as far as I'm aware. My experience is that in terms of the `whodunnit', the mystery goes on. Lloyd's introduced more stringent methods for following, after the early 1990s. But company restructurings subsequent to that still make it very complex. So that's another strand - companies' activities subsequent to the establishment of a risk are still complex.
Coming back to the electronic slip, it is really about registering clarity. The LMP slip was trying to give clarity, trying to stop people doing freehand slips. It strikes me that with the advent of electronic information there are many other elements that one could have, because a slip is not substantial enough in itself. With the ability these days to store unstructured data, the capability is not just to have an electronic slip which is a good fit, but also to have the ancillary information around it that was disclosed. My experience over claims disputes is very often a dispute over what was disclosed. "You didn't say he had been working in an asbestos factory for ten years before I started to insure him." This regularly happens, particularly on liability often many years later than the issue is in dispute. You can have clarity with a slip, but you should have the documents that were or were not disclosed at the time, also recorded, as it were `date stamped'. So no one can either take away or add subsequently.
David Wilson: The slip is an index really to that information.
Ashok Gupta: I think it's not so much about the electronic slip per se, but the capture, transfer and monitoring of data so that you can say at any one time who put in that piece of data at that time, and getting the correct information at the right time.
John's point I totally agree with. It is fundamentally about commercial drivers. `Regulation' is a key word. The drivers are different for brokers and underwriters. For the underwriter, the key issue is getting the right information early enough in the process to enable you to assess risk, particularly for large property risks.
John Bobin: Also for the re-use of information, so you don't have to key it again. If it's on one system and you need it, and you've got controlled access to another system, why not use it again? If it happens to be in a broker's repository and it needs to be squirted into Xchanging's repository, there is no reason why that shouldn't happen and that's what ACORD are looking at now.
Ashok Gupta: For the broker the challenge is different. The challenge is the paperwork, the volume stuff. How do we actually process the volume stuff in an efficient and economic way?
David Wilson: On the subject of standardisation, there is talk about the company and the Lloyd's markets coming together. Who is now the enforcing authority? There doesn't seem to be a single controlling authority.
Ashok Gupta: I'm relatively new to the Lloyd's market, but my view is that if you try to push something on the London or Lloyd's market, they won't accept it. In fact, the way to make sure it is rejected is to try and impose it.
The only way to impose it is to follow the commercial drivers. One such driver is that people realise that allowing you to do something 67,000 different ways is not economic.
David Wilson: Nobody can argue with that. The work that REL is going to do will identify the frictional impact in terms of time of these different varieties and the financial impact. However, while there may be 67,000 ways, if you ask any one of those 67,000 people, their way is the best.
John Bobin: On the issue of standards, you talked about who is actually making people do things. ACORD aren't making people do things. They're adopting a seductive approach, saying, "If you want to work with us in using existing standards, or helping us to develop new standards, then we can work with your trading partners as well. And if you have something, you don't have to re-enter it, you don't have to print it off, you don't have to carry reams of paper." You can make sure certain things are automated as much as possible. You can say, "This is how we're going to make your life easier, this is how we think you can improve using repositories," for example. It is a question of telling people how to do it from the ground up. You have to make it easier for them to implement a better way. You have to convince the coalface people.
David Harris: I think it's a sea change. The individuals who are increasingly coming through the hierarchy in organisations are much more used to technology.
John Bobin: You can also look at the integration of legacy systems as well, can't you? We may have a system which might be an old lady, but we like it because it does what we want. We don't want to throw it away yet. So what do we do with it? We do a nice web URL. We can browse the thing, integrate with other systems, make certain that the messaging is brought up-to-date as much as possible. We can link it to the repository, and link repositories to repositories. All of which can be done now without people really worrying too much about them. So you don't necessarily have to throw the baby out with the bath water.
