The London market seems to be blighted by past attempts to introduce technology to the industry. But as Nick Thorpe discovers from some of the market's leading technology providers, it's anything but doom and gloom.
There is an intrinsic value to a handshake and a smile that cannot be replicated by technology. Millions of years of evolution have produced the complex beings we are today and this complexity and inherent randomness is exactly why the industry's face-to-face interactions are such an integral part of doing business. But change is afoot. With failed Lloyd's technology platform Kinnect now firmly in the past, Aon's announcement that it is moving to full electronic trading capability, the launch of peer-to-peer (P2P) and the market's final push to achieve contract certainty, it is clear that London has made a concerted move to gain efficiencies and best practice through technology. For the 318-year-old Lloyd's market, technology is here to stay, but it is unlikely to replace the all-important relationship any time soon.
Roy Laker assistant vice president, London market at ACORD, Ian Summers, director of change strategy at Aon, Mark Banks and Warren Gunn, directors at The Insurance Workplace (TIW), Sue Langley, chair of the Group of Six (G6) and COO of Hiscox, and Alex Letts, chief executive of RI3K, reveal where they think the future lies.
To what extent do you think the London market will utilise technology in the future?
Laker: I don't think there is any doubt the London market will utilise technology. I think most of the activity will be in the areas of accounting settlement and claims. And I think slowly in the area of placing and placing support.
Summers: We've been working with ACORD on the London market roadmap and this includes using technology to automate or support 100% of the transactional parts of their different roles, including placement, claims processing, premium payment and endorsement. London needs to move away from its bespoke London processes and towards an international, ACORD-compliant process.
Langley: I hope that around 60% of manual processing could be automated in the future. I think the placing process is quite efficient as it is at the moment with the face-to-face negotiations. The subscription market, however, is challenging but I think if we can overcome some of the issues with getting the right data in the first place, then the processes can be streamlined.
Letts: The London market has already used technology; it just uses it in silos. One of the big problems is that those silos are getting increasingly old because people can't take the risk of moving to new silos because of the legacy information they have on the old systems. We basically haven't yet ridden the internet working revolution.
What is going to be the next big thing?
Laker: I think the next big thing will be the less sexy stuff - accounting settlement and claims - and I think they'll take off very soon. Placing will be a bit slower and will just be bubbling along in the background. The easier bits will be broken down into bite-size chunks and dealt with one step at a time.
Summers: Electronic placement, which I think will manifest in two different ways: P2P messaging systems and using a more user-friendly infrastructure, eg logging onto an internet facility rather than internal, bespoke software. Electronic claims files are the other thing that will be big and if London does not embrace this system, I genuinely believe it will be a big loss.
Langley: I would say it's the introduction of hubs or messaging systems. The systems we had in the past were huge, silver-bullet type things and I now see a new, lighter breed of systems which will allow you to communicate quickly and easily with each other to a common set of standards.
TIW: An environment where all parties can converse irrespective of distance and location, though not to take away the obvious benefits of face to face negottiations, there are many instances nowadays when this is just not practical.
What consequences will the wider use of technology have on the London market?
Laker: All of us hope that by using more technology we will maintain the business we currently get in London and also make us more attractive to new business. It will also help streamline business processes and support all the initiatives in the market.
Summers: We need to be as certain about the information and product we place as possible, not just the wording, but the claims process too. The adoption of e-commerce will help this greatly. We need to dramatically reduce the cost of doing business in London and one of the best ways of doing this is through the introduction of e-commerce.
TIW: The market is trying to drive down costs through technology and this is to be congratulated. Whilst the "direct model" (or P2P) has a role, what we have now is many smaller companies sitting back and waiting to see what the G6 are going to do with technology. However, there could be instances where smaller businesses lose out as they then discover that the G6 solutions are going to be costly and time consuming in implementation. This can be readdressed using technology, which offers a shared and collaborative way of disbursing costs and development times.
Letts: The technology we are talking about is mainly web services technology, built around ACORD standards. Over the period of the next 18 months to two years you will certainly see Aon, a couple of other major brokers and three or four slightly smaller brokers all moving into the same internet working environment. They will be filing online and trading messages electronically between each other's back offices.
How much resistance to change is there in the marketplace?
Laker: I don't think there is much resistance to change in the back offices, people seem to understand that change is inevitable and positive. There is probably a little bit more fear up front in the trading areas and in that case, I think we should build more of a support infrastructure which will enable remote working.
