Devil in the detail

Diversity and choice of carrier is important to risk and insurance managers and brokers in the large corporate sector. They want and need a vibrant and strong insurance market to place their standard and not so standard risks, whether through global programmes or standalone placements. Lloyd’s remains one of the world’s leading commercial insurance and reinsurance markets and continues to be used by European and international risk managers, particularly for their more challenging risks. Commercial Risk Europe has recently been told by leading risk managers that they would actually like to use Lloyd’s more. However, they feel that it is sometimes a difficult market to understand and access. It is also time consuming and costly compared with local markets or big international insurers that have global networks, they say.hideThe Boston Consulting report (see related article) identified a need for the London market to rise to the dual challenges of complexity and access. This is particularly important as it faces up to the fact that its premium base in faster-growing emerging markets, where most multinational corporations are focused, is shrinking. David Gittings, Chief Executive of the Lloyd’s Market Association (LMA), recognises this challenge and told CRE that it is a central part of the London market reform process. “It is interesting to hear that risk managers would like to place more business at Lloyd’s and obviously positive. The Boston Consulting report found that some risk managers are finding it more difficult to justify placing business in London and they increasingly prefer to buy their coverage in local markets. There is also a perception that Lloyd’s is not the easiest place to do business with,” he said. “This was the real value of the Boston Consulting report. It provided hard evidence and numbers for a number of assumptions that we in the market had made. For example, we felt that Lloyd’s was writing less business in emerging markets and that we were losing share in reinsurance, but there were no numbers to support that. This report confirmed many of these assumptions,” continued Mr Gittings. The former head of regulation at Lloyd’s pointed to comments made by CEOs of leading broking firms in the report who said they were no longer placing as much business in London as in the past. “They explained that overseas markets tend to be more efficient. The report also backed this up by showing that the expense of placing business into London is up to 9% higher than other markets. Again the report provided a hard number to prove an assumption. The cost of regulation and policy processing is higher in London,” said Mr Gittings. Another key area identified in the report is while London has a long-held reputation for innovation and being prepared to consider risks that other markets will not look at, it does not have a strong or leading position in key emerging risks, or certainly that is the perception, added the LMA chief executive. So the obvious questions to ask were: What are you doing about this? What can the LMA, as a market association, do to help fix these problems and ensure London is an easier and more efficient place to do business? Mr Gittings said that one of the first things the market leadership decided upon was to tackle perception problems and work out how to put London back on the map as a centre of excellence in the international insurance market. “We decided that we need a kite mark of excellence for London. Wall Street is known for banking, Bordeaux for wine, Switzerland for watches. So we decided that we needed to find a way to have a kite mark for insurance business placed in the London market. A marketing response is needed,” he said. Another key challenge is the actual placement process. The market needs to make it easier and cheaper to do business in the UK capital from a technological perspective in order to attract more business from brokers and ultimately risk managers. “Yes this is critical,” said Mr Gittings. “There have been a lot of initiatives over the years to try and achieve this but these have been quite fragmented and did not really have the vision of seeking to make the process of doing business with London for brokers and customers more seamless. “This means that brokers and risk managers need to be confident that the system will work efficiently and in a transparent way from the moment the business is placed right through to the end, when the claims are paid. This requires a concentrated agenda and consistent commitment,” he explained. The big question is how the LMA and other market bodies are actually going to make it happen in a fragmented and competitive market. Mr Gittings said that this is where the London Market Group (LMG) really comes into play. He explained that the market’s main representative bodies—the LMA on behalf of the Lloyd’s underwriting market, the International Underwriting Association (IUA) on behalf of the non-Lloyd’s London insurance market and the brokers represented by the London International Insurance Brokers’ Association (LIIBA)—are all members of the LMG. This body was created to push forward the market’s modernisation process and help ensure that all the parties cooperate. The LMG is chaired by Steve Hearn, Deputy CEO of Willis. Mr Gittings is board member along with Inga Beale, CEO of Lloyd’s, David Matcham, CEO of the IUA and other leading market figures. Mr Gittings explained its plan. “In 2013, the London Market Group’s Future Process review concluded, amongst other things, that access to the market for brokers and risk managers needed to be improved and it was decided to deliver a central placing platform,” he said. “The idea was that this platform would support a flexible negotiation process, facilitate easier access to the market and offer faster placement for the benefit of the client. The platform would support both traditional face-to-face negotiations and purely electronic placements or a combination of both. The market associations agreed that such a central placing platform would be best delivered via a market utility,” explained Mr Gittings. He said that it was key to win the support of the leading brokers for such an effort. When this was secured the LMG created Placing Platform Limited (PPL) with full support of brokers and insurers. PPL’s job was to establish a market level relationship with a software provider for the provision, governance and management of the platform. Mr Gittings said that the creation of PPL was critical to ensure a coordinated cross-market approach to the development of electronic placement support that actually meets the needs of the market. PPL launched a tender process to take this forward that was managed by Accenture. This February it was decided that US-based software firm Ebix had won the contract and work is underway. “No one pretends that the job is done as this is a very detailed and complex task that involves a lot of different parties. However, I am more confident than ever that this will come to fruition. There is still a lot of paper in the system and this needs to be cut out,” said Mr Gittings. “We will be rolling out the system over the next two years. We have started electronic endorsements already in the aviation market and the underwriters are finding it beneficial. The next big step will be getting the risk data into the back office and this involves the central services refresh programme (CSRP),” he continued. The CSRP programme is designed to deliver improved services and infrastructure for the London market’s back office. The idea is that these enhanced and extended services will make it easier to do business in the London market and enable improvements in the acceptance, capture and storage of more consistent and richer risk and claims data. The programme will also facilitate the sharing of information between brokers and insurers using electronic messages based on ACORD standards. “Processing business in the London market needs to be easier and more efficient and this will again make London easier for brokers, insurers and ultimately risk managers to deal with,” said Mr Gittings. Another key area for risk managers and brokers is claims. Mr Gittings said that the market is on the case in this area too. He explained that the market already has in place the Electronic Claim File (ECF), the Insurers’ Market Repository (IMR) and the Claims Loss Advice and Settlement System (CLASS). CLASS is used by brokers to create new, and update existing, claims records with data and financials supplied by clients. The IMR is a document library that allows claim and policy information to be stored and linked back to records created by brokers. ECF enables carriers to review and respond to claims documents, data and financials in an electronic format. “The goals of all these initiatives are clear. They will deliver an enhanced and measurable customer experience, create a more attractive claims offering for London, improve and enhance access to data, review and deliver robust, appropriate technology and, again, reduce and, where possible, remove ‘Londonisms’,” concluded Mr Gittings. The market also has to face up to the big strategic problem of falling levels of business attracted to London from emerging markets, as identified in the Boston Consulting report. “This is a big strategic question for Lloyd’s and the whole international insurance and reinsurance market. How to respond to this rising demand for local coverage and service partly explains the recent wave of consolidation in the market as international insurers seek to build a broader global footprint and network to meet the needs of multinational customers,” said Mr Gittings. “The good news is that the market is really pulling together again on this area. Steve Hearn has done an outstanding job pulling together the market to debate the best way forward and ensure that it is a coherent market approach. I am not sure I would pick any one particular country or region that we need to focus on. But certainly we need to be looking to expand in Latin America, the Middle East and the Far East, and have made progress already with operations in Brazil, Mexico, Singapore and more recently Dubai,” he concluded.

Devil in the detail

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