MRG Endorsements Initiatives Rob Campbell (for Stuart Dean), 23 January 2008

Content Background Project Summary Approach to delivering Endorsement initiatives Market Reform Contract Endorsements (MRCE) Electronic Endorsements roll-out of ( ) revised process Benefits/success/risks and issues – “business case” Next steps

Background Endorsement is generic term for all mid-term contract changes from simple vessel name change to adding a construction project for Olympic development in London Endorsement is a binding agreement on insurers and policyholder and has to be evidenced in writing There are on average 3 endorsements for every contract, they can be administratively ‘heavy’ and in the London Market, many agreed by a face-to-face ‘broke’ Clients can regard them as ‘hygiene’, ranking them below policy issuance and claims negotiation in importance/value Goal is therefore to reduce time and effort spent of agreeing endorsements and reduce turnaround time from the insured’s instructions to confirmation to the insured of agreement

Approach to delivering Endorsements initiatives The work has been split into three main initiatives: MRCE 1.The introduction and implementation of Market Reform Contract – Endorsements (MRCE) standards to mandate the form and use of Endorsement documentation and agreement methodologies. This was published 3/12/07 for adoption as the Market Standard by 31 March 2008 e-MRCE 2.The introduction and implementation of revised remote agreement process using agreement and other messaging communications (e-MRCE). This will start in Q and continue through To co-ordinate endorsement activity with other Market forums with particular emphasis on input and adherence to ACORD standards for Endorsements and compliment the work of the MRG/LMA Electronic Placing Group. This will be accomplished via the Endorsements Steering Group as part of its general remit.

MRCE – Key elements Why Guidance No prior definitive guide to Endorsements Standardise the Endorsement format Formal launch of new style documentation Benefits Supports the principles of Contract Certainty by speeding up the prompt provision to the insured of contract change documentation Reduces the effort required to handle contract endorsements Encourages the document format to be consistent with that used in the original contract (MRC) Provides an unambiguous Settlement Due Date default position Facilitation Sets out that the revised documentation can streamline the submission and agreement of non-complex contract changes Can be used as part of an electronic process for submission and agreement

‘Old’ Honeycomb style

Cover Note Addendum

Market Reform Contract Endorsement (MRCE) CONTRACT ENDORSEMENT UMR:B Endorsement Ref: 001 Type:All Risks of Physical Loss or Damage Reinsured:ABC Insurance Ltd Original Insured: XYZ Ltd The contract is amended as follows: Effective Date:00.01 hours 1 August 2007 local standard time as the location of the property insured Situation:Amended to include the insured’s location at: 1 Lime Street London EC3M 7HA Sum Insured:GBP 100, any one loss in respect of the above location PremiumAdditional Premium due in respect of these changes is GBP Tax payable by insured5% UK Insurance premium Tax and administered by Insurers All other terms and conditions remain unchanged. Risk Identification and Endorsement Details section - Additional details may be included Contract Change(s) Section using MRC format and headings

Market Reform Contract Endorsement (MRCE) CONTRACT ENDORSEMENT UMR:B Endorsement Ref: 001 Type:All Risks of Physical Loss or Damage Reinsured:ABC Insurance Ltd Original Insured: XYZ Ltd The contract is amended as follows: Effective Date:00.01 hours 1 August 2007 local standard time as the location of the property insured Situation:Amended to include the insured’s location at: 1 Lime Street London EC3M 7HA Sum Insured:GBP 100, any one loss in respect of the above location PremiumAdditional Premium due in respect of these changes is GBP Tax payable by insured5% UK Insurance premium Tax and administered by Insurers All other terms and conditions remain unchanged. Contract Administration and Advisory Section (mandatory where applicable) Settlement Due Date default position (always include on APs) Agreement Section – GUA Example Agreement Boxes – ensure date of agreement is captured

