Lloyd’s Exchange Continues to Gain London Market’s Acceptance

Lloyd’s electronic Exchange has been in development for nearly two years, but it’s now increasingly a tool in more general use. A bulletin on the Lloyd’s web site (www.lloyds.com) states that the Exchange is already “seeing encouraging results, but the key to success is a collective approach from market participants.”

It essentially provides a “simple messaging service that makes it easier to work in the London market. It allows brokers, underwriters and system providers to have a single connection point from which they can send and receive electronic information between multiple parties using one common standard.”

The pilot project began in January 2009 [See IJ web site – https://www.insurancejournal.com/news/international/2009/01/16/97023.htm ]. The first electronic message was sent in August 2009 between UK broker Miller and Aspen Re [See IJ web site – https://www.insurancejournal.com/news/international/2009/08/17/103044.htm ]. Aon Marsh and Willis signed up in November 2009 [See IJ web site – https://www.insurancejournal.com/news/international/2009/11/16/105346.htm ].

Now that the pilot has proven successful, Lloyd’s said the next “challenge is to realize the full benefits of electronic messaging – but to do this, greater volumes of live messages must be sent and the process needs to be embedded as business as usual for practitioners.”

The bulletin went on to note that in order to facilitate this, it had launched a London market initiative called the “Endorsements Pilot” in June. “The pilot focuses on a subset of marine (direct hull, cargo, war and liability) whereby all endorsements for this class of business are to be submitted and agreed electronically using ACORD messaging. 38 managing agents, 10 IUA members and 19 major brokers are currently participating. Other lines of business will be piloted as interest grows.”

Sharmi Bakrania, Project Leader for the Exchange, pointed out that the “top three brokers [Aon, Marsh and Willis] agreed to give their support, but only with 100 percent commitment from managing agents. Because it’s a subscription market the only way for brokers to avoid having to do dual processes was to get 100 percent managing agents committed and connected.”

The endorsement project functions as a “two-way electronic process, with the broker submitting the endorsement and underwriter responding electronically,” Lloyd’s explained.

It also took pains to stress that “face to face negotiation can still take part at any point in the process, either before the initial endorsement message is sent or during the process.” That feature will preserve one of the London market’s oldest traditions, and a source of its strength. It addresses a primary objection, voiced by both underwriters and brokers, that moving to an electronic system would replace the face to face discussions, which they deem essential in handling the specialized types of risks for which Lloyd’s provides coverage.

Lloyd’s explained that “what is important is that the ultimate agreement is via electronic message and not by ‘ink on paper’. A series of endorsement workshops have been run to get users up-to-speed with the electronic messaging and address any questions or concerns they may have around the electronic process.”

“Normally once you’ve got the lead underwriter, you have to go from one underwriter to another if you want to get the following markets agreed,” Bakrania explained. “You literally have to walk that piece of paper around. In the electronic world the broker has the opportunity to send out the message to all following agreement parties simultaneously if he chooses.”

She also stressed the simplicity of the process, indicating that “all we do is transfer a message from A to B whilst checking it fulfills the standard. Organizations can then choose how they wish to connect and how sophisticated they are in terms of integrating messaging with their internal systems and processes.

“At the moment a lot of managing agents and brokers are using simple tools which don’t link up to their back office system, initially this will cause some pain, for example they will have to do some rekeying,” she continued. “However, longer term, the full benefit will be realized as organizations begin to integrate and move towards the ultimate goal of straight through processing.”

“Once we’ve covered endorsements we’ll look at the placement process in its entirety,” she added. “We need to keep the momentum going but not do everything all at once and too quickly.”

At this point it’s difficult to put exact figures on how much time can be saved by automating the more straightforward business processes. However Lloyd’s described a “rough estimate” conducted by Beazley of the potential efficiency gains.

“We currently handle approximately 30,000 endorsements a year,” stated Ian Fantozzi, underwriting and claims operations manager at Beazley. “If an underwriter can save just three minutes on each of these by dealing with them online, this alone frees up nine months of manpower.”

He believes the key to success is a collective approach from market participants. “We’re seeing encouraging signs with the level of participation in the e-endorsement initiative. This will ensure efficiency improvements across the market with simple processes being automated, freeing up brokers’ and underwriters’ time to focus on their specialist business.

“I see it more as a triage process,” Fantozzi added. “Certainly on the endorsement side, having an initial review of every endorsement that comes in and we can very quickly decide which ones can be dealt with electronically and which ones would require face to face consultation.

“I can see that being a subtle change to the business model for a lot of carriers in the market,” he continues. “It would lead then to the opportunity to reduce response times for simple contract changes and reduce the amount of waiting time for the broker as well.”

Source: Lloyd’s of London