John Benjamin: I think the economic drivers that Ashok referred to, together with regulation, will become more important. It's not just more senior people in organisations who are familiar with technology. There is a new breed of management within insurers who are running their businesses like `conventional' businesses. They are feeling much more accountable to shareholders, for the performance of their business, etc. The normal things that have been missing from the London insurance markets are almost minute-by-minute coming through.
I come back to competitive advantage, my company versus yours. These things are going to have strong commercial drivers because for brokerages there is huge scope for cost saving because it's almost inherent within the makeup of a broker. After he's made the sale, drawn the income, everything else is almost an expense. It's an administrative expense. So there are huge things to go at.
Similarly in underwriting. Underwriting is much more clouded by the risk element. But it doesn't matter. In both parties the money that can be saved and therefore the improvement that can be gained on the bottom line, I think is one thing. So I would say that's a driver.
The second driver is that competitive advantage can be gained by the speed and efficiency with which you conduct your activity as far as the customer is concerned. What we're seeing is consolidation. And when you have consolidation, customers become wiser. No longer can I say, "I can't work out between you 500 insurers in the world which one is best." Once you come down to 50 major insurers, then you can begin to see that number three is better than number four. What we see so often in insurance is what the customer feels about insurance is a claim. You may forget when you renewed your car insurance, but not the claim that you had on it.
John Bobin: And the fact that you've argued with them because they wouldn't pay you...
John Benjamin: They will start to pick up on which is the company to deal with because, "I have five claims this year and they were all done typically within three months or whatever figures you want, whereas company Y..."
How these things are going to affect competitive advantage not just in cost but also in real customer service in a consolidated market will start to drive it.
John Bobin: Customer service is important because it's so hard to get new customers and much easier to look after them. If a claim is within cause, quantum and coverage, it should be paid as soon as possible.
On the other hand, the underwriters would say, `If we're going to pay the claims more quickly, we want our premiums more quickly as well'.
John Benjamin: It works both ways.
John Bobin: If you're a broker and you've looked after a client well, they'll remember that and they'll stay with you. That's very important. The claim is the only thing we serve.
Ashok Gupta: What we're seeing happening, which is really only starting and is going to last for the next five years, is a trend towards insurance learning to focus on the core competencies.
John Bobin: That will come out in the FSA stuff. That and accountability. People will want to know, who did this? When did they do it? How did they do it? Which version did we look at? Was this the application form that the underwriter saw? If you make that clearer and unambiguous, you save time, you save dragging it through the courts.
David Harris: That comes back to the point about capturing all the information, so you can record the decision.
John Bobin: But generally speaking, you can say to an underwriter, "Look, this is an unfortunate thing but this is what you saw", and a reputable underwriter will say, "Well, the intention was to cover that" and will pay it.
David Wilson: You've talked about brokers. Brokers are a diffusion stream between insurer and client. They're not a lens, they're a refraction. The quality of service is dependent on the broker, as are the quality of information and speed of settlements. So how does the client differentiate between the good broker and the good insurer? Does the good broker performance manage the insurer, or does the insurer manage the broker? Where does the broker fit into that?
John Benjamin: I see the broker within this whole debate about electronic data and information. As I understand the brokers from talking with them they are addressing some of these issues within their businesses because they deal with millions of policies per annum. When dealing with millions of anything, a system has got to make sense. There are all the advantages of cost, etc, but also that ability to serve the customer will come through.
What I think is beholden to insurers to do is to focus on the way that they can relate. So as brokers move up the technology ladder there isn't suddenly a big gap. We have a role within Xchanging because we have a lot of interface with brokers. But similarly, with underwriters as well, to make sure that the information, the striking of the deal having been done with more sophisticated, electronic devices, you then start upon the transfer of huge amounts of data. But it typically emanates from the brokers, we know the processes, it comes out from the broker post the deal having been struck as it were, and then it is how it is handled thereafter.
It also comes back onto the claims side again, which is when insurers start to get involved. Suddenly money is going potentially in the reverse direction. The issue about accuracy and clarity of documentation becomes particularly important at that stage.
