Why London's new IT platforms could make bureaux obsolete

With the many initiatives, services and technology solutions available to support the London market, surely the time is right for a fresh look at the appointed ways the market is taking. Many paths lie open, but which would we choose if the London insurance market was a Greenfield site?

Today, complex risks are negotiated face to face. If the rate set is not sufficiently competitive, alternative underwriters are just a few steps away!

Once rates and terms are agreed, full placement is achieved by simply walking through the Lloyd's and company markets. The physical proximity that so readily allows for face-to-face negotiation and access to a wealth of insurance and reinsurance underwriting experience remains London's strength, but many would like to see this process strengthened in terms of technology support.

A decade ago, electronic placement failed - the technology wasn't up to it, and the solution was expensive to develop, cumbersome to use and failed to support integration between front- and back-office processes.

However, the emergence of providers such as Kinnect and Ri3k means that the desired placement support services are there, and regardless of your views, these services enable data to be captured once, without further re-keying.

These services have evolved, and today offer much more. We should also recognise the important role that Acord and the development of XML messaging standards play, all confirming that the technology is here, able to capture data at source, communicate it over the internet and transform it to integrate with back-office solutions.

London's only issues have been the length of time it can take to agree contracts, settle claims (especially where there are several syndicates or companies involved) and finalise the closing, but this is where the new London market principles (LMP) come into play.

LMP - an excellent base

LMP are a foundation to maintain London's pre-eminent position within the global insurance market. Its underlying projects - the LMP slip and general underwriters' agreements; accounting and settlement; contract certainty and insurance documentation; plus electronic claims files and repositories - serve it well. They are starting to see some good results, and are acknowledged by the International Underwriting Association (IUA) as the foundation stone for all the business-reform initiatives under way in the market.

Removing legacies and taking London as a blank sheet of paper based on LMP makes for an interesting set-up. This would create a market that employs the best working practices to meet the business needs of the market, covering everything from IT infrastructure to processes and people issues.

With its abundance of good underwriters, brokers, service providers and reform initiatives, supported with technology standards, London would be able to provide high-quality services to international clients.

The UK regulator Financial Services Authority (FSA)'s rules must be met, and LMP projects such as slip submission and contract certainty will be essential for compliance. Indeed, contract certainty has been singled out by the FSA as an area where major improvements must be made by the end of 2006.

With electronic LMP slips attached to placement records, together with other supporting documentation, this information can be transmitted by the provider over the internet using standard ACORD messages, and then automatically entered into an underwriter's back-office system. With integration now paramount, back-office systems become fully meshed throughout the entire process, thereby enabling immediate and accurate updating of all information.

Why 'A&S' will open London up to the world

The Accounting and Settlement (A&S) project, which will replace the current signings & settlements messages as well as encompass the claims-agreement requirements, has the potential for overseas companies to participate in and utilise the same processes for back-office integration as those used by London.

A&S has the capability to support the claims-agreement process either through the current CLASS system or through an exchange of messages that simply reflect a web-service principle of receive and acknowledge. In effect, an electronic 'handshake' that confirms a sent message will be acknowledged by the message receiver. In this case, the sent message carries the claim notification; this information is then validated and processed by the company or syndicate back-office system.

On viewing the claim, the claim manager's response will be returned through an acknowledgement message, which in turn establishes an invaluable audit trail. This process will facilitate involving international companies in the London claims-agreement process without necessarily belonging to the London Market's Xchanging bureau service.

DRI - three letters that spell massive productivity gains

As with the placement service supporting claim documentation, this will be available through the use of the Document Repository Interoperability (DRI) facility, an integral part of A&S. All necessary documents will be offered and retrievable direct from the third party's document repository - be that an intermediary or market document repository - and presented to the claim administrator's own back office.

What the A&S system highlights is that interactive processes involving structured and/or unstructured data can be successfully employed into the business through web services and gateway technology, without relying on market-wide online systems.

Is the London bureau going to be made obsolete?

