Market on Speed

The London Market may be reputed for its flexibility and ability to insure virtually anything but it is also known for its inefficiencies and slow practices. Claims has been a particular area for criticism with policyholders waiting up to 90 days before they receive a cheque.

Now, however, there are plans afoot to unite Lloyd's and the Company Market together to speed up claims processes.

For the last few years, there has been a gradual realisation that the London Market is still largely paper-based. Although modern technology enables claims to be paid out at the click of a mouse, brokers and insurers, particularly in Lloyd's have failed to embrace it.

Last December, Tony Markel, the president and chief operating officer of Markel Corporation lambasted Lloyd's for its lengthy processes. He described standards being achieved in claims payments as "abominable" and said market recommendations that claims should be settled in 30 days were "ludicrous".

"How can we compete in a worldwide marketplace, deeming these standards to be acceptable?" he asked.

Last May, Ins-sure Services was formed to undertake the processing and settlement functions of the London Market.

Chairman Sir Laurie Magnus says: "I have come into the insurance world from an investment banking background and continue to be amazed by some of the practices that go on.

"I just do not believe that customers in the 21st century will continue to tolerate the delays."

Magnus said he has heard of clients who do not want to trade in the London Market because of its reputation for paying claims late or sitting on the money.

"There is a gradual realisation that London is behind other insurance countries so we have to improve the processes and make it more transparent," he says.

Policy document
Representatives from both markets have attempted to find a solution. Last year, a new initiative called the London Market Principles (LMP) was introduced, aiming to modernise the City and make it attractive to investors who have begun to turn to other insurance centres, such as Bermuda.

A new standard policy document was originally due to be introduced to Lloyd's and the Company Market in July 2001. But the launch date was delayed due to concerns over the legality of the slip and a difficult renewal season following the World Trade Centre attacks.

The documents were finally released early in February and there are now plans to converge the two markets closer together through a single claims processing system. The plan to create one universal claims system has been welcomed by market practitioners.

Davies Managed Systems is a household and commercial property claims outsourcer with the majority of its business coming from Lloyd's clients.

Managing director Mark Huxley agrees that the two markets can work closer together. Last year, as part of the initial stages of LMP, the Lloyd's Policy Signing Office (LPSO) and the Company Market's London Processing Centre (LPC) were merged. The London-based companies are now operating under one roof.

"It needs to be like that," says Huxley. "If you look at the London Market, there is so much overflow on both markets with companies working in both. There is a blurring of management and infrastructure."

If LMP is successful in speeding up claims payments, the London Market's reputation will be improved. Magnus says: "The market wins if claims are fast and it will get more business."

Ins-sure information technology director, David White, says for the first time the market will have a consistent and common way of working. "There are no losers," he says.

Yet although brokers and underwriters stand to gain from being regarded as speedy and efficient, they have a price to pay.

At the moment, by holding up the claim processes they can sit on the payment and invest it. By making transactions automatic, the intermediary or insurer stands to lose the interest.

Settlement system
Companies will also have to pay thousands of pounds to have new computer programmes installed to understand Ins-sure's new systems.

This will be good news to software providers, and there are about a dozen competing to become LMP friendly.

Catex is one such company which is creating a premium claims and settlement system to embrace LMP recommendations for insurers and reinsurers. Its product will be available on the market within the next six months and will offer an efficient back-office system to the London Market.

Catex Europe managing director Tom Bailey says: "The speed of paying claims has traditionally been held up by inefficient processes. Our system allows claims to be agreed in real time and settled straight away. But it will depend on the protagonists, rather than the technology."

But making the market a modern place to do business is a costly venture. White says £1m has been set aside for the LMP process and Ins-sure budgets will pay "several millions" to create the convergence system.

Yet despite all the millions of pounds of investment and the thousands of hours spent in consultation talks, money alone cannot help Ins-sure overcome its biggest challenge.

Ins-sure customer services director Mike Hannan says the London Market's mentality must also change.

"It is not just a question about whizzo computer systems, but changing the business practices of the market and the behaviour that is really going to make a difference," he says. N

The way claims will be settled
Lloyd's still relies fundamentally on face-to-face contact and claims can be slow as information is passed around on pieces of papers in files. The 314-year-old market also uses "lead only agreements" where if the lead underwriter consents to pay a claim, other insurers are obliged to follow suit.

Meanwhile, the Company Market uses a technology-based facility called Claims Loss and Advice Settlement System (CLASS), which enables claims to be agreed automatically. Insurance companies on each risk independently decide whether to pay out or not.

Ins-sure information technology director, David White, says:

"We have two old bureaus and two completely separate systems. We are coming into a single claims system, which will be a significantly enhanced form of CLASS."

This will be done through a repository, which acts as a central but secure database for information like policy documents and photographs to be stored electronically.

Should a claim occur, the broker is able to access data immediately and inform underwriters in both markets from his or her computer.

Loss adjusters, lawyers and any other relevant party can also see the information on screen simultaneously.

"As soon as the broker is notified of the claim, all information is put in the repository," explains White. "Everyone gets the same information and it travels at the speed of electronic wires."

Ins-sure hopes to have the repository in place by the end of the first quarter. The new claims system is scheduled for completion by the end of this year or early 2003.

Subscribers will be able to choose to have lead-only agreements or work in a way where everyone has to agree claims individually.