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Market Reform Forum

25 August 2005

Andy Brookes

Mike Smith

Market Reform Programme Office

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Objective: up to speed in twenty minutes……

Contract Certainty

Public letter on CC

CC guidance to be published end-September

Progress on LMP slip, checking, Kinnect

Back office electronic infrastructure

Accounting and Settlement

Electronic Claims Files – today’s special topic

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Contract certainty: Market Game Plan

Agree insuring clauses via a fully claused [1] LMP slip or LMP policy (which also meets LMP Standards) before inception

Define process measurements and quality standards

Understand standards and apply them

Raise standard through independent QA

Play back errors and publish league tables

[1] by reference or all wordings spelt out

MRG endorsed the following, for implementation by end 2006:

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Contract certainty: the programme Key projects

Achieve CC during bind: agree wordings; get checking done

- 30% of business end 2005; 85% end 2006

LMP slips CC attributes

- 95% June 2005; 97% December 2005; 99% March 2006

Evidence of cover – within 30 days

Supporting projects

Policy checking by Xchanging

Model wording

Legacy (not strictly CC, but close cousin)

Kinnect/placement systems

- Consistent with all this, but reduce compliance cost

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Contract certainty: MRG June letter Definition:

“Contract certainty is achieved by the complete and final agreement of all terms (including signed down lines) between the insured and insurers before inception.”

And

“Full wording must be agreed before any underwriter commits to the contract”

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CC: end-September publication “Clarification of practical implications of CC definition” for FSA Measurement and targets

- FSA agreed targets - 30%, 85% targets CC

- LMP slip: 26 attributes for targets (95%; 99%); more attributes to come

- Role of LMP slip audit and XIS checking: raising quality after the event to improve next time

Process diagrams with explanation Guidance on issues

How will wordings be presented to U/Ws?

- Either referenced or fully worded - brokers’ call

- Up to underwriters to ‘express preferences’

- Across all business lines ie not targeted – brokers’ call

Signed lines; stamp conditions; underwriter subjectivities; challenges to CC

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LMP Slips – wider and deeper

CC score for open market: June 94%, just below 95% target

- Rising, but slowly - 92% in March, 93% in April…..

- 97% target for December

CC score for binder LMP Slips: 95% June

- Down from 97% in May

Continue to check 25% of Lloyd’s slips in 2005. First IUA slips processed - companies getting first reports

LMP Slip 2005- published in April

Extending to lineslips - LMP standard for lineslips published in June

- 1 October mandate for Lloyd’s market

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LMP Slip Quality

Contract Certainty Attributes of LMP Slip

75%

80%

85%

90%

95%

100%

Jan-

Apr

200

4(n

=388

)

Sep

200

4(n

=494

)

Nov

200

4(n

=693

)

Jan

2005

(n=6

63)

Mar

200

5(n

=395

)

May

200

5(n

=521

)

Jul-2

005

Sep

-200

5

Nov

-200

5

Jan-

2006

Mar

-200

6

May

-200

6

Jul-2

006

Sep

-200

6

Nov

-200

6

Open market score Binders score Target

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Contract certainty: checking Policy checking Xchanging: Lloyd’s Prudential

Practice Requirements

Binders

- Two binder rejection reports for Q1 ‘05 issued to poorer performing firms (12 Lloyd’s; 12 brokers)

- Q2 report in this month

Open market – similar approach to binders

- Rejection reports for Q2 2004- Q1 2005

- Q2 report end this month

- Better stats in Q4 2005

QA tool for both binders and open market

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Quality Assurance Tool

Provides details of checks for market use that will ensure contracts reach the standard required by Lloyd’s

Aims to minimise or eliminate queries raised by XIS during the signing process

Aims to eliminate second submissions and achieve a “right first time approach” to contract certainty

QA tool now caters for both Binding Authority Contracts and Open Market Business

Do use and feedback

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QA Tool – Currently Available Bahamas Binding Authority Contract Checks

New, Amende

d or Deleted

Level 5 - Foreign Legislation Checks

Level 5 Ref.

Category

Description of Check - Level 5 Owner Ultimate Responsibilit

y

New Bahamas BA Contract

5.001 A Ensure that the contract contains provision for certificates to include a service of suit clause nominating a person resident in the Bahamas. Please check the Bahamas page of lloyds.com for the recommended service of suit nominee.

WWM Underwriter

New Bahamas BA Contract

5.002 Not checked by XIS

Ensure that the contract contains provision for certificates to include a law and jurisdiction clause allowing the insured to enforce his rights against insurers under Bahamian law and in any competent court in Bahamas.

