Innacurate records are the source of many problems in the insurance market, but now they can be automatically corrected. John Chapman explains

By just looking at Insurance Times over many months, the reader will find articles covering plans being worked out at JLT for restructuring; the announcement of Catlin’s desire to enter into a merger with Wellington to create a $1bn syndicate at Lloyd’s and, Canopius’s acquisition of Creechurch.

Movements offshore to Bermuda by Catlin, Amlin, Hiscox and Admiral now being managed from Gibraltar are also covered and will bring their own unique challenges. Lloyd’s new chief executive has thrown down the gauntlet to bring Lloyd’s to where the London market companies have been since the mid 1980s regarding the management and processing of the claims function.

All of these reports have a similar common denominator – their content relies solely on the assumption that the data quality on which their calculations for entering into the various arrangements is of the highest integrity.

But is the information held an asset or a liability? To be an asset it is necessary for the information held to be complete in nature and accurate in reflecting the underlying business. All too often the London insurance market has allowed the quality of the information that it captures and retains to be incomplete and inaccurate.

The demise of a number of companies and syndicates in the past can be solely attributable to those parties relying on information which is fundamentally false, not least being the problems that the London market and Lloyd’s had with the sudden onslaught of their US casualty exposure to asbestos, pollution and health hazard risks.

Such events lead to the substantial expenditure by the Society of Lloyd’s (on behalf of individual Names) to come up with an acceptable solution in an attempt to ring fence the successor markets.

The individual and unlimited liability of those Names and their estates is only now (10 years after the inception of the initial reinsurance contract) coming to an end as Berkshire Hathaway purchased the assets of Equitas.

The fact that the broker retained the central records for any subscription risk and prepared the documentation for any reinsurance of subscription insurers is well known. As a result the cedant insurer, which accounted with the broker, had no incentive to maintain duplicate records to those held by the broker or indeed to maintain additional and more complete records regarding the policy, claim or transaction.

The data retained therefore is and was insufficient for the ongoing business requirements. The subsequent Lloyd’s reconstruction and renewal programme was hampered by the inability of the constituents to identify definitively their exposure and, as a result, their bargaining power was curtailed.

Inaccurate and incomplete information became a liability when relied upon to repudiate assertions that were being made by the claimants. Equally the inability to reject extrapolated suppositions when there is no definitive rebuttal available (due to uncertainty over the information held) has likewise hampered matters.

The time of preparation for the due-diligence aspect of the operation is an opportunity for all parties to review their records and identify where they may be exposed to attack on the quality and completeness of their own records. The exercise is also an opportunity to review the information that they may wish to consider as part of their own review of the counter-parties books and records.

Once the merger or acquisition has been announced, an opportunity will exist for reinsurers of the parties to become involved in the process. Whether this is by performing their own inspections in parallel with the due-diligence exercise when all records are being reviewed, or whether to just request the findings of the counter-parties is a personal matter for each to consider.

While an inspection should not be considered a ‘fishing’ exercise and should have a purpose, the presented opportunity should be adopted wherever possible. Information on the book of business however gleaned, will always prove beneficial in the long term.

In order to bring a cost efficient focus on the investigation, there is a need to assist the inspectors by providing ‘targeting tools’ to identify any potential adverse trends and to generate suspect areas for review and inspection.

The more that is known about one’s own business and those with which you have a relationship, especially when based on the knowledge that it is data with integrity the easier it is to have confidence in both managing the relationship and reaching an optimum price on any purchase/sale.

Ultimately, when entering into negotiations with your counter-parties, you can achieve improved value for the asset that you have identified just by ensuring your portfolio is an accurate reflection of its’ underlying data.

There are a number of tools and solutions available on the market to assist in the identification and resolution of corrupt data. The knowledge-focused tool SYSO – System Solution – is an intelligent pattern matching error identification and correction application.

The application was developed to assist in the identification and correction of client data, weeding out past mistakes and errors by comparing the data held to focus on where the differential data is recorded, the review is then focused on normalising these differences.

The additional assets identified by employing this tool may then be included within the balance sheet as an improvement to the companies’ asset base in addition to providing the correct contribution towards the recoveries that are made against third parties.

Properly identified counter-parties are pursued to maximise recoveries calculated. Accurate records reflect in the operation of debt recovery by making it easier when less than scrupulous counter-parties attempt to challenge the existence of a relationship.

In supplying incontrovertible evidence of the relationship it has been found this not only maximises the recoveries from the counter-party in question, but also makes recoveries from other related (or unrelated) counter-parties easier, since the efforts taken to demonstrate the existence and integrity of the relationship are passed on to other co-insurers existing on the cover.

In summary: use automation tools to undertake data quality improvements in a controlled fashion; correct current records without manual intervention; costs savings can be requantified at the same time as assets .

It is high time that data quality investment was bought to the fore in this market. For far too long market practitioners have attempted to pass on the problem to other parties and taken a discounted price as a fair ‘hit’.

The market as a whole will benefit both at home and overseas just by broadcasting that it is going to address the issue and this in turn will generate a renewed confidence bringing with it a new level of professionalism – no bad thing in today’s rush to make improved profits wherever possible. A small investment now will reap improved profits in the future.

John Chapman is managing director of JDC Consultants