Technology: Getting to the source of things

Risk managers have not got the easiest of jobs. And when it comes to gathering and passing along data on risk that is sufficiently accurate to gain competitive premiums in a hard market, their task is downright difficult. But a commitment to 'quality data in' has its rewards, especially in a market still stunned by the events by 11 September 2001 and subsequent terrorist acts.

Further down the insurance value chain, (re)insurers have been taking a hard look at what processes they need to put in place to be assured they truly know what their exposures are. As they face demands for improved service levels, a sharper regulatory focus and increased ratings company scrutiny, they are looking upstream to risk managers - the original data source - for help keeping their data clean.

Taking the initiative

Initiatives in the market to drive improved data quality and overall business processing speeds are good news for risk managers. For their efforts, they can expect to get policy wordings and documentation far quicker.

One initiative is process automation through the London Market Project, which has been a major push in the London (re)insurance markets over the last few years. As an essential part of that process, the Lloyd's Market Association (LMA) has used the data standards setting organisation Acord to help it streamline the flow of information through the use of mutually agreed data standards. What it sought was standards that would smooth information handling through all touchpoints. The result was two new standards that are beginning to have a big impact on operational efficiency in the market: one for exposure reporting and another for binding authority reporting.

The problem that these were designed to solve was clearly outlined by Robert Childs, chairman of the LMA, in a 2003 letter to LMA participants that said: "Clients/brokers have been asked to provide different types of location data in different formats, resulting in difficulties in sharing data across the market and incompatibility with standard risk modelling software. To solve this problem the LMA Data Standards Group was formed, with the aim of defining a data standard that could be used across the market. Establishing a more efficient process for the flow of this information into the market could also allow syndicates to maximise their use of capacity by better understanding their exposure and allow for more accurate pricing based upon greater knowledge of the market."

The LMA group defined a set of common data elements and guidelines for commercial property, household, onshore energy, fine art and commercial vault. After ratification by 13 Lloyd's managing agents, these requirements were offered to Acord for incorporation into its global standards. Acord then validated Lloyd's carrier requirements with brokers and company carriers within London and in the US with the National Association of Professional Surplus Lines Offices and the American Association of Managing General Agents and their members.

The broad scope of the effort to build these standards, which involved 70 organisations, has contributed to their early successful implementation where other less universal attempts have faltered. While past individual efforts to fill this need were started within organisations, it became problematic for the industry as a whole due to incompatibilities and inconsistencies.

Lloyd's and the LMA strongly endorsed the use of the standards in 2003 and requested the use of the binder standards by its US general agents for 2004 binding authority renewals. Since then, both organisations have repeated their calls for implementation as an important part of the markets' quest for contract certainty at inception and overall process improvement.

Lloyd's has recently required greater exposure reporting to ensure that no syndicate has too much exposure in one geographic area and to keep an eye on the Lloyd's market as a whole. Logically, the more standard data syndicates receive, the easier and cheaper it is for them to comply with these new regulatory demands.

The Acord exposure reporting standards cover exposure reporting to a specific address/location level for commercial risks, across all geographies worldwide. It is designed to enable reporting by all parties within the information chain - from insured/risk managers, through intermediaries of all types, to the insurance, and ultimately the reinsurance carriers.

They are easy to use because they are available in both XML and spreadsheet formats. XML is available for senders who wish to output data directly from their internal systems, while spreadsheet solutions are aimed at those with less sophisticated systems or those who want to key data directly into a spreadsheet for sending on to business partners.

Signs of success

This initiative is succeeding. Market adoption is growing steadily. A number of solution providers to the market have recently incorporated or are currently building the standards into their solutions.

Miller, a leading independent London broker, announced in February the relaunch of its extranet for binding authority business which, among other functions, will provide exposure-related data to all their business partners. Gary Clark, a director at Miller, says: "This (electronic standards) is an area Miller has been very conscious of for many years. LMA's efforts and the introduction of Acord to the London market have served to accelerate this process and we welcome these changes."

There is no question that risk managers are fundamentally seen as the source of the flow of good data. And while risk managers are helping all business partners by using standard-based exposure reporting methods to provide consistent and accurate data, it cannot be viewed as an entirely profitless, magnanimous act. They are ultimately helping themselves by making the market more flexible and responsive to their needs.

- Phil Brown is program manager for reinsurance at Acord