Clearing the hurdles

Last month Aon's special risks division made history by placing the first ever risk in the London Market using a new policy document.

The slip represents the beginning of a programme to modernise Lloyd's and the Company Market. It is a simplified, but uniform way of listing risk details and will eventually be accessed electronically.

But the launch of the London Market Principles (LMP) has faced many hurdles and eight months of delays. Many critics doubted it could ever get back on track.

The programme aims to make the City a more attractive place to do business. In theory, it will be quicker to issue policies and it is hoped the payment of premiums and claims will also become faster through the use of modern technology.

While the first fence has been cleared, LMP still faces numerous challenges. But what are these potential hurdles?

The London Market Insurance Brokers' Committee (LMBC) has set its intermediaries ambitious targets for using the slips. It hopes 20% of renewals on 1 April will be placed on the new documents, rising to nearly 90% by the end of the year.

LMBC chairman Ross MacKenzie explains: "The London Market is dying. It is losing market share because of the appalling standard of service. So we, as the broking community, are forcing the proposals on to the market."

Major brokers such as Marsh and Willis are publicly backing the venture. Last month, Aon chairman and chief executive Dennis Mahoney said he would reward those who "are embracing change for the benefit of all by giving them a preferred recommendation to clients".

MacKenzie says the World Trade Centre tragedy has helped drive the need for change, as more than $20bn (£14bn) of capital went to Bermudan reinsurance companies, instead of the London Market.

"If that threat was not here before, it is here more so now," says MacKenzie.

Although people are becoming increasingly aware that the future of the London Market is under threat, LMP faces more challenges.

The events of 11 September have also made it far too easy for brokers and underwriters to get distracted by soaring premiums.

The Market Reform Group, which oversees LMP, argues if brokers and underwriters change their mentality and spend five more minutes completing the new slips in detail, then time and cost savings will follow.

But group member Nigel Roberts says the desire to change diminishes when the market hardens.

"People will ask why they should change as frictional costs do not make such an impact when they are getting the prices they want," he explains. "But there is a soft market around the corner and this needs to be addressed now."

Certain elements of the programme may represent further stumbling blocks. The new slip can incorporate the General Underwriters' Agreement (GUA), which sets out the responsibility of the lead underwriter in determining endorsements made to a policy. The fewer people involved in making a decision, the faster the process.

Roberts anticipates the delegation of authority as an area of difficulty, particularly for the Company Market, where a lot of the major decisions are made outside the UK.

The structure of an insurance company, and where it is based geographically could be problematic. "By and large when you are talking to the boss of a Lloyd's managing agency, you are talking to the organ grinder," Roberts says. "When you are talking to the head of a Company Market organisation, he often has another boss overseas and they might have a company policy."

Early next year, new technology will be introduced to enable a faster payment of claims, which links up both the Company Market and Lloyd's.

Ins-sure Services is currently creating a repository, which acts as a central database for information like policy documents and photographs to be electronically stored.

If a claim occurs, the broker, underwriter, loss adjuster and lawyer can access the material simultaneously on their computer screens.

The staggering cost of the system to the market is a potential obstacle. Ins-sure has set aside £1m for the LMP process and several millions will be used to create the convergence system.

Catex is one of the many companies developing new LMP compatible computer software. European Managing director Tom Bailey says the cost "is not huge", but smaller organisations may disagree.

MacKenzie, who is also chairman of Aon Re International, says, at Aon, 100 people have been involved over 18 months.

"The amount of time that individual brokers and companies have spent through their trade associations is millions of pounds and it will cost millions more," he says. "But it will save the market."

The track record so far...
In the last five years, three attempts to modernise the London Market have been abandoned. Electronic Placing Support, World Insurance Network and World Insurance e-commerce failed to get enough backing from participants and were driven by technology as opposed to ideology.

Since Lloyd's and the Company Market first met in the summer of 1999 to hatch the proposals, the London Market Principles (LMP) has also been dominated by disasters.

First, brokers and insurers were asked to sign up in support of the proposals, but last year only 30% of the Company Market agreed to back the plans.

Then the introduction of a new uniform policy document was postponed in July, following concerns over the legality of the slip. A further two delays and the project was forced to change its name from "LMP2001" to simply "LMP".

On 25 February, the first risk using a new slip was finally placed. A series of workshops to educate the market have now taken place.