Market Reform Forum

Market Reform Forum29th September 2005

Andy Brookes

Market Reform Programme Office

Market Reform Forum 29 September 20052

Objective: up to speed in forty minutes……

● Contract Certainty

CC guidance to be published early October

- Checklist

- Code of Practice

- Guidance on how to fulfil Code

● Back office electronic infrastructure

Accounting and Settlement

Electronic Claims Files


Contract certainty: the FSA challenge

● Tiner’s speech: end to “deal now, detail later”

End 2006 deadline

Lit the already smouldering platform

- Commercial imperative was hot anyway

● Answering the FSA requires:

Clear plan pulling together components

Measurable progress against that plan

Each firm to take responsibility


Contract certainty: meeting FSA challenge

● Key targets agreed with the FSA

LMP slips CC attributes – ‘GCSE’

- 95% June 2005

- 97% December 2005

- 99% March 2006

Achieve contract certainty for

- 30% of business end 2005

- 60% mid 2006

- 85% end 2006

Evidence of cover issued by broker

- Faster, within 30 days

- Better, more detail including full wording


Assessing LMP slips against a standard set of criteria is A sound way of assessing the quality of contract certainty


Contract certainty: Quality

Source: MPRO, as at 31 August 2005

Contract certainty attributes of LMP slip

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

Jan

-Ap

r 2

00

4

Ma

y-Ju

l 20

04

Se

p-2

00

4

Oct

-20

04

No

v-2

00

4

De

c-2

00

4

Jan

-20

05

Fe

b-2

00

5

Ma

r-2

00

5

Ap

r-2

00

5

Ma

y-2

00

5

Jun

20

05

Jul 2

00

5

Au

g 2

00

5

Se

p-2

00

5

Oct

-20

05

No

v-2

00

5

De

c-2

00

5

Jan

-20

06

Fe

b-2

00

6

Ma

r-2

00

6

Ap

r-2

00

6

Ma

y-2

00

6

Jun

-20

06

Jul-2

00

6

Au

g-2

00

6

Se

p-2

00

6

Oct

-20

06

No

v-2

00

6

De

c-2

00

6

Open market score Binders score Target


LMP Slips – wider and deeper

● CC score for open market: August 96%, up from 95% in July

Steadily rising

97% target for December

Full compliant slips up to 42%

- must be at least 75% by March

● Continue to check 25% of Lloyd’s slips in 2005. And IUA slips rising

● LMP Slip 2005 published in April

● Extending to lineslips

LMP standard for lineslips published in June

1 October mandate for Lloyd’s market


Contract certainty: the definition● Agreed 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 formally commits to the contract”

● Key to hitting the CC targets

- 30% of business end 2005

- 60% mid 2006

- 85% end 2006


Contract certainty: what must firms do? ● Apply the Code of Practice and accompanying Guidance

● Improve checking pre-bind

Follow the Checklist; build it into routine processes

For Lloyd’s business, use quality assurance tool

● Measurement: managerial magic wand will not satisfy the FSA

Must be able to demonstrate achievement of CC

LMP slip targets; sample of slips for LMP slip audit checking

● Wordings presentation

Either referenced or fully worded - brokers’ call

Underwriter response

Note: Across all business lines – brokers lead

Sponsorship, project manager in place? What does your project look like? Training? Incentives?


Resources for firms and service providers● Centrally collected data: LMP slip audit and XIS sourced data

● CII training courses: LMP stamp of approval

● Lloyd’s QA tool on Prudential Practice Requirements

Equivalent for companies and IUA bureau business

● Early October publication

Two page CC checklist

- Is this risk contract certain?

Code of Practice with principles

Guidance on how to fulfil the CoP. Some examples:

- Signed lines

- Underwriter subjectivities

● Kinnect


Another means of assessing the quality of contract certainty today is the Bureau’s rejection rate of policy/wordings submissions


Contract certainty: Quality

Source: XIS, excludes slip policies and time on risk policies

XIS rejection rate of stage 2 checks

20%

25%

30%

35%

40%

45%

50%

55%

60%

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

Open market Binding authorities All


Stage 2 Checking by Lloyd’s managing agents

● Includes slip checks as well as checks to secure Lloyd’s licences and permissions

● Set out as work lists, via the Lloyd’ s QA tool on Lloyd’s website

Aim is de-mystification

Feedback please

● Next stage is detailed error reports – like the slip reports – so you get targeted feedback

● Why? To help firms get it right first time – echoes of the slip story

● Shift from post placing checks to pre placing checks

Use XIS to pre-check complex risks (the checks are not usually complex)

Franchisor samples quality post placing

Important for brokers that quote process isn’t slowed down


Contract Certainty Checklist

Pre-Inception Requirements

Full wording and all clauses are clearly specified and agreed before any insurer

formally commits to the contract.

