1. 1 Contract Certainty End the deal now, detail later culture Iain Saville

2. 2 Contract Certainty Governance Market Reform Group Executive (MRGE) STRATEGY & DECISIONS Design Buy-in across mkt Manage resources Define projects Feasibility LMA CEO, Lloyds COO, IUA CEO, LMBC CEO, franchisor Contract Certainty Impn Group (CCIG) Oversight of implementations & issues Major brokers, managing agents, companies, Xchanging, Project team IMPLEMENTATION & MONITORING DESIGN & CONTROL London Market Standards Committee (LMSC) Oversight of benchmarking activity Major brokers, managing agents, Project team Market Reform Group (MRG) Approving strategy Commitment Setting priorities Chairmen and reform champions LMA, LMBC,IUA, Lloyds Contract Certainty Steering Group (CCSG) Influences Reports to Market & FSA London subscription, retail/personal lines & AIRMIC Recently strengthened by wider market involvement.

3. 3 Introduction MRG agreed at last meeting A London market wide project Project disciplines Delivering measured improvements Against stretch targets Using LMP slip as basis Developed through the CCI process (or equivalent in electronic systems)

4. 4 Summary Firms are individually responsible to FSA And Their efforts need to be closely co-ordinated, in the subscription environment, through LMP and MRG One definition of contract certainty One set of measures (which we need to develop) – but starting with the slip One set of market wide targets Common philosophy for quality assurance (publish standards) One approach, through CCI, to wordings completeness Common umbrella for approach to FSA

5. 5 This means within 2 years the Market will process nearly all risks in the following manner Fully-claused placing document (using LMP Slip and policy) Use of model wordings and clauses, wherever possible (will increase over time) Wording/technical staff involved during placing process Early agreement and checking of the slip/draft policy by all parties and the bureau Early delivery by broker of an evidence of coverage for the client – ideally before inception but within 30 days of inception Binders will achieve contract certainty by issuance of an approved certificate Thus achieving documented Contract Certainty

6. 6 Objectives: Step 1 – good slips KEY ACTIONS FOR YOU 1. Drive up slip quality and coverage; and 2. Prove and implement CCI in order to Agree full wordings by bind Do QA during placing To achieve contract certainty pre-inception – a fully claused, high quality slip

7. 7 Objectives: Step 2 – evidence of cover Sustained high slip quality is the essential prerequisite for efficient and quick supply of evidence of cover to the client. So we have some time in hand – but not much. Agree end game for how evidence of cover is produced and transmitted - by June Implement thereafter.. Timing to be agreed by MRG

8. 8 Definition - summary Contract certainty is achieved by the complete and final agreement of all terms[1] between the insured and insurers before inception.[1] [1] Including signed down lines Note that this fits Step 1 – it does not yet extend to evidence of cover

9. 9 Definition - detail Nine attributes 1. Wording 2. Law, Jurisdiction and arbitration 3. Commercial terms 4. Risk disclosures 5. One version 6. Compliance 7. Sound legal basis 8. Duties clearly allocated 9. Other Need to be disaggregated to be made measurable - please see grid for details NB Adopted by the other CC group

10. 10 Definition – low priority items We have put aside some important issues where measurement is hard, pro tem. E.g. Wording – Complete and consistent Risk disclosures – except as seen on slip Sound legal basis – fully agreed by client Comprehensibility

11. 11 Tools, Barriers and Levers Tools are resources which help firms to improve certainty, or reduce the cost of achieving it – for present purposes, those which might require some central co-ordination Barriers are the obstacles to be overcome Levers are the mechanisms available to the market to overcome the barriers

12. 12 Tools LMP slip development * (line slip standards) CCI process - see below * Training* Partnership with CII – train the trainer, and proactive design to anticipate needs PPRs * Enables Lloyds to drive standards and timeliness What is the non-bureau equivalent? Kinnect*, ri3k GUA* Threatened by outsourcing principles? Model wordings(*) Only exist for binders? Repositories(*) Brokers and underwriters proprietary repositories – interoperability XIS repository(*)? LMA exploration underway MWD Default wordings May not be credible except as unsatisfactory backstop Earlier submissions Hard to achieve, commercially Legal advice Especially important for law and jurisdiction – but better to spend up front, than on litigation Model subscription agreement Credible?? PPS XIS policy preparation Note: Needs to be subject to same QA as other suppliers * means a CC project (*) means a potential project

13. 13 Barriers and levers Main barrier is attitudes on the floor Levers: Enforcement by FSA (threat..) Lloyds mandate and Byelaws Slip Measurement/benchmarking Error data from Checking Enforcement through systems Top management – can use the above levers

14. 14 Measurement We have measures for 26 of about 50 sub-attributes, through the slip audit programme. So we are doing the GCSE foundation level, not the A level.

15. 15 Measured performance

16. 16 Setting slip targets This is the easy bit – familiar territory, good achievement in last year. Now at 91% - 9% shortfall 5% shortfall in June 3% by year end 1% shortfall on current basis in March 2006 We must get these basics right, quickly, to be have a chance of completing the job

17. 17 Completing the job - developing the slip Adding items to the checks – from grid Lineslip (and declaration) standards Auditing slips led outside Lloyds Issues: Endorsements Risks placed under binders – evidence of cover

18. 18 Completing the job - Bureau checking (For Lloyds – but should raise standards everywhere) In principle, picks up all slip checks and applies them to fully placed slip and policy – but after inception Being codified and published (end June completion) And measured, to improve standards and timeliness 1. This QA needs to be focused during placing, to get it right first time – one of the CCI deliverables 2. And we need to converge the LMP and XIS measures Issue: equivalent standards and QA for non-bureau business?

19. 19 Contract certainty news February LMP Slip BSA headline 91% (from 93%) Continue to check 25% of Lloyds slips in 2005; and IUA company slips Updated LMP slip guidelines published LMP Lineslip to be issued shortly Revised PPRs for Binding Authorities issued

20. 20 Completing the job - CCI to agree wordings during placing; and to incorporate XIS checking into the placing process, rather than leaving quality audit till after inception; and to ensure the client receives evidence of coverage for the client within a prompt [1]timescale (as required by the FSA)[1] [1] As a working definition of prompt we have adopted within 30 days of inception. Issue: Market resources

21. 21 CCI timelines

22. 22 Major next steps Write to major firms for project structures (due by 7/5) Co-ordinate their plans (especially for CCI) (31/5) CCI proof of concept assessment (31/5) CCI roll out (30/6 onwards) Adopt line slips (by 31/5) Proposal on converging measurement (31/5) Paper on evidence of cover (31/5)

23. 23 CCI details Initial Implementations Q1-Q2 2005; 300 risks across all classes. Classes identified: Aviation; PI; D&O; FI; NA Property Fac R/I; Treaty; Binders; Marine Performance Monitoring in parallel (broker spreadsheet returns) to monitor key dates achieved. Brokers committed to participate within initial implementations: Aon, Benfield, Heath Lambert, JLT, Marsh, Miller, NCG, Willis Now engaging with markets (43 IUA, LMA & non-IUA companies proposed) 11/43 carriers signed up (and 45 risks are in the market) 9/43 carriers pondering …. More is needed!

24. 24 Contract Certainty