How could a problem that seemed so immoveable suddenly disappear overnight? Some suspected, at least in private, that the books had been cooked

The London Market should be raising its ambitions when it comes to contract certainty because customers’ expectations never stand still, says Andrew Cornish of AIRMIC.

The announcement that the London insurance market had achieved 65 percent contract certainty at the December renewals – more than 100 percent above target – provoked surprise and disbelief. Yet I believe the figure is broadly accurate.

The problem with this performance is that it seems too good to be true, bringing to mind the old adage about “lies, damned lies and statistics.” How could a problem that seemed so immoveable suddenly disappear overnight? Some suspected, at least in private, that the books had been cooked. Alternatively, as a questioner alleged at a recent public forum, the 65 percent represented the “low-hanging fruit” – renewals, endorsements and so on. The really difficult bit, so the argument goes, is still to come.

It was, therefore, with particular interest that AIRMIC embarked on a survey of its own members in late March to discover their experiences. For those who do not know, AIRMIC represents buyers of commercial insurance. Our members come mostly from very large UK Plc’s, including 75 percent of the FTSE 100. Their collective insurance spend is more than £4 billion annually and London is by far its biggest market. In other words, their views matter.

Equally important, the type of insurance they buy tends to be anything but straightforward. Even when just renewing, it is a complex business to place the insurance programme of an international business that may have customers all around the world and operations in dozens of countries.

The headline results of our survey (see box) were very much in line with the figures produced by the Market Reform Group (MRG), the top-level committee overseeing the contract certainty initiative whose figures started this debate. In summary they show that we have made an excellent start, but still have some way to go to meet the target of 85 percent certainty by the end of this year. Complacency is potentially our biggest enemy, but our immediate goal is within sight.

Direct comparison with the official MRG figures is impossible because theirs cover the year-end renewals whereas ours apply to all months of the year; they include some transactions that took place when the contract certainty initiative had barely got off the ground. Inevitably, therefore, the AIRMIC totals are lower, but they are still light years ahead of what one would have expected a couple of years ago.

Crucially, the vast majority of buyers who failed to achieve certainty are taking steps to do so next time. Seventy four percent are working more closely with their broker, 50 percent with their insurer and 25 percent with their colleagues, while nearly three quarters (73 percent) expect to start the process earlier than before. In all classes of business the percentage of buyers who were “not at all confident” of achieving certainty was under ten percent.

So, it would seem that an important chunk of the market’s customer base is broadly in agreement with the upbeat MRG assessment. Further reinforcing this message, Microsoft and SunGard iWorks recently published another survey of senior London Market underwriters and brokers and came back with an even more positive response: 94 percent said they were “confident” or “very confident” that their own operations would achieve certainty by the end of the year.

“Breakthrough” is an overused word but, potentially at least, it does apply to what we are seeing on contract certainty. London, so long the laggard when it comes to setting standards of service, is on the cusp of enjoying a leadership position when it comes to world markets; and it has taken just two years to solve a decades-old problem.

That, however, is only the start of the story. Assuming we do reach the 85 percent year-end target, why stop there? I think we should look to exceed it.

Above all, however, it is frustrating that it took the regulator to force us into action. Our success with contract certainty is a great tribute to what underwriters, brokers and buyers can achieve when they really focus their efforts. Let’s now look at all other service areas.

People have been complaining for at least 30 years about the time it takes the London Market to settle claims, for example. As with contract certainty, it was a problem that seemed well nigh impossible to solve. Yet, with the proper exploitation of e-commerce and ACORD standards, there is no reason why we should not achieve world class standards there too.

Customers’ expectations are rising all the time, and service levels in the London Market will have to go on improving in order to meet them.

This Special item appeared in issue 106 of JTW News - June 2006

Author: Andrew Cornish - AIRMIC.