Update on business reform Market Reform Forum Update on business reform 30 June 2005 Andy Brookes LMP/Lloyd’s BPR

Objective: up to speed in half an hour…… Contract Certainty LMP slips CC Implementations Evidence of cover Supporting projects, including Kinnect Back office electronic infrastructure Accounting and Settlement Electronic Claims Files What you should be doing Special topic: electronic placing - Ri3K Contract cert; electronic infrastructure. Where are we – ramping up. Moving from aspirational to “get it done”. Tiner speech

Why do this? The challenge In London sufficient talent (underwriting, broking,advisory) meets sufficient capital to create “a market” But business is mobile and….. cost of business process is too high operational risk is too high lack of audit trail, lack of proper/timely documentation London does not meet increasing regulatory standards Spitzer – transparency; Tiner – certainty So, London (including Lloyd’s) must improve its processes to Reduce cost Reduce risk Increase transparency

The aims of market reform London’s competitive position Includes defending market share in traditional markets and promoting growth in new markets Contract Certainty Clarity of contract, leading to certainty of coverage, fewer disputes, less time wasted, a reduction in legal bills and improvements in downstream processing. Process Efficiency Efficient capturing, storing and reuse of data, reduced error rates, and quicker premium payment processes. Lower costs. Service to the client To adopt processes that speed up the agreement of the contracts, the issuance of documentation and the subsequent agreement of claims. Global standards To facilitate adherence to (or creation of) accepted internationally standards for accounting, message/business flows, and technology.

Principles underpinning reform Reduce ‘Londonisms’: international firms must buy-in – governance role Change requires authority and a degree of neutrality: individual firms cannot do it alone; Lloyd’s and the Associations will lead Commitment to co-operate essential, on design and implementation Network effects: a convoy for implementation Cost / benefit case is rarely convincing on its own. FSA Transparency

Vision for market processes Exchange of data and progress of transaction is captured in collaborative electronic systems Placing process built into electronic system Placing data to international standards Standard slip generated by electronic system. Ditto, the policy. slip/policy distinction blurs Policy based on model wordings; changes tracked and audited electronically. Or auditable bespoke wording created. Checking in real time Placing systems retain the data and audit trail Claims: international standard messages for data and claims management. Repositories for simultaneous access Accounting and settlement: ditto

Approach measure and manage To support each stage in the life cycle of a contract: simplified, harmonised business process standardised data structured electronic messages community infrastructure platforms - minimise interfacing costs and enforce discipline Why? Drive changes – including behaviour - within firms. Hence - reduce risk - reduce cost - make process transparent to market users so that they can Kinnect only now has the first one. measure and manage

Contract certainty: FSA challenge Tiner’s speech: end to “deal now, detail later” End 2006 deadline Lit the already smouldering platform Answering the FSA requires: clear plan pulling together components measurable progress against that plan your participation

Contract certainty: Market Game Plan MRG endorsed the following, for implementation by end 2006: Agree insuring clauses via a fully claused [1] slip or LMP policy (which also meets LMP Standards) before inception Define process measurements and quality standards Understand standards and apply them Raise standard through independent QA Play back errors and publish league tables [1] typically by reference, rather than all wordings spelt out

Contract certainty: the programme Key projects Improve LMP slips CC score 95% June 2005; 99% March 2006 During bind: agree wordings; get checking done CCI process 30% of business end 2005; 85% end 2006 Evidence of cover – within 30 days Supporting projects Policy checking by Xchanging Model wording MRG sponsoring project to improve CC Legacy (not strictly CC, but close cousin) Kinnect/placement systems Consistent with all this, but reduce compliance cost

Contract certainty: market progress MRG agreement on Terms and wordings have to be agreed before inception; [MRG considering the exact definition] Measurement: “a good thing”, so expect more of it. Checks prior to inception for CC. [Are are XIS checks part of CC?] Governance sorted CC Project Board in place Reporting to FSA regularly All firms have received CC briefing Majority registered with LMP Office If not, FSA may be interested….. More detailed planning with bigger firms Training material in pipeline, with CII