Ashok Gupta: The other thing to recognise in terms of the channels a broker has is that quite often the broker we see in London is not the start point. Quite often you have the retail broker in the US, wholesale broker in the US, wholesale broker in London and then the reinsurer. If you really want to get the detail to the insurer, you must start with the risk manager and then think how you get the information from the risk manager to the retail broker and then to the wholesale broker and then to London. There's a danger of looking at it purely through the lens of the underwriter. Clearly the underwriter needs the information and needs to have it in a form that he can utilise. But if you're going to get that, you must establish how to make this work for the retail broker. How do we enable that retail broker to look a hero in his customers' eyes?
John Bobin: Reinsurances and retrocessions as well.
David Wilson: Brokers earn their commission and take it to their accounts on day one. Insurers earn their premium but have to reserve for the cost of managing claims in the future.Will we see brokers being required to reserve the cost of handling future claims and will that change their attitude?
John Bobin: One of the FSA's proposals is that brokers will not be able to take brokerage onto their books straight away. They'll only be able to take it into their books when it is actually realised, when the premiums are paid.
David Wilson: I cannot understand why the FSA are not going to require the broker to reserve the responsibility in claim management. If you look at the FSA's view, they're trying to prevent damage to the reputation of the market and damage to the consumer. If a large broker goes bust, who suffers? The policyholder, not the insurer.
John Bobin: That's why they want segregated client accounts in future.
David Wilson: But that doesn't help if they release all the money. Will brokers progressively decide it is not worth the trouble of maintaining this deep relationship with the client? They become a marketing operation rather than administrative.
Ashok Gupta: The pressure on the brokers to focus on their core competencies is equally as strong as it is for underwriters. Their core competencies are around placing risks, around structured risks, around negotiating claims - delivering a service to the customer which the customer values. Brokers are under enormous pressure to do that and we're seeing quite significant moves within the brokers to really improve the service they give to their customers.
Alex Mattalaer: The administrative aspect of what brokers do becomes simpler and simpler through technology. So they have to focus more on the service aspect which is their only reason for existing.
Anne Jenkins: And they are. We've been looking at services and how you can change that. With the processes that involve the market, you are fixed because they are market players and you can't change the performance. When you've got an external process, ie dealing with the customer, you can improve your performance and make it significantly different from other brokers. That's what their target should be in terms of how they're getting the premium in, the claim back and the paperwork out. That's where they can make a big difference.
John Bobin: John was talking about different levels of complexity. The different levels of complexity also affect how much disintermediation might affect the brokers in future. A lot of small commodity business can easily be done without a broker. But the real skills are in travelling, producing the business, repackaging it, relayering it, doing your retrocessions, processing the claims properly. They're the things that really add value.
I've actually occasionally had people say to me, "Why should I buy an electronic processing system or electronic repository? I'm happy to see people. What difference does it make?" I say, "If you really wanted, you could try to place business with underwriters by just buying a yearbook and faxing 20 people." He wouldn't get anywhere because, if it is a large risk or a complicated risk, he wouldn't know what needed to be done to it to make it attractive to an underwriting panel.
David Harris: The point about the commission side actually pushes us more towards saying, "Have we done enough on claims in general?"
John Bobin: Probably not.
David Harris: Because it's always at the back end of the chain. In terms of the efficiency, and achieving consistency of process, there's far more we could do on that side. And probably it would be easier, as a market, to adopt those processes.
John Benjamin: If I believe that my customer does value the way that claims are dealt with, then it's actually an opportunity to perform better.
David Wilson: There must be mixed slips in some number given the way that companies are now operating through Lloyd's. Are we still seeing a lot of resistance to the lead management of claims for companies?
John Benjamin: I haven't seen anything. Within the Lloyd's marketplace, I haven't witnessed anything specific. Are you talking here between the company market and the Lloyd's market?
