Despite a number of minor setbacks, the modernisation of the London market is now well underway. Clare Bates reports.
Although the roll-out of the London Market Principles initiatives did not go quite according to plan in 2001, the London market has undergone significant reform over the last 12 months and the industry is now beginning to see definite signs of tangible gains - the formation of Ins-Sure Services and the development of the first LMP slip and its revision.
Stephen Cane, IUA chairman and CEO at Alea said that although he was not displeased, things could have happened faster. "It's fair to say we would all want things to happen more quickly than they often do. But invariably a lot of work has to be done behind the scenes."
The launch of Ins-Sure, the company set up to modernise and streamline back office procedures to make the market more efficient and significantly reduce the cost of administration, was the biggest achievement in the move towards revamping the market. Created by the merger of the separate processing and settlement operations of Lloyd's Policy Signing Office (LPSO) and the International Underwriting Association (IUA) London Processing Centre (LPC), the company's main aim is to enable market players to compete more effectively on the global stage.
Its formation, which just a decade ago would have seemed impossible, was the first step towards creating a secure and robust technology infrastructure - one of the six key elements of the LMP reforms. The remaining key elements are: contract formation guidelines; contract change management; claims management; a single insuring document; and a benchmarking scheme.
"It is a monumental achievement that LPC and LPSO have been merged to form one processing bureau," said Mr Cane. "The merger went well, now it is up to Ins-Sure, as a commercial entity, to make it work and give the customers what they want," he added.
The company has already started development of an e-business infrastructure and a market-wide repository, which will store client information accessible to brokers and re/insurers, and can be used ahead of final negotiations.
Ins-Sure may have been the most obvious success story of the London market reforms in 2001, which have otherwise been subject to delays of one sort or another, in particular the finalisation of the wordings for the General Underwriters Agreement (GUA), the legal hiccup that sent the broking community `back to the drawing board' in the autumn, and the events of September 11. But this year all eyes will be on the take-up of the standardised London market slip, LMP, its presence at the April 1 renewals and its continued reform.
Last month signalled an end to the protracted launch of the LMP slip, which was finally published. The slip, aimed at providing increased efficiency and clarity, may not have been up and running in time for the January 1 renewals, as many had hoped it would be, but it is likely to be a major focal point of the London market's modernisation this year.
The GUA in its original form did not have adequate safeguards, which have now been up in place. It is intended to be used with the new LMP slip, but can be incorporated into any other form of slip.
LMP slips will be standardised, but each one can be tailored, with similarities aimed at providing greater clarity, so, as one commentator put it, "people will know who is doing what, and when". The new slip format is expected to ensure that information is set out clearly and in a structured way, making it easier to decipher and more efficient to process. To assist this process the slip should:
Standardisation of the slip is also aimed at capturing details of how the contract will be processed after the placement has been completed, by stating the roles and responsibilities of all the parties involved with the risk, and identifying the service providers and their duties.
A number of brokers are believed to be expecting to place at least 19% of the
April 1 renewals business on the new slips. The slips are expected to take off, but the exact level of take-up will not been known until later this year.
Finalising the exact wording of the GUA proved more complex than first thought, and contributed to the delayed release of the slip. However, Mr Cane said that the delay was inevitable given the events of last year. "No-one wanted to introduce a GUA and a new slip at a time when the industry was in such turmoil."
Designed to speed up claims by creating a single administration, the GUA is an agreement between the subscribing underwriters on a particular contract relating to the level of delegated authority in respect of post-placement alterations - an agreement that caused a stir in the underwriting community. Many underwriters questioned the merits of delegation. According to Tim Carroll, chief executive of GE Frankona RE and former IUA chairman, a number were not keen to delegate at all, while others said that it would depend on the circumstances.
Despite the delays, Mr Cane believes that the planned reforms are "moving ahead satisfactorily". "At the outset, it was easy to define the goals, but getting there is hard. However, we are very committed to getting it right," he said.
Going forward, Mr Cane said the biggest issue is the revamp of the accounting and settlement system. "We are looking at the best way of sending money, both premiums and claims, more efficiently. However, in the first instance we are not sorting out the legacy system, it may be streamlined as a by-product, but it is not our primary goal."
Over the last three decades there have been numerous attempts to increase efficiency in the accounting and settlement system, but all have failed. "I think we have failed because we have tried to do too much: we have tried to do all the legacy systems," said Mr Cane.
Technology has and will continue to play a leading role in the market reforms with regard to the modernisation of back office operations, but the arrival of an electronic slip is still some way off. Tracking documents is still proving difficult and causes untold delays in processing claims. With this in mind, it seems likely that a common referencing system similar to that used by banks and utilities providers, will be under consideration over the next few months.
Anyone waiting for a `big bang' similar to that in banking in the 1980s, faces disappointment. Technological advances, particularly in communication, traditionally have been shunned by underwriters and brokers, but with the rise in the number of alternatives to the London market comes an increase in the number of competitors and the need to be either unique or efficient - or preferably both.
By Clare Bates
Clare Bates is the deputy editor of