Anthony Hilton says Lloyd's market reform is finally underway, despite its detractors dragging their feet

There is a very old joke about the number of psychologists needed to change a light bulb. The answer is one – but the light bulb has really got to want to change.

In more recent times this has become a parable for the insurance market and technology.

The number of deployed IT firms, consultants, outsourcers, systems designers and assorted hangers-on seeking to transform the insurance world into an electronic market place might make for an impressive statistic.

But the effort has counted for nothing because the market did not want to change. And for good reason. Electronic systems demand standardisation, and standardisation is the enemy of fat fees.

As long as brokers and underwriters could deliver a bespoke service, each client offering being slightly different from the one before and from the competition, then they could maintain the mystique about what they did.

Standardisation may mean efficiency and open the door to all sorts of derivatives based on underlying insurance contracts. But mystique – that hint of magic – means money.

A small item of news earlier this month is therefore highly significant, for it means that going electronic is once again very much back on Lloyd's agenda, and where Lloyd's goes so too, sooner or later, will the rest of the market.

Kinnect, as we know, collapsed in a heap of dust and rubble 18 months ago. G6, the group of six leading insurers operating in Lloyd's then moved into the vacuum with a plan of its own to create peer-to-peer electronic trading, only to find out the hard way that it was more difficult than it thought.

The 'gang' succeeded in blocking any plans for an expensive Kinnect Mark 2, it clipped the wings of Xchanging, the back office outsourcing company, and it brought some discipline to the development of electronic messaging in the market. So its efforts were by no means a complete waste of time.

That leaves the field clear for RI3K , a technology company which has been working for seven years to create a trading platform, but which has thus far failed to generate real momentum, in part because it was funded by Brit Insurance and therefore shunned by its competitors.

“Going electronic is once again very much back on Lloyd's agenda, and where Lloyd's goes so too, sooner or later, will the rest of the market.

Then a few days ago Michael Spencer, of ICAP, and a few minority investors including a hedge fund, Numis the stockbroker and Neil Eckert, once with Brit and now building an emissions trading market, bought the bulk of the Brit holding.

At the same time, RI3K did a deal with Aon, the second largest broker in the London

market which says that from 1 July this year – just six weeks away – Aon will funnel all its business through the RI3K system. It means nothing less than the business will be presented to the market in electronic form, for the underwriters to look at on screen. If they want a slice they will electronically sign the slip.

The whole of what in other industries is called the front office – the distribution and trading of the risk – will then be done electronically.

The drama in this is that Aon on its own accounts for 20% of the business in London and it seems to mean what it says. It may be that staff will drag their feet, but they will have to be brave to do so because top management has gone semi-public with its plans, and risks looking very silly if it fails to deliver.

More to the point, going electronic will, if it works, deliver a significant cost saving and therefore a competitive advantage for Aon, to say nothing of the benefits which will come from regulation and compliance. And that will put other brokers under pressure to sign up to the system or suffer.

JLT, given its existing connections with Michael Spencer, might find this easy. Willis, if it walks as well as it talks, could join in, too, in relatively quick time.

But Marsh with Kinnect still round its neck will have more of a problem.

So the message is that, in terms of modernising the market, this time it really could be different. IT

Anthony Hilton is financial editor of the London Evening Standard