David Wilson: Yes. Must the claim still be approved by each of the names on the slip?
John Benjamin: Within different systems. Within the company market, yes. Within the Lloyd's market, maybe, you have leader and then peer review as the thing goes. I don't think it's wildly different. That is not the issue as I see it; the issue is the amount of time and confusion that has to be gone through for whoever has to approve it. That is the Achilles heel of, I wouldn't necessarily say London any more than anywhere else. We've examined process flowing and how claims are settled. The big thing one sees is a consecutive process. The whole thing drags. It is a series of consecutive things. Where people have looked to shorten time scales, for example in product development of cars, they all went parallel. They all end up saying, "I can't wait until that part is complete."
David Wilson: But you can only do that if it's electronic. Otherwise the paper has to go from place to place.
John Benjamin: People talk about the disinclination of the insurer to pay the money. But actually it's much more obscure I think than that, much less unthinking. It is that the process itself has taken time. It has cost a lot of money and it can be done in parallel.
David Wilson: There is a huge economic cost however everyone looks at it. It's a relative thing.
John Benjamin: It is back to segmentation. There is some segmentation as well as overcomplexity. On claims there is the possibility of having two concepts. One, the lead factory process where simple claims, in which you can structure authority levels, can be put through.
John Bobin: And electronic rules.
John Benjamin: If you like. You want to have validation. And then the segmentation into ones where lawyers and loss adjusters really do add value. At the moment we have this awful mismatch of the two. Electronics can help both of those issues.
David Harris: The Lloyd's principles have significantly improved the process by which we're able to push them too. In answer to your question in terms of the company market there's still some work to be done there and as the market combines more and more, that is going to be an increasing issue for the likes of John.
David Wilson: However efficient you make it, is it inherently inefficient?
John Bobin: Part of the problem is that there is a wait and see attitude. Let's see how many people buy these repositories.
One of our trialists in a market repository service trial that we conducted at the end of it said, "Great, love it." And we said, "How many licences do you want?" "Well we'll just wait for a bit," was the response.
David Harris: Do you think this would save you money at the claims processing?
John Bobin: Undoubtedly. They claimed by about 30%-40%. And we said, "Why don't you want to do it now?" They said, "We just want to wait until there are enough people so that we know that when we've got a slip with seven or eight people on it we don't have to do seven or eight different things."
David Harris: That's what is interesting about the way Kinnect have operated. They've got an initial launch group together. And then gradually you call other non-participating organisations into it. Because if they're not playing they don't get a competitive advantage.
Ashok Gupta: We gave a lot of thought to how you build critical mass. The problem in the London market, the larger market, is you're dealing with a network. Technology can really shorten the business cycle and improve the service. But the benefits are a function of how many people are using the technology and that's proportionate. How do you actually build up critical mass within a networked community? And the best way we found is to establish a core group of people who recognise that they can get competitive advantage through using the technology, and use that core group to build up a degree of critical mass. Once you've got those half a dozen people implemented, then their trading partners want to be involved. And others say, "We can see they're getting an advantage and if we're not part of this..."
John Bobin: You've done that a sensible way. You've talked to various different suppliers like us. You've been to see our user groups and said, "This is what we're thinking of doing" and they've either said yes or no. The work done by Kinnect has been highly receptive to the requirements listed by the initial launch group.
Ashok Gupta: My starting point was knowing nothing about Lloyd's and the London market. Coming in fresh, the only logical thing I could do was talk to users. So everything that we've done has been driven by users. The system is designed initially by upwards of 40 companies involved in designing the system, the platform, plus the core group of people, and the team who are actually attempting to second-guess the customer. We're allowing ourselves to be driven by what the customer is saying they need to happen.
John Bobin: In my early talks with Phil Bungey, the CTO of Kinnect, he said that initially what was then Blue Mountain would have liked about 80% of the time people to be doing things in the interactive web browser, and maybe 20% with some message supporting. Talking to people, they say, "Well we don't do that, we want to do it the other way. We can do it out of the back of our brokering system and squirt it into Blue Mountain and from there to Xchanging, so that we don't have to re-key things, we can actually do things on a straight-through basis."