Contract certainty: each firm LMP slip score on contract certainty Will you hit 95% in June? And 99% in March ’06? CCI process How will your firm achieve 30% of risks by end year? And 85% by end next year? Use CCI guidance material CCI means: sort out the contract, including wording, before you scratch Either full wording or references? All lines/cob or focussed? But quality matters, not just volume (hence checks)

LMP Slips – wider and deeper CC score for open market: 93.5% May Up from 92% in March, 93% in April….. June target is 95% CC score for binder LMP Slips: 95% April; the June target May out shortly; need to maintain performance Continue to check 25% of Lloyd’s slips in 2005. IUA timetable set for companies; first slips received LMP Slip 2005 published in April Extending to lineslips LMP standard for lineslips published in June 1 October mandate for Lloyd’s market Includes off-slips Some brokers and U/Ws hitting 95% Eg changes to slip exemptions – binders Monitoring usage of FSA headings (not in BSA) XIS rejection rates – coverholder signing before fully placed (that’s wrong, should wait till fully placed); broker’s failing to produce signing schedule for non-100% business

Contract Certainty [LMP Slip audit]

Contract certainty: checking Policy checking Xchanging: Prudential Practice Requirements Binders Two binder rejection reports for Q1 ‘05 issued to poorer performing firms (12 Lloyd’s; 12 brokers) QA tool re-issued in May XIS started checking to this list in June Resultant checking data likely in July Open market – similar approach to binders Publishing open market checks Due now -end-June; likely to be next week Rejection report for Q2 2004- Q1 2005 XIS start checking to this list in July Stats in August (narrative); Better stats in Q4 2005

Legacy MRG agreed cross-market priority rules Rules available from the Programme Office Investigating new Unsigned Policy List in accord with new rules Recalculate stats; agree next steps (if any) Should there be market focussed effort in particular cob? Is it worth it? Is it doable?

Kinnect Another customer announced in June Beaufort follows Chaucer, Cathedral, Limit/QBE in May Three brokers and seventeen carriers New release 1 June live as planned Enhanced placing functionality Slip creation by brokers in Kinnect for August inceptions One-way data flow initially but appetite for two-way Risk class expansion North American property Now Terrorism Live – August inceptions International property Q4. Further risk classes agreed for 2006 Data light template for any risk class in design Endorsements now in 2006, not Oct 2005, following ITT for future supplier and review of platform development requirements

End Game Fully-claused placing document (using LMP Slip and policy) Increased use of model wordings and clauses (as basis for negotiation) Wording/technical staff involved in placing process Early agreement and checking of the slip/draft policy by all parties and the back office QA function Interaction, wordings, risk details, negotiation undertaken partly through, and all logged in, Kinnect – the “single version of the truth” Early delivery of evidence of coverage for the client – ideally before inception but within 30 days of inception – from Kinnect, so no transcription risk Binder placings evidenced by issuance of approved certificates

Accounting & Settlement Technical and data information: Phase 1, published in April Who is digesting it in your firm/supplier? Views please Phase 2 likely to be July (was May) – claims, ORI MRG and Project Board addressing Content, sequence and dates for what next Key issue is risk appetite and management: dearer or slower? Don’t doubt commitment to progress Had planned to publish in Q1, will miss Q2 Measurement of process will be key feature

Electronic Claims File XIS development work Phase 1 - Operational in February Phase 2 - Now live Overall business process spec being signed-off later than planned Better end outcome for practitioners; but pressure on timelines in Q1 ‘06 Phase 3 DRI design signed-off Wider functionality issues; LMA, LMBC and Claims Infrastructure Project Board managing Implementation 6 partnerships operational in May Relatively low volumes – testing out electronic infrastructure 57 (and rising potential) partnerships identified Live issues Cross market procedures and practices

Update on business reform Market Reform Forum Update on business reform 30 June 2005 Andy Brookes LMP/Lloyd’s BPR