Richard Garnett says the time is now right for binder business on the London Market to join the digital revolution
There are companies in the London Market that have state-of-the-art business-to-consumer insurance websites on which customers can apply for insurance online. Yet the following might surprise you: these glossy looking websites hide a surprisingly missing technological link for this boiler-plate business, because some brokers are still printing the completed forms to then queue for an underwriters' sign-off for special acceptances where they fall outside their delegated authorities.
While many of the customers filling out their forms online would also be surprised that this type of binder business - known also as coverholder business - is not already fully automated, there is a drive in the market to change this.
The London Market's problems with implementing technology have been well-documented but things are changing - quickly. The Market Reform Group (MRG), which sets priorities for London's insurance industry, has tackled many areas successfully, including contract certainty and the development and use of the Insurers' Market Repository (IMR). Electronic Claims Filing (ECF) is now embedded in the Lloyd's market and much of the paper that has choked the market has been removed from the premium process.
So far, 250 firms have signed the IMR agreement, which is a uniform contract and a crucial milestone for the market that will deliver a faster and more robust system for users, even as volumes increase.
While the MRG pushes ahead with plans for 2009, further reform is being spurred on by the credit crunch. Companies now understand that systems have not only improved to meet their internal needs and security requirements but that they can also save time and money, so chief executive officers and chief financial officers are even more on-board.
In terms of compliance, regulation and contract certainty, the new systems make sense too. They can help minimise errors that occur when data is input or re-input incorrectly and help stop those embarrassing little mishaps, such as when bundles go missing or important documents are lost. Everything is stored securely online and every keystroke is recorded, leaving an auditable trail that should make regulators - and customers - happy too.
There is a feeling in the market that binder business is the next to face the MRG's firing squad. Traditionally harder to regulate and legislate, binder business - despite the volume of it - has escaped regulation or scrutiny almost completely.
While not as sexy as insuring David Beckham's right foot, binder business (also known as programme business or delegated writing authority) makes up 32% of Lloyd's of London's business. This often maligned and misunderstood sector of the market deals with very closely-defined business in which underwriters say to brokers 'write this business, we will underwrite it' - a kind of off-the-shelf insurance or (re)insurance.
The reason it has been difficult to computerise or regulate historically is because binder business works in so many different ways and in so many classes of business. From a compliance point of view, it is quite easy for an underwriter to build up a significant pool of premium and business within their defined sets of what they believe are the best products. Binders also keep prices down and the underwriter is not involved in the actual decision-making feed (because it has to meet the criteria) and the broker writes it for them.
Because the terms are pre-set, the insurance is easy to apply to online applications and only special acceptances have to be referred. With today's flexible systems, it is now a good time to have the flow go right through from inputting the policy to signoff, special acceptances and then claims. Basically, there are now systems out there to allow the underwriter and broker to process according to their desires utlising a workflow designed specifically for their needs.
All Lloyd's binder business goes through the delegated authority team, which comprises approximately 12 people. As I said before, Lloyd's and Xchanging do not have set processes for binder business currently but the eye of scrutiny is expected to move onto this large area next.
Suddenly, updating processes makes sense. New systems allow as much or as little automation as the underwriter or broker desires. For example, you can input either all your policies on the system or purely special acceptances. You can have the claims linked - or not - to your policies.
As a result, companies can process claims in the company market so that, within sixdays of notification, payment is made to their accounts. By allowing the information to flow more quickly over the internet from cedents through to insurer and (re)insurer, the claims process is agreed and payment then goes through CLASS.
While change can be painful, what the new technology does is save wasted time: think of the broker that has to leave his desk for an hour to search out signoff on two special acceptances - something that can be done in minutes online. Saved time, however, is a minor perk compared to the benefit of having a complete audit trail, easy reporting, easy reviewing and the ability to provide accurate management information at the click of a mouse.
It is really quite simple why this is the next big thing in processing in Lloyd's specifically and the London Market in general: it saves time and money. In these difficult times, this is just what companies, insurers, and brokers are looking for.
- Richard Garnett is managing director at Yellowblox.
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