Just when everyone else is carrying on a passionate love affair with the internet, Lloyd's insurance is taking a cautious step back. Roger Foord looks at the market's long history to assess this new direction
Lloyd's insurance says it is in trouble. Its market is diminishing and its credibility as a provider of service has been called into question, the query being: does it pay its claims quickly enough?
The Lloyd's market has existed for more than 300 years writing large international risks or reinsuring them. In this capacity, it has been a successful, innovative body, often acting as a catalyst for the global market. Historically, it has introduced new business practices, such as binders and line slips, which have improved the quality of service to clients.
It has also, during its three centuries, retained many of the quirky early methods that in part accounted for the quality it provided to clients. These have included face-to-face negotiations between brokers and underwriters. With most business taking place within shouting distance of the Lloyd's building, the face-to-face attitude was not difficult to achieve. It was viewed as a more personal and direct process, and gave rise to a social attitude to business dealings. Meetings took place not just in offices but in restaurants and wine bars.
During the mid-1970s and most of the 1980s, technology began to make an impact. The Lloyd's market took seriously the opportunities offered by electronic data messaging and by the sharing of information held centrally. It also considered the possibility of turning the market into an electronic centre, wherein all business could be electronically rather than manually transacted. But given the social aspect of the market, it was inevitable that unless forced into changing their ways, people would fight against sitting at a terminal to negotiate their business.
The claims department was an obvious target for the electronic move. And after the initial skirmishes and fears about job security, it took to the new electronic agreement methods with gusto.
Yet in the 1990s, the Lloyd's market managed to get itself into a high state of confusion as, flushed with the success of electronic claims, it focused on new business. There were three efforts to rejuvenate the placing business with electronic methods – all of them scrapped at a cost, conservatively, of £500 m. During this era of abject failure, the one truly problematic area of the market was plainly ignored: the adopted manual method whereby in the subscription market (such as shared risks) everybody had their own view on wordings, policy changes and claims agreement processes. The duplication of effort added to costs and slowed the speed of premium payments and claims agreements.
Having tried the electronic route, London has now chosen a manual path to the market's survival, and is endeavouring to change the historic process by asking for leader-only agreements for policy changes and claims agreements. It is difficult to criticise their good intentions, but it may be too little too late – especially since the proposed changes come at a time when there is a real chance of success with internet trading.
Unfortunately, however many committees have met over the past 20 years to discuss technology in the Lloyd's market (and there have been many), the ultimate result has been a return to basics. Not only was the discussion directionless, it was also apparent that the actual business makers were never involved. These meetings were taking place between administrators rather than the people on the coal face.
The new London Insurance Market Principles 2001 report, a set of manual and paper-based recommendations, promises to change protocols and standards in the Lloyd's market. The questions it raises are these: Is this really the last chance saloon for the Lloyd's insurance market? How long will the changes take? And are the regulatory (performance-monitoring) issues likely to be accepted by the major global players?
There are alternative technology-driven solutions that could save the London market millions, including electronic endorsements (one of the market's most embarrassing wastes of money) and a global application of the central settlement systems of the London bureaux.
Unfortunately these ideas would take a certain amount of imagination – in terms of both business and technology. Therefore, at a time of global surging towards the benefits of technology, one of the most innovative users of technology is revisiting its roots. If this is what all concerned really want, then let the market get it over and done with as soon as possible to allow the real issues of technology to be addressed.
