Market Reform Forum

Market Reform Forum 29th September 2005 Andy Brookes Market Reform Programme Office

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 Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 2005

Assessing LMP slips against a standard set of criteria is A sound way of assessing the quality of contract certainty Market Reform Forum 29 September 2005

Contract certainty: Quality Contract certainty attributes of LMP slip Source: MPRO, as at 31 August 2005 Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 2005

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? Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 2005

Another means of assessing the quality of contract certainty today is the Bureau’s rejection rate of policy/wordings submissions Market Reform Forum 29 September 2005

Contract certainty: Quality XIS rejection rate of stage 2 checks Source: XIS, excludes slip policies and time on risk policies Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 2005

Contract Certainty Checklist Market Reform Forum 29 September 2005

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. Market Reform Forum 29 September 2005

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. Market Reform Forum 29 September 2005

Code of Practice Principle 3 • Brokers will notify all terms to their client and obtain their client’s agreement before inception. Market Reform Forum 29 September 2005

Code of Practice Principle 7 • Brokers and insurers will each collect and maintain data on their contract certainty performance at individual contract level. Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 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 Market Reform Forum 29 September 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 Market Reform Forum 29 September 2005

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 Market Reform Forum 29 September 2005

Market Reform Forum