MRCE Structure

Market Reform MRCE Summary Logical extension to MRC – consistent format, client documentation No prior definitive guide to Endorsements Supports the principles of Contract Certainty by speeding up the prompt provision to the insured of contract change documentation Reduces the effort required to handle contract endorsements Open Market, *Line Slips and *Binding Authorities * Forthcoming attraction! Honeycomb + Cover Note Addendum MRCE

Endorsement process map – Open Market

Endorsement process map – Binding Authorities (SCHEDULE CHANGES)

14 e-MRCE Project Approach ●Primary target audience - the vast number of easy (non-complex) endorsements ●As many as possible as quickly as possible ●Attaching an MRCE to an or message for agreement and return to the broker ●Formal adoption criteria to join initiative ●Measurement ● being used as an interim stage (minimum entry requirement)

15 Adoption ●Assign a Project Champion ●Actively promote the change in culture and behaviour ●Determine which technology (if in doubt start with ) ●Start in an easy place Single agreement endorsements Contracts with ‘regular’ endorsements ●Know the process e.g., dealing with “Urgent’s” and slow responses ●Workflow considerations ●Changing roles and responsibilities in the organisation ●Simple measurement – collated by MRO

16 Benefits Clients ●Align the relative low value that clients place on brokers and insurers handling easy (non-complex) Contract Endorsements with the actual expense to the Market This means embedding a more cost effective and efficient process for all ●Clients should benefit from quicker turnaround of agreement process and therefore receive Contract documentation earlier – supports achieving Contract Certainty Regulator ●Code of practice states “Contract Changes need to be certain and documented promptly”

17 Benefits Insurers ●Allows insurers to apply “triage” to incoming endorsements ●Free up box time for more important, significant, productive and valuable business ●Free up “line” underwriters time by matching materiality and value with appropriate level of insurer personnel and personnel location ●“Following” markets see full audit trail and could be much more easily notified when not an Agreement Party ●Much easier to get “agreed” endorsements into insurer’s systems ●Use the consistency of presentation and data to integrate into insurer’s systems

18 Benefits Brokers ●Reduce time spent on delivering endorsements to insurers ●Provides more control and clearer accountability ●Reduces hand-off between “Account Handlers” and “Market Brokers” ●Simplifies onward confirmation of agreement to the Contract Change(s) to the client ●Allows for parallel insurer agreement process which will speed up endorsement agreement ●Affords the technology opportunity from the use of consistent presentation/data to integrate into broker’s systems ●Encourages confidence in electronic trading in the London Market and its growth and development

template From: Dean, Stuart Sent: 30 July :48 To: 123 underwriting Subject: ABC Insurance Ltd / B / End001/lead Effective Date: 1 August 2007 Your Ref: ASDF1234 Please find attached an endorsement request from ABC Insurance Ltd. As Slip Leader you are being requested for a formal response to this endorsement. Response request: Agree Decline Request negotiation If your response is "Agree", please send us by your agreed response and Leader response to the GUA details below: GUA Details: GUA present on slip: Yes Leader Response: Part One: Y/N Part Two: Y/N Part Three: Y/N If you have any questions, please contact the undersigned. ACORD Standards

Market Reform e-MRCE Summary a quick win and a step towards ACORD messaging Benefits –Improves efficiency, lowers the costs and speeds the processing –Promotes early, contemporaneous visibility of endorsements for followers Non-complex – “endorsements suited to ” Existing technology, existing business practices Cultural + process change –workflow, central addresses Measurement –Base line + Monthly / Broker + Insurer Commercial and legal issues Technology choices – , print+scan –Optional supporting technology MRCE attached to a standardised

Benefits Matrix for MRCE and Remote Agreements

Benefits Accumulation Face to Face MRCE delivery agreement Application/ Platform Data Integration Implementation phase Benefit increments not to scale!! Benefits Accumulation