Alex Mattalaer: Changing, learning new things again.
John Bobin: They don't want to do it.
Ashok Gupta: One of the things we as an industry are getting better at is implementing new systems, and the change of management associated with that. The way to get users to adopt a new system is to actually change as little as possible.
Alex Mattalaer: Keep the change threshold as low as possible.
John Bobin: The other thing is to not cater for 100% of everything that you'll ever come across. Someone might say, "On the 27th of the month, if it's a Sunday and if it's 11.36am, I need to place this green case like this." And you reply, "Well that doesn't do that. So maybe then, we introduce index fields and some supporting information in the repository and you can do that. Everything else we can automate." You can't automate everything.
Alex Mattalaer: It's harder to achieve that because he has to think. It's easy to say, "Well we need to cater for that scenario about the Sunday, so we'll build it in." That's easy to do.
John Bobin: But then things don't get delivered. And when they're delivered, they're not what people want. But it's now actually Monday morning that they want it done.
Alex Mattalaer: It's forcing people to assess how important it is in the grand scheme of things. It takes work. Everyone piles on their requirements and you spend months wading through it and you end up with something simple but effective.
John Bobin: Sometimes the technical experts say, "This is really exciting, this is the new way of doing things, this is really clever." But the business user doesn't care whether it's clever or not, they just want to do their business. And if the system gets in the way, that's a problem.
David Wilson: There is a lack of transparency on what the cost and the benefit of technology have been in the London market. You don't see hard evidence for the cost benefit analysis of technology in the London market. What can electronic trading do to save you money and how much must you spend?
John Bobin: If you ask six different people you get six different answers.
David Harris: It's also driving those benefits through and making sure implementation works and making sure it's cheap and then publishing what has been achieved.
John Bobin: Sometimes you have to spend money to save money later, and people are reluctant to.
Ashok Gupta: What we are seeing coming into the London market, the Lloyd's market, is far better accountability, driven by the advent of corporate capital, where people are accountable to sophisticated shareholders further up the line. It's a new generation of people. How many at this table are new to the London or Lloyd's market in the last five years? I certainly am. John, I think you are, and David, you are. It's bringing in greater accountability, greater discipline. We are finding that customers want rigorous cost benefit analyses, not something done on the back of a cigarette packet. And those who are happy to do it on the back of a cigarette packet, we're finding that, once it gets further up the chain, somebody demands a rigorous cost benefit analysis and they are caught out.
John Bobin: There is a new, more open and transparent attitude in the London market. People are asking how they can work together. Brokers and underwriters are saying, "We deal with each other all day long every day, how can we enhance that relationship? How can we make certain you can reuse data that we've already got, that we might have got from a client, and how can the underwriters then re-use that data for reinsurances? Why does he have to enter it again if he doesn't want to?" The more you re-enter something, the more exposure you've got. It does mean you have to tear those barriers down and that if you are working well with someone, you've got to improve that. If you're not working well with somebody, you've got to say, "How can we be more open?"
Software suppliers all know each other. They've frequently got clients in common. And if, for example, one of our clients happens to have bought something from somebody else and he needs to integrate that in order to perform his business, it would be sensible for us to help them.
Alex Mattalaer: Ultimately, we gain more in the long term by working together than trying to keep everything to ourselves.
David Wilson: There's no macro cost benefit case. There's no case for the market.
Ashok Gupta: I disagree with that. I came from CGU and was used to having to do cost benefit analyses to get justification for investments within CGU, and we were pretty good at doing that. And we did them pretty rigorously. What I've found in Lloyd's is that you do have to do them within Lloyd's. I find that the level of justification you have to do and the level of business case that you have to do to get buy in from all the different constituencies, that comprise counsel and our own shadow board, is a multiple of anything I ever had to do within CGU. The disciplines applied on expenditure in investment, expenditure in technology, within Lloyd's are actually very strong. What they don't do, and what I think it would be totally inappropriate to do, is make those public.