WWM Underwriter

New, Amended or Deleted

Market Level 4 - Class of business

Level 4 Ref.

Direct

R/I Cat. Description of check - level 4 Owner Ultimate Responsibility

New Non-Marine

Personal Accident

4.001 Y Y A Check that where the policy exceeds 4 years 364 days that underwriters have agreed the use of a cancellation clause and that this is contained in the policy.

FPD Underwriter

Non-Marine Personal Accident Open Market Checks

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XIS policy rejections

Rejection rate

0%10%20%30%40%50%60%70%

Q1-04b Q2-04 Q3-04 Q4-04 Q1-05 Q2-05

Binders

Open market

b – excludes Jan-04The volume of binders is about 15% of the open market contracts

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XIS binder rejection data - QA checks

BA QA Tool reference

Percentage of QA checks

failed

General 1.002 21%

Contract 2.022 4%

Endorsement 2.009 4%

General 1.019 3%

General 1.007 3%

General 1.017 3%

Contract 2.005 3%

Contract 2.021 3%

Endorsement 2.008 2%

Contract 2.030 2%

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BA QA Tool check

General 1.002

Ensure that the LMP slip schedule details have been completed clearly and completely, eg there are no missing details, incomplete or unclear statements, vague expressions or ambiguities between terms and conditions.

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Legacy

MRG agreed cross-market priority rules Rules on the LMP website Road testing new Unsigned Policy List

- in accord with new rules

New stats using priority rules Reports on legacy numbers for big firms Should there be market focussed effort in particular

cob?- Is it worth it? Is it doable? Working Group suggest not

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Legacy policy data

Stage I signing Stage II signing

Year account

Number of legacy policies as at Per cent increase / decease

Autumn 2004 Spring 2005

1993 - 1999 94,600 98,331 4%

2000 19,637 20,046 2%

2001 20,720 20,631 0%

2002 24,052 22,890 -5%

2003 28,105 24,516 -13%

2004 25,702 29,379 14%

Total 212,816 215,773 1%

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Legacy policy data by priority Stage I signing Stage II signing

Year of account

Priority 1 Priority 2 Priority 3 Total

1993 1 2,172 9,756 11,929

1994 2 2,167 7,702 9,871

1995 3 3,158 11,178 14,339

1996 8 2,605 10,080 12,693

1997 12 2,936 11,792 14,740

1998 11 3,208 13,047 16,266

1999 29 4,055 14,389 18,473

2000 73 3,952 16,021 20,046

2001 109 4,480 16,042 20,631

2002 192 5,676 17,022 22,890

2003 516 5,734 18,266 24,516

2004 11,639 17,740 29,379

Total 12,595 57,883 145,295 215,773

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Kinnect Take up of 1 June release functionality for August incepting risks

continues North American Property going well

- Slips now being created

- Signing down and completions taking place

Terrorism starting in August 17 customers live on platform and three in implementation Next release due in two drops Q1 and Q2 06

Improved risk class delivery, including generic (data light) template

Two way data transfer with underwriter response International Property delayed to Q1 (from Q4) to fit with this

ITT for future supplier and review of platform development requirements

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Contract certainty: each firm Don’t wait for end-Sept guidance LMP slip CC attributes score

- June result? Will you hit 97% in December? And 99% in March ’06? Process to improve?

CC on risks- How will your firm achieve 30% of risks by end year?

- Full wording or references?

- For brokers – focus on particular lines of business?

- But quality matters, not just volume - build in QA checks

Sponsorship, project manager done. What’s the project look like? Training? Incentives?

Management information and measuring CC- How will you know you have done it?

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Accounting & Settlement

MRG and Project Board review. Result:

Measurement of process

- Like other checks

Looking at a ‘light’ step 1

- Scanned LPAN and slips into repository

Reviewing how to achieve end vision

- more efficient and flexible accounting and settlement processes achieved through the use of standard electronic messages in place of both paper and bespoke London messages

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Market Reform Training

LMP Training Group (LMPTG) established

Cross market group - CII and other providers

Ensure sufficient, relevant and accredited training Progress to date

Contract certainty training plan being developed

- Senior management, compliance, technical levels

- “These are the courses, you should have been on” e.g. Placing broker – how to complete an LMP slip

Claims and A&S plans to follow

Review / Accreditation of current training providers – LMP stamp

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Market Reform Forum

25 August 2005

Andy Brookes

Mike Smith

Market Reform Programme Office