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

2. 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

3. 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

4. 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.

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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)

13. 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 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

14. Contract Certainty [LMP Slip audit]

15. 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 Q Q1 2005
XIS start checking to this list in July
Stats in August (narrative);
Better stats in Q4 2005

16. 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?

17. 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

18. 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

19. 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

20. 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

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