Everybody play with a single set of rules

Alex Letts of RI3K Ltd stakes his claim to become the Google of reinsurance.

Ever since Edward Lloyd opened his coffee house in 1688, the reinsurance industry has determined its own pace of change and agenda. But change never suits the status quo, hence the lack of modernisation and reform.

However, for the first time in three centuries, control was taken out of the hands of the owners of the status quo in 2004, and this triggered a period of creative destruction never previously experienced by the industry.

The first tremor had come earlier with the Silverstein Twin Towers case.

This coincided with the shock waves from Sarbanes Oxley, and the process of preparing for regulation of Lloyd's. But the real quake was Eliot Spitzer's aggressive assault against the brokers.

Now, instead of sub-committees working on commercial efficiencies, the spotlight has fallen on how business is actually being conducted. Agenda-setting has fallen into the hands of non-industry parties, driving change irresistibly into the heart of the market.

Unsurprisingly, the market reacted like rabbits cornered in the full glare of Range Rover lights. After an initial period of shock and denial, market leaders set about organising a concerted, legally collaborative response.

They have met stern resistance in the market, not to the idea of change itself, but to the excruciating passage through it. Practitioners, mostly, accept the need for change, but don't relish the ghastly process of restructuring to meet the new business environment.

Practitioners worry less about the destination, and more about the roadmap.

How will the market actually get to where it knows it needs to be? How will these changes be glued together into a collaborative yet coherent plan of action?

The history of strategic planning, articulation and implementation in this market gives them very few reasons to be cheerful - not least when the debate spins off into the arcane world of data standardisation and messaging between back-office silos. The truth is that trying to meet that back-office objective ahead of the other front-office issues is putting the cart before the horse. Things need to be done in the right, logical sequence. Once a collaborative standard way of working is in place, then back offices can be more easily restructured to collaborate.

It's about work methods

The overriding objective today is to satisfy regulators, Spitzer and Sarbanes. This means sorting out how people should work in a consistent way in order to manage the reinsurance contract creation, endorsement and administration. It's about work methods.

These work methods must support expert interpersonal intermediation on a contract-by-contract basis. Anyone who thinks reinsurance deals can be banged out electronically is going to be disappointed. The mandate is for is a collaborative service that supports a community of users who can collaborate, using the same templates and structures within a standard framework, to manage the reinsurance process. Practitioners need a service that supports their interpersonal way of working but transported into a slightly more modern environment. It needs to be a unified framework within which there is room to differentiate and add unique value.

The service won't be email - email is a red herring. It is inconceivable that email is the golden bullet for a standard interaction and audit trailing.

In the compliance and governance area, email is actually a liability because everyone uses it and stores it idiosyncratically. It does not have rules that are needed for a standard method; quite the opposite. (And you can't drive processing data off it, either.)

It won't be paper and fax. Paper doesn't support standardisation any more than email does. With paper, you can miss bits out, change the forms, skip the processes. Four tonnes a day arrives at XIS, a lot of which is useless and has to be returned. Paper has had its day.

A single-source service

So, the best method will be computerised. But to make that a uniform, controlled, market-wide solution, it needs to be a single-source service, otherwise the templates will get altered and people will revert to anarchic ways of using supplied software. It has to be like a game where everyone has a single set of rules and plays with the same equipment. It's like using Google - you access it and use it for that function, then you exit.

It will link cedant to broker, to underwriter to bureaux, within the same collaborative community, giving them a single shared record of every version of the contract as it evolves. They will use the service as the only record of what was agreed and what the supporting documentation was.

They will have an electronic London Market Principle (LMP) slip with wordings.

It will be irrefutable when discussing what was agreed or endorsed by whom and when. The talk, negotiation and problem-solving can happen on a face-to-face basis, but the record must go in the electronic templates.

It is not hard to line up a service that provides the solution, nor is it hard to think up tools that provide access to other users, nor hard to envisage a community of people connecting and collaborating together by computer, all regulated by the same rules and business processes. It's not hard since it exists already.

The entire reinsurance business process is now available for both facultative and treaty in the RI3K service, using one set of records with versions of each stage of the transaction. It has 150 companies using it - over a 1000 users globally - and it has to date over $1.3bn of contracts recorded and signed on-line as the binding record.

While adoption will be driven largely to meet external agendas set by non-industry parties, one feels that had Edward Lloyd been able to choose this way of working back in 1688, he would have jumped at it.