David Wilson: I'm thinking of the market as a whole.
Ashok Gupta: What do you mean by the market as a whole? There isn't a market as a whole, rather constituencies within the market, and each constituency has to decide whether it's in its commercial interests to spend money on technology.
David Wilson: Let's take another issue. Was Lloyd's right to allow service companies to effectively take that volume of low simple electronically capable business out of the market processes? To what extent are you going to be left with the really complicated stuff?
John Benjamin: That's not necessarily so bad. Truth will out generally in the commercial world. If complex things are best done over here, simple things over there, and that's the right way, then you will arrive there anyway.
John Bobin: But there can be a down-side in moving what was a market service area into a commercial area. I understand why there is a down-side, because obviously you're a totally different animal to LPC and LPSO. But in the past it was probably easier to get to how we do things, how we can work together for the good of the market than it is now, because I think Xchanging have got a particularly robust attitude to the way in which to run your business. It's difficult. We've got these individual commercial people like Xchanging and various others all trying to make a buck, hopefully working together, sometimes working together, but not always.
David Harris: I'm not sure I agree. The way this has been approached will be a catalyst for change in the market because they've gone into a commercial enterprise where it cannot be cost-effective.
John Bobin: It can be effective, but it needs very receptive attitudes from Xchanging.
David Harris: That's why Xchanging and Kinnect and others will use this pull strategy to gradually move the players forward, and that's what's going to make the difference.
John Benjamin: It's an interesting thing because you can focus on the pros and cons. This market is littered with failed initiatives. I don't think you can look back through rose-tinted glasses to say that was fantastic. I don't see it operating. Has it created the efficiency of running of the marketplace that we would wish to have done? Well, I think not, because we are all sitting round this table saying there's a lot to be done.
There are parallels with the London Stock Exchange. Going back before the early 1990s, UK companies were viable things to invest in. But by the early 1990s, the cumbersomeness of the London Stock Exchange had grown so bad that companies were floating in Germany or the US. The London Stock Exchange at that point introduced robust reform. To cut a long story short, it's been very successful. It's turned that marketplace around.
David Wilson: They had a monopoly though. They had a monopoly over the transacting of securities.
John Benjamin: Well, they did. Other than people were saying if you don't sort your act out, I'm going to go elsewhere. But yes, in that context.
David Wilson: In a sense there's no over-arching control of the conduct of insurance in London.
John Benjamin: I'm sure all of us have dreams when you simply become the dictator because you can get all these great things, but we don't. If the world would see the world the way that I do and see the London market the way that I do, that would be great. But it doesn't and therefore you have to live in that world that you're in.
John Bobin: There are many episodes of failed initiatives in the past. But there are also some good things that were done in the past. Obviously, a lot of what LPC and LPSO did in the past has worked, such as the EDI messaging and daily statements and laws. So I don't think we should necessarily say everything that was done in the past was wrong. I think there have been some good things as well.
John Benjamin: I didn't say that. I was merely saying if you are holding up that as a model for perfection, it clearly wasn't.
Ashok Gupta: I think an interesting point is, do you believe in profit motivation as the most effective method for market-wide initiatives going forward, or do you believe that it should be done on a mutual basis? The way that Lloyd's has gone about both creating Xchanging and creating Kinnect has indicated that they believe in the profit motivation. The customers respect you more if you're driven by a profit motivation on a commercial basis that requires you to satisfy customers.
John Bobin: Otherwise you won't make a profit at all, or not for very long.
Ashok Gupta: That's quite healthy and it also leads to better accountability.