A market based on the above technologies, infrastructure and standards could suggest that the services of bureaux are no longer required. Today, for instance, the bureau is central to the London market's policy signing and central accounting, and with the emphasis on contract certainty, central policy checking and signing certainly offers a strong added value to the market.

But what of the other primary system services - signings & settlements messaging and the CLASS agreement service? Actually, these services have always added value to the market. Simply by receiving a single notification from the broker, the Xchanging bureau validated and calculated each participant's share before electronically sending a message to the lead and following market, resulting in consolidated processing with little redundancy, at its best.

Similarly, Elass, the founding claims-agreement service and subsequent amalgamated CLASS system, provides a much faster claims-settlement service, thus saving on back-office costs while also bringing speedier claims settlement.

But now these benefits can be achieved through the advent of web-based service technology, putting web services within reach of both intermediary and carrier.

Moreover, the overseas players can participate in the market by transmitting the same standard Acord XML messages. And with the A&S implementation, they can even adopt the same London market processes.

The bureau needs to think carefully about its role in this new landscape.

A&S especially is breaking down barriers, and to survive, the Xchanging bureau will need to ensure it continues to add value to its services - services at which technology is gradually whittling away.

The work of the LMP office in collaboration with ACORD is beneficial, and should be fully backed by all participants. If we can join up the LMP slip, contract certainty and the A&S project's comprehensiveness with a technology that has the capability to support electronic placement, the exchanging of documents and a claims-agreement process, surely the way has been appointed to us.

A&S is especially important to the new market-trading environment, allowing each partner to trade individually, thus supporting the market business-to-business trading environment.

For regulation purposes, it seems appropriate to suggest web-portal trading environments such as Kinnect/Ri3k will allow for the monitoring of all stages of a policy, plus control of endorsements. But we need to ensure that the market can accept the information downloaded from such portals, because even if these two organisations do not succeed, similar trading will be in place in the coming years as the requirement to trade certain parts of the policy or whole classes of business will become an essential part of the underwriting environment.

The world of slips, contracts and claims advice still needs to accommodate paper submissions, making the need for document repository essential for compliance and to avoid the risk of losing important documentation.

The London market has traded for more than 300 years, during which time it has weathered some of the greatest disasters of recent centuries. However, the greatest potential disaster is the market's inability to pull together and redefine its trading environment.

Times change, but the world agrees that our ability to trade in a face-to-face environment really is a core strength. The time is nigh for the market to regain its dominance in the global market, but not through a new innovative class of business or greater capacity. What is needed is an IT infrastructure that will set out the stall for the rest of the world to follow. The London market did it in the early 1980s with PSAC and Limnet; now we must do it again - with or without the bureau.

LONDON JARGON MADE EASY ...

ACORD: develops and maintains various electronic standards for the insurance, reinsurance and related financial services industries. ACORD standards encompass life and annuity, property and casualty, surety and reinsurance industry segments.

A&S: the Accounting & Settlement reforms have fully adopted the ACORD XML RLC message and data standards.

Contract certainty: this is the complete and final agreement of all terms (including signed-down lines) between the insured and insurers before inception. The FSA requires that clients receive evidence of coverage within 30 days of inception.

Document Repository Interoperability (DRI): through web-based services, the document repository interoperability facility allows market participants to retrieve and send documents.

Kinnect: the Kinnect service is an electronic infrastructure to support the efficient capture, transfer and processing of risk data for commercial lines in the Lloyd's and London insurance markets. It enables the secure transfer of data between brokers and underwriters through an agreed market-defined business process.

LMP slip: ambiguous terms are outlawed; standard words have to be referenced; and all non-standard words must be attached to the slip.

Ri3K: the Ri3K service allows you to quote, negotiate and bind every type and class of reinsurance business entirely online. The subsequent movement of placement and technical data between buyers and sellers is straightforward and seamless.

Web Services: a web service is an application that provides an open interface, allowing applications to communicate. It allows application-to-application integration over the web or intranet using a platform and language-independent protocol.

Xchanging bureau: Central to supporting the London market intermediary, it relays business processes and related IT services. Responsible for handling 15 million messages a year for the market.