Electronic deadline

From the moment prominent Lloyd's underwriter, Cuthbert Heath, famously instructed his San Franciscan agent to "pay all claims", the reputation of Lloyd's and the way it handled claims was set in stone.

One hundred years on, and the need is greater than ever to manage claims proactively, particularly when you consider that 80% of every penny an insurer earns goes out in claims.

The demand of improving business processes and the threat of the electronic age has brought the issue into sharper focus. It is little wonder, therefore, that when Lloyd's chief executive, Richard Ward, issued his first challenge to the market it was to transact all claims electronically through the electronic claims file (ECF) repository by the end of 2007, or Lloyd's would mandate companies to do so.

There are some in the market who think his threat is futile. In fact, they believe the once heralded 'claims revolution' is on course and the vast majority of new claims will be processed electronically by this time next year. The need for such hard-handed measures is, in short, unnecessary.

"This is something that he should not have to mandate," says Ewen Gilmour, chief executive of Chaucer and chairman of the Lloyd's Market Association market processes committee.

"Once the [ECF] system has bedded down and becomes fully operational, syndicate claims practitioners and brokers will want to use it as it will greatly improve efficiency. Why walk a file round to syndicate after syndicate when all can look at it simultaneously."

Gilmour insists that if there is to be any mandating it will come from the broking fraternity, who at some stage will refuse to offer risks unless claims are dealt with electronically.

Despite a "real want and a real intent" from the market, Ward's statement has highlighted the need for greater clarity on what is expected from practitioners.

As one senior industry source says: "If something is to be made mandatory what the market needs to know is what the penalties are. And, if processing all claims electronically is forced on the market, when a broker doesn't, or cannot, do that, what will that mean for the claims, and how will they get paid.

"The last thing we want is to slow down or impede the settlement of claims, as it is key to the success of the London market."

Massive support
There are some concerns that smaller capacity firms, both in the broking and underwriting community, are simply not geared up to meet Ward's objective. After all, "it is only 14 months away".

The source adds: "There is massive support for transacting claims electronically, but you cannot drag everybody to the starting line at the same time, perhaps the bigger brokers should be given one target and the smaller brokers something different."

What is clear is that despite good intentions, the scope of Lloyd's ECF project lacks the length and breadth to achieve its ultimate goal.

In particular, how it intends to deal with legacy claims and whether it will include all methods of placement, such as binding authorities. Initially, the repository will only deal with new claims.

Ian Summers, director of change strategy at Aon, says: "A claim can be updated 10, maybe 15 times in its life, so from that perspective with less than 10% being first advices it is going to take a long time to remove paper from the London market unless we embrace legacy claims.

"Lloyd's needs to take a pragmatic approach and say that if a paper file is brought into the market today a line needs to be drawn and an agreement made that from that point on that everything is done electronically."

Legacy claims certainly appear to be a debatable point. Gilmour points out that at some stage claims practitioners and brokers will have to decide whether scanning and referencing old claims files is worth the effort if they are nearing completion.

Stuart Willoughby, claims director at Markel International, adds: "There may be specific claims where it may not even be profitable from a claims perspective or from a broker or even an insurer's point of view, to transact the claim electronically.

"The real analysis on that has not yet been undertaken, because the focus has been to essentially create a platform and demonstrate that it can work. Once you achieve that then you can go back and address the historical issues."

Whatever issues need to be ironed out, the general belief is that it will be market forces and not mandatory action that will naturally lead to claims being processed electronically.

But, while the debate continues about the finer details of transacting claims, it is the issue of payment of premiums that appears to be causing more consternation among some minds in the market.

According to one insurance source, processing claims and premium payments are "inextricably linked".

"Lloyd's has moved forward quite quickly on claims, but there is probably more inefficiency and more financial impact on managing agents through the process of premium payments," the source says.

"Processing claims electronically has to be a way forward to remove inefficiencies in the process and speed things up, but the inefficiencies are as prevalent in the process of premiums, which has a greater impact on managing agents than claims."

Work is currently being carried out by the LMA market process committee and more specifically the premium payment working party to look at ways to speed up the payment of premium in the market.

De-linking process
Gilmour says the use of 'de-linking', the process which allows signed lines information to be sent before settlement of premiums to enable brokers to provide details to underwriters within 30 days, could lead to quicker premium payment as well as further support contract certainty.

But, Summers insists it is essential, in the case of payment of premiums, that practitioners look at it from the client's perspective and how clients would want those funds managed and transferred.

"At the end of the day, it is our job to chase and to make sure that the funds have been transferred quickly," he says.

Whatever movement is made on both the claims and premium payment front, Ward's challenge is a clear sign that Lloyd's is looking for change.

As the man in charge of implementing the 'claims revolution' at Lloyd's, Kent Chaplin, insists: "The archaic processes of the past are changing and that is a really positive thing, which will only improve the Lloyd's brand and its reputation as a whole." IT