John Bobin: We are going to go through an interesting phase fairly soon with the FSA. The new regulatory regime will make a huge difference to brokers in particular. If brokers aren't certified by January 2005, and they continue to broke business, then it becomes a criminal offence. BIBA (the British Insurance Brokers' Association) think a lot of the small brokers are going to go to the wall because they won't be able to afford the compliance costs. It's a challenge, but it's also an opportunity to try and see how systems and software providers can make it easier for people. If you have to send a report to the FSA on a periodical basis, we can set rules that extract the right information and send it, with controlled access to the right people. Accountability becomes even more important. If the FSA ask how you satisfy this particular rule, it would be easier if you could say, "We rely on the system to do it, these are the rules, these are how they are applied."
David Wilson: I think the biggest driver for change in this whole market - electronic change - will be the FSA.
Anne Jenkins: Traditionally, technology has been at the back end of the process. There is a change now to shift the technology to the front end, effectively changing the end users. Because of the FSA and other things, they want to get visibility up front early on in the process, and that is a big change because they haven't used the system or if they have it, it isn't being taken up.
John Bobin: That fits in with Ashok's solution, that the earlier you get this entered in the risk lifecycle the better because you can add value to what's happening. So for example, if it was the client making some information available, you can add index and you can add your own documents. You can go to the retail broker, the wholesale broker through the bureau, to the underwriters, to the back end, reinsurers and the retrocessionaires. It's the same information.
John Benjamin: In areas that have been regulated earlier, the adoption of electronic systems has actually been a key part of how they self-regulate themselves. Having gone through pensions in the last few years, every single activity that you do is now put into the computer system. It's the only way that you can effectively pass an FSA inspection.
David Wilson: The London market would be wise - particularly those providing services to it - to make sure that you have a sensible relationship with the FSA because it's going to be a major driver of technology and it's going to move the technology up the value chain and up the delivery chain.
One question I have is, how are you going to manage the tail in the London market electronically?
John Bobin: Equitas is a good example of a sensible way of dealing with it, ring-fencing a particular problem area or niche you need to control. You remove some of the pressure because you are dealing with that in a particular way and maybe you can automate that as much as possible because it's history. History is always much easier to deal with than something new. We've got the back office information, we can re-use stuff from the bureau, perhaps. That gives you time to say, "If we've said we'll deal with the old stuff like this, what's the best way to deal with the new things?" I'd like to think that would be a practical way of looking at it.
David Wilson: My only concern is that the old stuff of yesterday and the new stuff of today, becomes the old stuff of tomorrow. And we've seen it, haven't we?
John Bobin: Yes, but we've talked about integration of systems and re-using information and many systems providers like us are looking at re-using components. We're working with Microsoft and Dot Net and their products and services, so you can use things within different brokering and underwriting systems, and I think there will be more of that in future, so that people will know that they've got a plug-in module that they can re-use. Something that integrates core standards so we can say we want to do this and our user group wants to do this, can you handle it? If it's standard stuff, there's no reason why not. Maybe that gives you more time to spend on a huge claim that needs quality time spent on it, and not on repetitious activities. And coming out of the work that Anne's doing, you'll obviously get not just the measurement of who's good and who's bad, but what we can do about this. How can we improve our performance?
Anne Jenkins: Once we know where people are placed in the market, we can start to answer the question why. Why are they better or worse? We're starting that in a month's time, assessing the first results and looking for explanations and getting people from the market round the table so that there's discussion. I think it's the first time that it's been fact-based rather than opinion-based. These are real numbers that have come out of the market.
John Bobin: The people that are doing well will tell their clients'. So whilst the benchmarking exercise won't necessarily make information public on all the poor payers providing poor service, soon people will know who's good and bad.
Anne Jenkins: People will also start to look at the front end of the process in terms of the time that is taken up there for claims, and getting up to agreement, rather than considering the back end, because they have much more visible information about the back end. They don't have the time and the information for the front end of the process.
John Bobin: It's a question of trying to move the back office stuff into the front office so you can spend more time on looking after the client. Asking how we can enhance our relationship with that client, know more about them and what they need? It's like the broker adding value to what they're doing, rather than just doing the broking.