Langley: I think there is a sea of change in the market and more people are beginning to realise that the market needs to change. People have been scarred by projects such as Kinnect but technology is a good thing in this market - it makes people's lives easier and attracts new business. But of course this market has been operating this way for over 300 years and change still scares people.
Letts: There has been a huge cultural change already in Lloyd's with executives pushing through change in their own organisations, rather than trying to implement Lloyd's-wide change processes. This incremental change is both interesting and important. It shows that the "old-guard" is becoming more technologically aware.
What lessons have been learnt from failed schemes like Kinnect?
Laker: I don't think you will see people investing so much money in centralised systems. I think people will be more cautious in their approach now. P2P working will become more popular but I can't see these massive projects to implement infrastructure for placing anymore. People will start to do things more amongst themselves in, shall we say, a less ambitious manner.
Summers: Positioning - Kinnect needed to be more centrally positioned to be a success. It tried to bite off all the issues in one go whereas it needed to concentrate on a broad and skinny solution that was applicable to the whole market.
Langley: Technology is not a silver bullet; it is an enabler, a hygiene factor. You have to get the process right. Any development needs to be small and nimble rather than large and complex. We can't get to utopia in one step, which is essentially what Kinnect was trying to do.
Letts: I think the general consensus is that it is very difficult to create something from scratch that will suit a tripartite audience of buyers, sellers and other interested parties, and to do so cost-efficiently is very difficult. I think the lesson from Kinnect was don't try and bite off more than you can chew.
How will technology help the London market to achieve contract certainty?
Laker: I think we will achieve our contract certainty targets without technology. At the moment I think the technology that people are using the most is monitoring software to assess their performance in the process so far. As we go forward though, technology will aid the contract certainty process.
Langley: I think technology is an enabler and always will be. It makes contract certainty easier. It is working well by itself at the moment but, for example, measurements would be so much easier if they were transparent and electronic. It is not a panacea, but definitely makes it easier.
TIW: Rolling out adaptable technology early in the contract certainty process means the whole process can be speeded up. For example, if we can technologically enable risk managers at the start of the renewal process then they will be able to communicate with brokers more quickly and fluidly, so the total amount of time taken to process the renewal data could be reduced substantially.
Letts: Technology itself does not create contract certainty because it relies on people doing certain things at certain times. Electronic business processes support and facilitate the delivery of contract certainty but if people don't do the right things at the right times, then contract certainty will suffer.
Could technology ever replace relationships in this business?
Laker: Technology will never replace a relationship, which is the value of London - business in the square mile can be conducted on a face to face basis very easily. Relationships are still key but the technological tools are there for people to utilise if necessary.
Summers: It's easy to automate a standard process. If you try and replicate the negotiation process, you will fall into the same trap as Kinnect did and over- complicate the situation. You have to break it into little chunks and introduce them over time. As people get more comfortable with it, you can start adding increased layers of complex data. There is still a lot of value in face to face negotiations and I am not sure if we will ever see the complete demise of it.
Langley: Relationships will never be replaced by technology. Some of the more complex risks need negotiation and faceless interactions simply won't work. I do think, however, that some of the smaller, simpler risks could go through electronically with just an email and some may take place with a phone call.
TIW: London is such a unique place because everyone is so close together. Meeting people face to face is very easy - in most cases it's a case of stepping out of the office front door - however we still need to be mindful of the parties who live outside the square mile. Relationships are still key to the process and the value of face to face meetings means they will never totally disappear - they remain the fastest way of initially concluding the business of complex policies, however there is still some work to be done before and afterwards and this is the area where efficiencies still need to be made.
- Nick Thorpe is senior reporter of Global Reinsurance.
MILESTONES IN TECHNOLOGY IN 2006
24 January - Lloyd's franchise board confirms Kinnect, the London market electronic platform, has been shelved.
14 March - ACORD outlines its vision and plans for enhancing the ACORD standards framework.
5 April - G6 agrees to a new process using ACORD data standards which will allow the electronic transfer of data and documents between syndicates and leading brokers in the Lloyd's market on a peer-to-peer basis.
30 May - RI3K introduces FELIX - the Framework for the Electronic London Insurance eXchange.
6 June - Members of the International Underwriting Association begin a pilot project to test a new electronic claims system for the London market.
22 June - Aon announces it will move to a full electronic trading capability during 2006.
12 July - Benfield announces it is ready to provide live risk messages to all of the G6 members.
24 July - The Insurance Workplace is launched to provide a new solution to assist with reform in the London market.
11 September - RI3K unveils its revamped trading system in Monte Carlo.