With claims payouts taking anything up to 170 days, there is an urgent need to look for ways of speeding up the handling process. Yvette Essen explains how the London Market Principles may provide a solution
Time and tide wait for no man, - particularly in the insurance industry. In fact, time is nowadays considered so important that the London Market is facing one of the most radical shake-ups in its history to try and save more of it.
At the moment, claims payouts can be a lengthy and frustrating process, taking hundreds of days. Communication between brokers and underwriters can be slow, and when a number of individuals share a risk, this can hinder the speed of compensation even further.
The International Process Compliance Project 1999, which was conducted on behalf of LIMNET, revealed that claims payouts take an average of 100 days, with some up to 170 days.
But enough is enough. In an effort to modernise the present method and speed up the time taken for a broker to pass on a claim to the underwriter, some 170 practitioners have spent the past 18 months toiling over ways to tighten up claims procedures and in doing so, to make the London Market an attractive place to do business.
Their efforts have resulted in a new package agreed by the International Underwriting Association (IUA) - Lloyd's Forum and the London Market Brokers Committee (LMBC).
The London Market Principles
This document, known as the London Market Principles (LMP2001), has now been put forward to more than 350 insurance companies, brokers and syndicates. But how does it aim to create an accelerated claims handling process and will it really work?
LMP2001, published in November last year, aims to streamline the way in which the markets operate. It will determine everything from how a risk is placed, to the way that a claim is paid.
The report says: "Adoption of the London Market Principles will improve the quality of the placing and claims service for the insured, and reduce costs and risk for the broker and the insurer."
One of the proposals is to take advantage of technology to communicate and to get rid of unnecessary paperwork. LMP2001 is therefore actively encouraging people to use it to speed up the claims process. At the moment the London Processing Centre - the bureau processing IUA members' premiums and claims - already uses the Claims Loss Advice and Settlement System (CLASS). Over 95% of company claims are processed by the client advising the broker of a claim, and the broker in turn enters details electronically to LPC, which releases details to the lead insurer.
Yet the main proposal - that the lead underwriter will become the sole point of contact with the broker - is the controversial clause.
Who will take the lead?
If underwriters receive their premiums more quickly, then, in theory, customers will get their claims faster. And in most cases, if the leader does agree to pay out for a particular claim, other underwriters will automatically follow suit, within set time frames. This way the compensation period will not be drawn out.
Paul Marks, project office manager for LMP2001, says: "We can improve the claims process and the time taken to improve the efficiency of it. The majority of claims are uncontested so they should go through more quickly.
"We think we can halve the time taken to pay out a claim by giving more responsibility to the lead underwriter. It will also give that person more clarity of role. Non-lead underwriters will meanwhile benefit from a streamlined process."
Adrian Beeby, press officer for Lloyds, sees in this report a blueprint for change. "London is an incredibly complicated market, and administration is slow," he says. "But giving greater responsibility to the lead underwriter will speed up claims payments dramatically.
"A lot of new business is not coming to London because of the sheer complexity of the market. We need to accept these changes to secure London's place as the centre of the insurance world. This will modernise the London Market as a whole. It is a radical move and has never been attempted before in this way."
Nick Furlonge, director for underwriters Beazley Furlonge, which was one of the first groups to sign up to the reforms, also supports the measures. He is also a member of the Protocols and Standards Steering Group.
"One of the main drives of the LMP2001 project is to get premiums and claims moving quickly," he says. "Under the new protocol, underwriters and brokers are required to negotiate and agree premium payment terms at the point of placement, with any consequences for non-compliance clearly set out. This clarity at point of sale will speed premium flow to underwriters. This is to be welcomed."
A question of power
The suggestions outlined in the LMP2001 have generally met with approval in the insurance industry, but the question is, will they really work?
One of the main problems the LMP2001 faces is that many underwriters are reluctant to give up their power to see what is going on with a claim and to allow a competitor who is leading the risk to have the overall say. Although they will retain their veto, this fear has led to a considerable amendment of the first draft of principles, released last May, and is still a matter of dispute.
Clemens von Bechtolsheim, managing director of Munich Re, says: "Only really leading underwriters will have a say in agreeing claims payments. Others may not make in-depth technological decisions."
Ultimately, it will become a question of power - and who possesses it. "There are a lot of people who have influence," he explains. "A lot of people must fear they will lose that influence."
It is not surprising that companies such as Munich Re are still stalling for time before committing themselves to the final March enlisting deadline.
But Marks says: "There are various mechanisms built into the claims and management system for people to be advised on a claim and to register their objections to the lead underwriter. Mechanisms must be agreed at the placing stage."
A spokesperson for the IUA, also promises: "No-one is going to be forced to agree anything or pay for anything they do not want to. We were not sufficiently clear about this in the consultation document. Neverthless, support is widespread and growing."
Yet, although brokers such as Willis and Aon, and underwriters Hiscox and Wellington are beginning to commit themselves to the proposals, many still remain divided. However, if the overall "critical mass" (between 65-75%) do agree to them, LMP2001 will be forced through the market anyway. Although this target has arguably already been reached from the Lloyd's market and broker's figures, the company market, which makes most of its major decisions overseas, has yet to attract such support.
Tradition is important
But Stephen Riley, joint chairman for the LMP2001 steering group is unruffled: "We said last year that it would take longer for IUA members to sign up, because of the need to consult their parent companies. We are confident that there will be more shortly."
Beeby also remains positive that the deal will go through. "Everyone agrees with the overall objective of modernising a complicated market and speeding processes up," he says. "The issue just focuses on the detail."
Chris Don, press officer of Aon, also recognises the difficulties in breaking with 300 years of tradition and altering the way of doing business.
"It is going to take a lot of work but these changes have to come for the market to survive," he says. "Tradition is important but this will take out a lot of the unnecessary processes and will make time for more valuable things like face to face broking. The way they operate in America is quicker and better. The London Market needs to catch up."
Von Bechtolsheim agrees. "We are lagging behind the rest of the world," he says. "You can change any tradition. Whether it is simple to change is a different question. But it is definitely worth trying."
Why does the London Market need to change?
These reforms seek to enhance the clarity of contracts and payment terms and provide the broker with a single underwriter contact.
However,vitally, individual organisations will remain in control of their own business decisions,and safeguards have been built in to protect followers.
Clarity, combined with flexibility,will allow incumbent practice to continue where it is favoured,with new mechanisms provided to achieve best practice where it is lacking.
What are the main proposals?
Source: LMP2001 November Report