Contract certainty attributes are satisfied; together with any internal quality

requirements (e.g. for Lloyd’s insurers, the contract certainty aspects of the

Prudential Practice Requirements).

Subjectivities are stated clearly as conditions of the contract, with responsibilities

and timescales for resolution, and the consequences of failure clearly specified.

All terms are agreed between the insured and insurers before inception.

Signed lines are calculated by the broker before inception.



Post-Placement Requirements

Signed lines are available to all insurers at inception, on request.

Signed lines are notified to all insurers within 30 days of inception.

Appropriate evidence of cover, including security, is to be provided within 30 days

of inception.


Contract Certainty ChecklistContract Certainty Attribute

Guide as to whether attribute met

Is the submission clear and unambiguous?

Are the wording and all clauses attached /referenced in the submission?

Are all provisions relevant to the risk, or its administration?

Are any stamp conditions applied by an insurer relevant to the risk and expressed in full?

Are any stamp conditions applied by an insurer relevant to theadministration and expressed in full?

Can it be confirmed that there are no TBAs or other terms that are ambiguous?

Where a wording is dependant on another wording (for example, “as expiring” or “as original”), is the latter either attached or clearly identified?



Is law and jurisdiction and arbitration clearly referenced and complete?

Are the choice of law, arbitration (where applicable), and jurisdiction (where applicable) present and completed correctly?'

Where a “Service of Suit” or similar clause is referenced on the submission, is the nominee also referenced?



Are all terms clear and unambiguous?

Is the insured or reinsured clearly stated?

Is the period or voyage correctly completed?

Are the sum insured or limits present?

Is the several liability notice included?

Is the premium or rate clearly expressed?

Are any payment terms clearly identified?

Is the brokerage clearly expressed?

Are other deductions from premium clearly expressed?

Are all currencies referenced e.g. via use of three letter ISO currency codes?

Are taxes payable by the insured and administered by the insurer clearly stated?

Are taxes payable by the insurer clearly stated?

If any signing provisions are present, are the provisions clearly stated?


Code of Practice

Principle 1

● Brokers will provide submissions that satisfy the contract certainty definition and checklist to obtain firm quotes and place firm orders.


Code of Practice

Principle 2

● Each insurer will be satisfied that the submission meets the contract certainty definition and checklist before formally committing to the contract, ensuring that any conditions or subjectivities are clearly expressed.


Code of Practice

Principle 3

● Brokers will notify all terms to their client and obtain their client’s agreement before inception.


Code of Practice

Principle 7

● Brokers and insurers will each collect and maintain data on their contract certainty performance at individual contract level.


Code of Practice

Principle 8

● Brokers and insurers will ensure that an appropriate evidence of cover including security, is issued within 30 days of inception


Guidance: spelling out the principles Signed lines

● Ambition: Calculation method to be explicit on the slip, that allows the insurer to determine how their line will be calculated (but subject to client wishes)

● Brokers to calculate signed lines at or immediately after inception

● Available to carrier at inception: By writing “line to stand”; or, asking broker

● Broker will routinely provide to carriers within 30 days (normally via de-linked closings)

● Carriers using the bureau may need change their systems to receive this information.

● Brokers and insurers commit to no post-inception over-placing

MRG 15-9-2005


Guidance: spelling out the principles Underwriter subjectivities

● Issues may remain outstanding after inception, e.g. subject to survey

● They should be put within the placing document

● If the subjectivity has been resolved prior to inception then it need not be in the finalised contract

● Where the subjectivity is outstanding at inception then it should be included within the contract as a condition - which affects the scope/terms of coverage

● The responsibilities and timescales for resolution, and the consequences of failure, must also be clearly specified

● Analysis is required to identify types of subjectivity & how to apply the above principles

MRG 15-9-2005


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


Electronic Claims File● XIS development work

Phase 1 – Now live

Phase 2 - Now live

Phase 3 – ACORD DRI (Subset) MAT Sept 2005

Phases 4.5/5.5 CLASS at Lloyds data through GUI/Seamless link

● Implementation

20 partnerships operational (from 6 in May, 11 in August)

Relatively low volumes (257 first advices)

- testing out electronic infrastructure and developing procedures

● Live issues

Cross market procedures and practices draft issued

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