If Alex Letts, the CEO of London’s RI3K, a leading provider of technology infrastructure for the reinsurance industry, didn’t already exist, someone would have to invent him. Letts, whose background is in marketing, not insurance, proved once again that he has remarkably clear insights when it comes to tackling market reforms within the reinsurance industry. His speech on Thursday, June 30 to a packed audience of insurance professionals at the Market Reform Forum may have been just the message they needed to hear.
It’s remarkable that the head of an IT company should insist that adopting technological solutions isn’t the first priority in reforming how the reinsurance industry does business, but that’s just what Letts did. “The problem has been in the past that people, including me, have confused everybody by talking about work processes and IT data transfer as if they are the same thing,” he said. “They are not.”
Letts’ ability to think “outside the box” has led him to the conclusion that many of the past and current approaches to modernizing the way the London market does business – especially when it comes to reinsurance contracts, simply haven’t worked, because the wrong problem was being addressed. “Data transaction is a big issue but it remains an IT issue, said Letts. As such it is “a small part of the overall picture.”
The real problem, which must be solved, is to satisfy the transparency requirements of the U.K.’s Financial Services Authority, New York Attorney General Eliot Spitzer and the Sarbannes-Oxley mandates. “This means sorting out how people should work in a consistent way to manage the reinsurance contract creation, endorsement and administration,” Letts continued. “It’s about work methods. To my knowledge none of the external regulatory or compliance entities have commented even in passing about a requirement to sort out what the IT crowd does to process the information.”
He stressed that “no mistakes come bigger than this in making the case for Reform and Modernisation. Getting a standard way of working has been muddled up with getting a standard way of shunting data around. It is a classic confusion of Commercial and Operational issues.”
It’s also a very serious concern. As Letts pointed out, the London market represents about 10 percent of the world’s reinsurance market; it is the single most important market and is worth about $14 billion per annum in premium. It’s about 20 to 25 percent of the world’s broker market too. “As such it’s a non-trivial centre and the rest of the world’s reinsurance markets are watching London carefully,” he said. “This industry is waiting to take its lead from London and it will follow London reform. Why? Because the truth is that no other market has a clue what to do, and they all think that London is further ahead. If London gets it right, then that will do for the rest.”
How to accomplish this won’t be easy he warned, but “we have to move from a wide variety of methods of interacting between companies to a single, standardised way of doing business. In other words, one set of forms, one style of slip, one clear process-just one way of doing things that satisfies the lawyers, the Regulators and the business needs of the market.” That solution has to satisfy U.S. requirements as well; it can’t be just an U.K. solution, as so many London-based companies do a great deal – even a majority – of their business in the U.S.
Further on in his remarks Letts observed: “We have all become obsessed with what we [IT people] provide and less concerned about what the market needs. What this market is asking for is a straightforward service. A service that provides a community of users, who can all use the same templates and structures within an LMP [London Market Principles] framework to manage their reinsurance. It needs a service that supports their interpersonal way of working but transported into a slightly more modern environment.”
E-mails and paper trails won’t work to produce this result, but a computer that provides a “uniform and controlled market wide solution platform” will. “It needs to be a single source service,” said Letts. “Otherwise the templates will get altered and people will revert to anarchic ways of using supplied software. It has to be like a game where everyone has a single set of rules and plays with the same equipment. It’s like using Google.You access it, and use it for that function. Then you exit.”
Could RI3K become the Google of the reinsurance industry? Letts certainly hopes so, but more importantly he has redefined the parameters of the debate. Essentially he told the Forum’s attendees that they should take responsibility for producing one standard form for the highly complex business of negotiating reinsurance treaties.
Once that’s done; “It’s not hard to think up tools that give users access to each other, and it’s not hard to envisage a community of people connecting together by computer, all regulated by the same rules and business processes, Letts continued. “It’s not hard because it exists already. It’s RI3K.” At least he hopes it is.
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