Lloyd’s iconic “inside-out” building, designed by Richard Rogers, is well known for its exterior pipework: the innovative building was built with its services on the outside to leave the space inside less cluttered.
Unfortunately, since the building was completed in 1986 the market gained an unwanted reputation for its internal pipework – its IT systems. The new building was startlingly modern and efficient looking. But like the rest of the industry, its inhabitants were bogged down by cumbersome processes and were drowning in paper.
Happily, aside from a costly hiccup on the way in the shape of the failed Kinnect project, today’s Lloyd’s is thoroughly modern inside and out. Indeed, the Lloyd’s market is now widely regarded as setting the pace for insurance industry modernization around the world.
Such rapid progress is in large part down to Lloyd’s director of market operations, Sue Langley. Previously chief operating officer (COO) and a member of the executive team for the Hiscox Group, Langley joined Lloyd’s in July 2007 with responsibility for all market modernisation programmes.
After virtually eliminating paper from the market across all the main business processes Langley hit a major milestone earlier this year: pushing the button on an IT hub for the London market called the Exchange.
Getting on message
The Exchange is a simple messaging service that makes it easier to work in the London market. It allows brokers, underwriters and system providers to have a single connection from which they can send and receive information between multiple parties using one common standard.
With the selling point that it is easy to connect to and use, take-up of the service, which is run by IBM, has been brisk. “Our original objective was to have 20% of the market connected by the end of 2009. In the end we achieved 80% sign up and connection,” Langley says. “And now we are actually observing organisations transacting live messages via the service.”
Further evidence of the Exchange’s acceptance is that it is driving competition between insurance IT suppliers with the costs of Exchange gateways, message management tools and other connection options coming down, Langley says.
Langley took a measured approach to the Exchange project from the outset, conscious that the market would be wary of a new IT project after Kinnect. “The market sees the Exchange for what it really is – a utility just like all the other tools provided in the market,” she says. “It doesn’t impose a way of working on underwriters, brokers or their suppliers. It imposes the Acord standard on messages so that everyone is talking the same language. That’s important in a subscription market.”
Support for the project has been carried through to the all-important step of sending all endorsement messages electronically via the Exchange with an impressive 100% sign-up to the endorsements pilot from Lloyd’s managing agents.
Underwriting companies came on board after the three biggest broking firms – Aon, Marsh and Willis – gave their backing at the end of last year. Importantly, around 20 members of the International Underwriting Association, the London company market body, have also now signed up to the endorsements pilot, including important firms such as Allianz and Munich Re.
To get the endorsement pilot running, electronic endorsements from marine hull and cargo are the main focus for now. This is being driven by a cross market group and if all goes according to plan other classes will be piloted this.
Such is the growing cross market support for the Exchange that the governance of the service has also been reviewed and the project is now being overseen by the LMA, the IUA and the LIIBA, as well as Lloyd’s itself.
Langley already has her eyes on the next steps to take, however, once endorsements are happily running through the Exchange. “We’re going to be looking at the other information that the market uses and determine what else should be put onto the Exchange in terms of Acord standards,” she says. “We want to make it easier for all Lloyd’s stakeholders to talk to each other.”
Claims transformation
The Exchange isn’t the only project shaking up back office staff at Lloyd’s. Under the guidance of Lloyd’s head of claims, Kent Chaplin, the corporation is striving for big improvements in claims performance.
Underwriting has been the most visible priority of the franchise performance directorate under Rolf Tolle and now managed by Tom Bolt. But claims performance has been undergoing a transformation throughout the market as well.
“We’ve been on a journey since 2004 when we first carried out a strategic review of the claims function,” Chaplin explains. “Five years on we have successfully implemented an operating model that has helped the market manage claims more effectively than ever before.”
The strategic review resulted in a claims management performance framework that provided market oversight of claims and minimum standards that encompassed use of the Xchanging Claims Services (XCS) company (formed in 2001) and the Electronic Claims File (ECF) introduced in 2006.
Managing agents’ claims performance can now be measured and benchmarked against standards set out under eight claims management principles – to do with reserves, processes and documentation, for example.
Now that the market’s managing agents and brokers have made the necessary investment to improve their claims management, Lloyd’s is getting ready to provide for the changes they want to see in return.
“Five years on from the original review we asked ourselves if that model is still valid,” Chaplin says. “We found that it is sound but that in some ways the market has moved on and we want to recognise and accommodate some of those changes.”
As part of the recently announced Claims Transformation Project, Chaplin formed a claims business requirements group to identify the needs of the market. “What we found was that brokers and policyholders want claims to be paid quickly,” Chaplin explains. “Managing agents wants to benefit from their investment in the claims process through better choice and increased flexibility.”
Managing agents believe they can satisfy both objectives by choosing whether or not they outsource claims to XCS, depending on whether they are leaders or followers on business. Similarly, many said they want choose to “insource” particularly complex or high value claims.
“The move to insource claims could cost managing agents more initially,” Chaplin points out. “But the market believes that insourcing could help managing agents significantly influence claims resolution and the quality of claims adjustment and in the end provide a better service to their clients.”
To find out if the market’s assumptions are correct the Lloyd’s claims team has started a pilot. “This is all about improving speed, fairness and communication. Our research tells us that customers want a shorter claims cycle, fewer touch points and better certainty of payment,” Chaplin says.
The new claims agreement process for subscription claims through 2010 has started with marine classes, property direct and facultative and casualty treaty. The pilot involves three segmented tranches of claims: standard (£0 to £100,000), mid (£100,000 to £5m) and complex claims (above £5m).
In the standard tranche, which represents nearly three-quarters of all subscription claims by volume at Lloyd’s but only 5% of reserve value, claims agreement will be cut to one party – the leader – instead of two as is the case now. The aim is to effectively halve the claims agreement cycle.
In the mid tranche, which represents almost one quarter of all subscription claims by volume yet 58% of reserve value, claims agreement will be leader plus the second underwriter as an alternative to XCS. Of course, all managing agents still have the choice to outsource their claims agreement role to XCS if they so wish.
The third tranche, which is only 1% of Lloyd’s business by volume but 37% by reserve value, will again be leader plus one but with a formal complex claims protocol to allow followers to get involved if required.
Managing agents should be able to apply their resources more effectively by using the segmented model, Chaplin believes. The majority of claims will be dealt with more quickly and with fewer parties involved it should also mean there will be more effective communication with customers, he predicts. “In other words, rather than continue putting all claims through the same sausage machine we’re going to take the sausage machine apart!”
In theory, brokers and customers will benefit from the flexibility brought by the proposed new way of working. “Brokers have told us that they want ideally to have the ability to notify claims direct, for example, or receive payment directly,” Chaplin says. “We believe we can deliver that kind of flexibility in time.”
Chaplin thinks the claims transformation pilot will help his team further refine the business requirements of the market. The next step will be to design and deliver the systems needed.
“We will be looking for systems that provide an international platform with wide access but fewer touch points, better linkage with customers and more management information,” Chaplin says. “But first we want the pilot to prove that we are heading in the right direction.”
Lloyd’s wants to place claims performance on a par with underwriting and at the same time acknowledge that claims performance represents a competitive advantage for its insurers.
“So an important part of the programme for my team is strengthening our central oversight, validating and testing new processes,” Chaplin stresses. “That’s vital where we move to a model that involved greater choice and flexibility, not only to ensure we are providing an improved service for customers but also to protect the ‘follow’ market.”
By Garry Booth
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