What are the risks and issues? Requires commitment from each organisation to adopt and adhere to new practices and procedures Introduce the MRCE Being mitigated by Implementation Pack guidance and the work of the Electronic Placing Steering Group Standards and common processes from usage scenarios. Service Providers are already building Endorsement solutions Simple measurement approach for now; count what is sent “remotely” and what is agreed “remotely” Requires commitment from each organisation to adopt and adhere to new practices and procedures Introduce the MRCE Being mitigated by Implementation Pack guidance and the work of the Electronic Placing Steering Group Standards and common processes from usage scenarios. Service Providers are already building Endorsement solutions Simple measurement approach for now; count what is sent “remotely” and what is agreed “remotely” Have to change the Culture and Behaviour No formal written guidance for Endorsements other than Contract Certainty code of Practice statement Varying views from Brokers/Insurers on method of deploying electronic endorsements can act as barrier to take-up No common infrastructure or (placing) systems platform that facilitates endorsement agreements Endorsement numbers are not currently officially monitored. For proper and accurate measurement of the penetration and success of the initiative, market-wide endorsement statistics will be required and centrally monitored Have to change the Culture and Behaviour No formal written guidance for Endorsements other than Contract Certainty code of Practice statement Varying views from Brokers/Insurers on method of deploying electronic endorsements can act as barrier to take-up No common infrastructure or (placing) systems platform that facilitates endorsement agreements Endorsement numbers are not currently officially monitored. For proper and accurate measurement of the penetration and success of the initiative, market-wide endorsement statistics will be required and centrally monitored Key Risks and issuesResolution/mitigation

Next Steps December 2007, January and February 2008 Finalise “starter” pack  Definitive guidance  Overview of remote agreement processes  Adoption and implementation considerations  Measurement Market guidance and presentations early 2008  Insurer Briefings  Broker Briefings Build-up market endorsement framework via cross-market representation for:  Usage scenarios – Practitioners  Messaging standards – Associations/ACORD  Build systems around market framework – Technology providers

MRG Endorsements Initiatives Rob Campbell (for Stuart Dean), 23 January 2008

Summary and next steps MRCE issued and in use already Ramp-up of e-MRCE (electronic endorsements) Key decision: What technology/method will I use to send endorsements remotely – broker What ‘electronic’ process will I use to bind Endorsement agreements - Insurer Technology has a part to play now

Pilot – Lessons learnt Received enough feedback and interaction to recommend continuation of project Requires cultural/behaviour change, internal organisation changes, decision on how brokers and insurers will agree ‘electronically’ Removing Honeycomb and replacing with Endorsement document enabled use as Insurer Authorised Document – this proved popular distribution (not surprisingly) is easy – businesses already doing this to and from international destinations Should have focussed more heavily on one class of business and got regular volumes to insurers More complex Endorsements will still require elements of negotiation and face-to-face contact

Market Reform Project Overview What is it MRCE –MRC Endorsement (MRCE) : Standardised documentation + process e-MRCE –Electronic MRCE (e-MRCE) : Remote agreement via Why –On average 3 endorsements for every contract –Administration: versus –Face to face not necessary on +50% – in widespread use already (for endorsements) –Volume imperative

MRCE – Market Reform Contract Endorsement Aims of the MRCE To standardise the endorsement format for Contract Changes. This format may be used for all endorsements To allow the endorsement documentation to be used as the insurer contract change documentation MRCE Layout Revised document sections following MRC principles Examples in the guide Evidencing Agreement A copy of the MRCE A formal policy endorsement document A Broker Insurance Document (BID)

Electronic Agreement Process The MRCE is designed for use with different types of agreement methodologies including today’s face to face process: Electronic processes: The MRCE can be attached to an and the insurer responds by e- mail, attaching a scanned, signed, stamped MRCE. Alternatively, rather than scanning the MRCE, the Insurer may respond by confirming their agreement within the body of the return The MRCE is attached to an or e-message, where the or e-message forms part of an application. The insurer is likely to be able to respond either with an electronic signature or with a scanned signed MRCE The MRCE is used as part of an ACORD standards based messaging process. This may either be via direct peer-2-peer connection, via a hub for routing or via a trading service The remote processes shown are not definitive. However, the most important facet of remote agreements is to be able to produce final contract documentation Project focus