Most participants recognise the need for change in the London Market. However, too little has been done to drive through the necessary technological reform that will bring insurers into line with other financial services providers, such as banks.
The insurance market is becoming more and more globalised, as technology facilitates the immediate exchange of information and capital flows back and forth across increasingly interconnected and efficient e-highways.
One view, reflected in the London Market Principles (LMP2001), holds that market practice must be streamlined before new technology is implemented. A number of serious hurdles need to be overcome here and success via this route is by no means assured. However, there is another way.
We've been hearing for years how technological change can help revive the fortunes of the London Market. But the reality hasn't measured up. Endless procrastination and the market's inability to make real progress have made cynics of us all. In a market saturated with divergent IT solutions, it's hard to see the wood for the trees. Will we ever make any headway? Is it too late?
A working model
Before we throw our hands up in despair, it may be worth reminding ourselves that there is a tried and tested model that has already achieved real change in one area of this market and which suggests a possible way forward on a broader front.
In October 1998, the London Market Claims Services (LMCS) was outsourced to a third party, which has since achieved a very remarkable business process transformation. LMCS was set up as a non-profit organisation by a consortium of several hundred insurance companies in the 1980s. It was designed to process reserves, settlements and expert fees for long-tail claims – primarily asbestos, pollution and health hazard (APH).
The aim was to replace the broker's role in the process, allowing the market to resolve the complexity of APH claims more effectively. Six systems configured around the central claims tracking system (CTS) were employed by LMCS. CTS stored and processed more than 200 million records and more than one million policy images. Every transaction could affect in excess of 1,000 risk-carrying entities, requiring a highly complex process of allocation. LMCS processed, and continues to process, about 50 million transactions per year with a value of more than $1bn (£678m). Reform of this complex and cumbersome organisation became a priority.
After LMCS was outsourced to Navigant Consulting, participants continued as before, so previous practices were incorporated wholesale. Existing systems were simply integrated into a new e-enabled environment built around a dedicated workflow management tool. Procedural changes introduced subsequently, once all users were comfortable with the online system, were achieved seamlessly and painlessly.
This illustrates the crucial fact that changing the physical processes of market practice is more easily carried out after technological change rather than before. It is also far easier to see at this stage, when the big picture is clearer, where simplification can increase efficiency without sacrificing practices that achieve positive benefits. In a project of this kind, the key consideration is to make people feel at home with their environment and comfortable with the pace of change.
Since 1998, the clients of the outsourced LMCS have achieved annual cost savings of more than 40%, with service levels increased more than 100%. If such an undertaking can be successfully carried out using e-business era technology, without first undergoing streamlining and simplification, so could many other aspects of market practice.
LMCS's transformation was achieved quickly, through a combination of common sense practicality and advanced internet-based technology. There was a strong focus on preserving previous systems and the investment made in them.
Business systems transition should be viewed by the London Market as an evolutionary, rather than a revolutionary, process. A great strength of e-business technologies in the internet era is their ability to sit between and around existing systems and their users. Such technologies can transform and extend their connectivity and functionality. They remove the necessity of walking away from investment in systems previously put in place to perform a certain set of tasks, which were adapted over time to meet users' constantly evolving requirements.
LMCS was effectively transformed into an application service provider (ASP) to which users around the world connect via a secure virtual private network. Previously, claim files and advice had to be physically seen and approved in person by lead underwriters. The leader now receives email on each claim pending and approves it electronically, having examined online images of all claim file documents. The hundreds of “brown envelope” hard copies of reserve reports posted or delivered to insurers and brokers each month have been replaced by a process where all reports and data reside in the system. They are accessible to all interested parties at any time, with changes in status automatically notified by email. Now, for the first time, the status of an entire claim population can be verified online in real time 24 hours a day.
LMCS succeeded by combining theory and practice in one continuous process. And that is where the London Market has failed in its many attempts to update business processes. The key to success in a rapidly evolving market lies not in favouring grand schemes over practical adaptation and evolution, or in separating the roles of planning and execution.
It is vital to recognise the value of existing strengths and, just as importantly, to perceive the weaknesses of proposed alternatives, some of which have been a serious break on the progress of many organisations. The warning about throwing the baby out with the bath water has never been so apt. Here's hoping the market will sit up and take note.