When driving forward business reform, the most critical issue of all is that of winning the hearts and minds of those affected

Dane Douetil, chairman of the Market Reform Group and chief executive officer of Brit Insurance, discusses the work of the MRG and explains the importance of the London Market’s push for business process reform.

The current focus of the UK’s Financial Services Authority (FSA) on achieving contract certainty and its decision to use the Market Reform Group (MRG) as the body it would work with on this initiative within the London Market, have brought the activities of the group firmly into the foreground.

However, the role of the MRG is actually much wider. As the only true London Market forum bringing together representatives of the Lloyd’s Market Association (LMA), the International Underwriting Association (IUA), the London Market Insurance Brokers' Committee (LMBC) and Lloyd’s, the group is responsible for driving the overall modernisation of the market. Indeed, the MRG was actually formed over five years ago with the development of the London Market’s LMP slip being one of its early initiatives to improve clarity of information about risks and assist more accurate production of policies and wordings.

When seen against this background, the need for contract certainty is in reality a symptom of the much wider and fundamental issue facing the London Market – that of the urgent imperative for a fundamental re-engineering of the market’s processes.

Given there is now wide recognition that the current acquisition costs of doing business in the London Market are not sustainable against those of the rest of the global marketplace, this is an issue which can no longer be left languishing on the sidelines.

The market needs to drive down costs and this can only be achieved if all the businesses within it are communicating in common languages with common messages and protocols. Only then will it be able to achieve anything near the maximum possible efficiencies.

At the same time, the market is also being impacted by a number of other dynamics including the continuing ripple effects of the investigations triggered by New York attorney general, Eliot Spitzer. Not only have many brokers needed to address their cost bases and reconsider their value proposition from the ground up, but also both customers and risk carriers are becoming increasingly focused on the issue of who does what in the supply chain and who pays for it.

Indeed, it is probably fair to say the London Market has never seen so many different forces coming together at once which have put business process reform on centre stage.

Accordingly, while the FSA challenge to end the “deal now, detail later” approach of insurance world, which was issued to the market in December 2004, has been a major driver of change, progress is also being supported by the unique environment in the market at present.

The MRG’s role in driving such reform is as much one of setting the agenda for change as it is of working with and through other entities to achieve key objectives.

Our job is to create the vision, guidelines and protocols to allow businesses within the market to make their own commercial decisions regarding the best strategy to deliver such critical initiatives as contract certainty, accounting and settlement and the creation of an electronic claims repository.

The data processing and electronic transfer initiative being driven by the G6 is an extremely topical example of how this can translate into practice. The G6 is very much a creation of its time and the current environment and it has undoubtedly been a force for change and therefore for good within the market.

The project between Amlin, Beazley, Catlin, Hiscox, Kiln and Wellington is seeking to drive process reform within Lloyd’s by working together to agree peer-to-peer electronic processes with key four major brokers – Aon, Benfield, Marsh and Willis – which use the internationally recognised ACORD data standards.

The G6’s new data standards, set out in its “G6 Placing Implementation Guide”, will be made available to other interested parties in the market through the ACORD Placing Implementation Group, the London Market Reform Programme Office and the Lloyd’s Market Association.

Similarly the work of the G6 – or in this case G8 as Brit Insurance and Limit have also joined this project – has been fundamental to the current initiative to deliver a London Market repository of model wordings which is expected to have a key role in helping the market to achieve contract certainty and speed up the policy production process.

Having established the concept and content, the project is now being taken forward by the LMA which is working in conjunction with US claims data specialist ISO, to develop and deliver the repository. Again, the intention is for the database to meet ACORD data standards and, while the project is being developed by the LMA, the plan is for use of the database to be open to brokers, Lloyd’s insurers and London Market companies.

Overall, however, there is no question that contract certainty is the single most important initiative for the MRG in short term and real progress has been achieved on this front.

Following the first vital step of defining what contract certainty actually means - the complete and final agreement of all terms (including signed lines) between the insured and insurers before inception – the next step was to ensure the necessary results were delivered to satisfty the FSA that the market could continue to pursue its own solution.

Figures released by the MRG in early March reported that 65 percent of all contracts agreed during December were certain, compared with the target of 30 percent. As a result, later that month, FSA chief executive officer, John Tiner, acknowledged the progress made by the insurance market and announced the regulator had put on hold its work to develop rules and requirements to bring about contract certainty.

However, Tiner also strongly cautioned the market against complacency during these next few crucial months, stressing it must continue to stretch itself to guarantee it meets the year end challenge of ensuring 85 percent of all business placed in the market achieves contract certainty.

Nor should people assume that meeting the 85 percent target will, in the longer term, be sufficient. The FSA is already becoming increasingly interested in how the market plans to achieve contract certainty on the remaining 15 percent of business not encompassed by the current targets.

In simple terms, it is clear the market cannot afford to relax its efforts on this front and the MRG will continue to sponsor and drive a number of initiatives to ensure that contract certainty is delivered in an appropriate and timely manner.

However, implementing technical reforms to the way in which business is done is only half of the picture. When driving forward business reform, the most critical issue of all is that of winning the hearts and minds of those affected.

This is perhaps where the real battle lies for the London Market, especially given its history of failed reform initiatives and the resulting mindset among many that if you keep your head down the problem will eventually go away.

Here, also, real progress has been made over the last six to nine months. Indeed, the degree to which the understanding of the need for change has altered in such a very short time shows just what can be achieved when there is the will to deliver.

In the past there has been no doubt that those at the very top of the market’s business were clear about the imperative for change. But there are now encouraging signs that the importance of that imperative is understood throughout the London Market with those who have yet to take this on board being in the minority. It is in all our interests to make sure this message continues to get out to everyone affected.

Looking to the future, one of the big issues for the key MRG will be how it adapts to drive forward projects which involve big capital expenditure – a question which has not been a factor to date. Accordingly, the group will need to consider how it ties in the issue of sourcing funding for projects with such elements as corporate governance, project management and its principal role of setting the vision for change. Indeed, in the longer term it is possible that one of the MRG’s tasks will be that of setting the agenda for its own reform.

However, for the immediate term the MRG’s role is clear. Its primary objective is to create the vision, guidelines and protocols to drive the across the board process reform which is fundamental to the health of the London Market. Make no mistake, without such change the future of the market would be very bleak indeed.

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

Author: Dane Douetil - Brit Insurance