Market Reform Update

1. Market Reform Update Andy Brookes Market Reform Programme Office 28 July 2005

2. Objective: up to speed in forty minutes…… • Contract Certainty • Public letter on CC • Update on the live issues on CC • Progress on LMP slip, checking, Kinnect • Back office electronic infrastructure • Accounting and Settlement • Electronic Claims Files • What you should be doing • No special topic

3. Contract certainty: Market Game Plan MRG endorsed the following, for implementation by end 2006: • 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] typically by reference, rather than all wordings spelt out

4. 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

5. Contract certainty: market progress • MRG agreement on definition • Measurement: “a good thing”, so expect more of it. • Governance sorted • Reporting to FSA regularly • “Not dissatisfied….” • All firms have received CC briefing and Nick P letter • 242 out of 255 firms registered with Programme Office • Training material in pipeline, with CII

6. 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”

7. Contract certainty: implications • Use of model wording must rise • Investigating how to achieve this • Wordings can change after leader scratch • Changes must be documented • Granular standards (= QA tool for Lloyd’s) • Each broker and U/W to ensure achieved • Checks before inception wherever possible

8. Contract certainty: issues to nail • Signed lines: how calculated? how communicated? • Checking within CC • Early checks for some? • 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 • Renewal peaks • CC checks by XIS (U/W and brokers?) • Policy production • Contract Certainty Project Board on the case • Will publish work end September

9. Contract certainty: more issues to nail • Measurement • Role of LMP slip audit and XIS checking: raising quality after the event to improve next time • FSA agreed targets - 30%, 85% targets CC • LMP slip: 26 attributes for targets (95%; 99%); more attributes to come • Process diagrams with words • Who has what choices? • Evidence of cover • Appropriate evidence of cover to be issued within 30 days

10. LMP Slips – wider and deeper • CC score for open market: June soon – will be close to target • Up from 92% in March, 93% in April….. • June target is 95% • CC score for binder LMP Slips: 95% June • Down from 97% in May • CC attributes for slip policies – 93% in May, report out • should be better than others on average • 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

11. LMP Slip Quality

12. 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) • QA tool re-issued in May • XIS started checking to this list in June • Next report in August • Open market – similar approach to binders • Rejection report for Q2 2004- Q1 2005 • XIS start checking to this list in July • Better stats in Q4 2005

13. Policy production: QualityXIS rejection data - XIS reasons b – excludes Jan-04 The volume of binders is about 15% of the open market contracts

14. 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

15. QA Tool – Currently Available • Bahamas Binding Authority Contract Checks • Non-Marine Personal Accident Open Market Checks

16. Legacy • MRG agreed cross-market priority rules • Rules available from the Programme Office • Investigating new Unsigned Policy List • in accord with new rules • Recalculate stats; agree next steps (if any) • Should there be market focussed effort in particular cob? • Is it worth it? Is it doable?

17. Legacy policy data  Stage II signing  Stage I signing

18. Kinnect • Take up of 1 June release functionality for August incepting risks continues • North American Property going well • Slips now being created • First sign down and completion to be this week • Terrorism to start in August • 17 customers live on platform and three in implementation • Beginning to engage with International Property markets • 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

19. Contract certainty: each firm • 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 checks • Sponsorship, project manager done. What’s the project look like? Training? Incentives? • Legacy; Kinnect • Management information • How will you know you have done it?

20. Accounting & Settlement • MRG and Project Board review. Result: • Measurement of process • Like other checks • Looking at a ‘light’ step 1 • Scanned LPAN 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

21. Electronic Claims File • XIS development work • Phase 1 – Now live • Phase 2 - Now live • Overall business process spec signed-off later than planned • Better end outcome for practitioners; but pressure on timelines in Q1 ‘06 • DRI functionality issues; LMA, LMBC and Claims Infrastructure Project Board managing • Implementation • 11 partnerships operational (from 6 in May) • Relatively low volumes (140 first advices) • testing out electronic infrastructure • 57 (and rising potential) partnerships identified • Live issues • Cross market procedures and practices

22. 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

23. Market Reform Update Andy Brookes Market Reform Programme Office 28 July 2005