Plans to streamline the London Market have been delayed at the eleventh hour after lawyers raised fears that the policy documents could be invalid.
A technicality came to light only last week, causing the launch of
the London Market Principles (LMP2001) project to be pushed back by at least a month.
It was raised at a meeting with representatives of the underwriting and broking community last Wednesday, leading to a sudden postponement for the July 1 renewals.
Lawyers are worried that the slips, used by underwriters to share the placing of a risk, may not be legally binding under the scrutiny of the courts.
Aon, Marsh and Willis, the world's biggest brokers, had aimed to place 20% to 30% of their business on new LMP2001 slips, which is the cornerstone of modernising the London Market as Lloyd's and the Company Market work closer together.
The project has been in the pipeline for one-and-a-half years and is fundamental to London maintaining its position as the world's insurance centre.
“This is one of the toughest decision I have made in my career,” said Stewart McCulloch, joint chairman of the steering group. “I am disappointed as an enormous amount of work went into doing this and hundreds of people have put in many many hours of work. But our over-riding priority has always been to get LMP2001 right and this is the way to do that.”
He said an independent firm of lawyers would be checking that the new formats did not alter current practice and legal procedure.
He also noted several “areas of possible ambiguity, or lack of clarity in the guidelines”, including confusion of where information should be entered on the slip and possible repetition of detail.
Finally, the group decided to wait and “ensure the slip structure being developed by brokers and underwriters is consistent across the market”.
A senior market source said that although creation guidelines were issued in February, the brokers only compared slips for the first time
last week with Jardine Lloyd Thompson's being “radically different”.
The LMP2001 process has already faced hurdles with only 30% of the Company Market signing up to support the principles in March.
But Andrea Pound, spokeswoman for the International Underwriting Association (IUA), said: “We are taking on board what the industry is saying, responding to their observations and making sure they get it right.
“A further two companies have now signed up to the principles.”
McCulloch added: “The purpose of July renewals was to surface issues and we have learnt enough from the work to date to not take the LMP2001 pilot live. But we are not taking the pressure off – we have to get this right.”
Rudy Konig, a partner of JLT Risk Solutions, said: “We share the sense of disappointment but remain
confident that within a short period of time there will be a consensus across the industry as to the format.”
Nigel Roberts, managing director of Aon Specialty, added: “Brokers went off and created what they thought would be appropriate slips but when they got together, they realised they had better stop and think.
“At the same time, legal people were engaged and they said there were a couple of issues that were not adequately signed off.”