David Wilson: Can we finish by going around the table? Shall we start with Anne? Is there anything that, in your experience, is either a bar or an accelerator to technology?
Anne Jenkins: A key thing is that the technology has been used at the back end of the process and it's actually changing the business process, changing the attitude of the people in the business process to convert to technology. Changing the mindset. LMP and standardisation will change that, but over time.
David Wilson: So you see technology changing its position in the process chain?
John Benjamin: It is an interesting time in the London market. Within 18 months from now Kinnect will be developed and Xchanging will be able to receive large amounts of data from brokers electronically. The technologies are there.
There's a challenge to underwriters and brokers to say how they are going to use this because the pieces of the jigsaw have arrived. The technology is not overly difficult, nor expensive to use. How are you going to think through your business processes to take advantage of it? There's a huge gain for people, considerable competitive advantage in the way they deal with customers, and considerable advantage in terms of cost savings.
David Wilson: Do they have the skills to fundamentally change their businesses?
John Benjamin: Lord help them if they can't, because we live in a competitive world. We need to make it happen collectively. Insurance has become global so rapidly, and will continue to do so over the next few years. Just like the rapid globalisation of the car market 10 or 15 years ago.
Alex Mattalaer: We all know this technology is a good idea, we all know people think it's a good idea, and people need to collaborate more, to work together, to share experiences. Everybody wins in the end.
David Wilson: Mutual community.
Ashok Gupta: In 18 months time all the pieces will be here. There is a new mood amongst people to actually work together. But the real challenge that we're going to have as providers of infrastructure to the London market is how do we work? It's a three to five-year challenge to establish how we work with customers to help them become more sophisticated in their use of technology. We need to be more adaptive around what customers want to do. We need to be more skilled at change management. We have to develop partnerships with our customers to actually help them through this over a five-year period. I think the London market will be a very exciting place to be, just not now, but over the next five years.
David Harris: I think we've got tremendous opportunities and challenges facing us, particularly managing change through this period. We need to focus as underwriters on the processes we currently operate, and gear them towards adopting new technology. We shouldn't just apply technology for the sake of it.
It's all about data, capture and manipulation of news and data, and the successful organisations will be those who can not only optimise process, but then use the information sensibly.
John Bobin: The software and service providers should work together more closely. There are going to be areas where we are in competition, but there have to be substantial areas where we can work together for mutual benefit to take the market forward. It will accelerate what we are trying to do and the traditional kind of broker to underwriter, or broker to bureau to underwriter interface. As we said before, it's taking much too long. It's the same data. It's crazy to have to re-enter it.
There are better ways of re-using that information. It is about using it from the very beginning of a risk right through to the retrocessionaires. But you can only do that by working together. There will be areas that we are always going to be in competition in, but we should be able to work together more productively.
David Wilson: On the basis of co-operation, how long will it be before Xchanging and Kinnect are merged?
Ashok Gupta: (Laughter) I think we have very different commercial agendas. There's lots we can do through co-operation to create a real win, win scenario. The basic propositions are significantly different, but I'm not sure that it's conducive to the success of each to merge.
David Wilson: It was a slightly mischievous question.
John Benjamin: I put it the other way round. If the two businesses were one at the moment they'd be looking to demerge them. Who can say, though, what would be right in ten years time?
David Wilson: The last question brings a human note into this `e' debate. The Stock Exchange is now virtually an empty building. In 18 months, will we see these offices empty of people? Essentially savings are people in this business, aren't they?
John Benjamin: Within Xchanging we've grown other sides of the business, specifically because of that. But, for example, are there as many people ploughing the fields as there were 30 years ago? I think it's under 20% of that number. And the same has happened in every manufacturing industry that I can think of, every service industry. So will it happen here? It has to.
David Wilson: So you're not investing in City property at the minute then!