Lime Street Meets Silicon Valley; New Initiatives Transform Lloyd’s

Lloyd’s is adapting to modern business methods and upgrading its business systems so rapidly that it promises to meet, if not surpass, the vision that Chairman Max Taylor first set out in “Priorities for Growth” in 1999.

Taylor shared other professionals’ concerns about the future. How would the explosive growth of new technology—E-commerce and the Internet—affect the insurance industry? He proposed to restructure Lloyd’s to enable it to adapt to “21st century trading conditions.” “These are changes we have to keep up with, or ideally get two steps ahead of,” he said.

The initiatives Lloyd’s has undertaken over the last 18 months to achieve Taylor’s vision are coming to fruition. Lime Street is using Silicon Valley’s products and expertise to reassert London’s preeminence in the global insurance market.

A visit to Lloyd’s new website (www.lloyds.com) is a revelation. The award-winning site offers a totally comprehensive (and comprehensible) portal for both the consumer and the insurance professional with cross-references to the sites of Lloyd’s syndicates, managing agents and brokers. E-commerce sites, online services, specialized programs, claims services, risk analysis—it’s all there, and new initiatives are constantly being added.

Julian James, Managing Director of Lloyd’s for North America, said that with the increasing “use of information technology and e-mail, we have entered a truly global marketplace.” Nowhere is this more evident than in the U.S.

“The U.S. is the cornerstone of our international activities,” James said. “It now accounts for 33 percent of our business, and in the period 1998-99 premium income grew 17 percent from $4.1 billion to $4.8 billion.”

“The use of information technology is the main reason for that growth,” James said. He stressed that Lloyd’s hoped to achieve two main goals: 1) To make the Lloyd’s market more transparent, understandable and therefore attractive to U.S. agents, brokers and the general public, and 2) To strengthen the Lloyd’s franchise in the U.S. by assuring that the distribution network of agents and brokers are used with utmost effectiveness.

To accomplish these goals Lloyd’s undertook to fundamentally transform the way it has operated for centuries. Underwriters will still evaluate risks, but they’ll be accepting them with electronic signatures.

The power and resources of the London market weren’t being fully utilized. The procedures had become archaic, wasted a lot of time and were often incomprehensible to people outside the market. In July of 1999 Lloyd’s launched the “Executive Forum” in cooperation with the International Underwriting Association (IUA) to harmonize and simplify their underwriting and claims procedures, using modern technology.

While this immense task will take time to accomplish (as an example, Lloyd’s Policy Signing Office and the IUA’s London Processing Centre processed an estimated £14 billion ($21 billion) in premium in 1997), it’s well under way. In May the forum published “London Market Principles 2001.” The 34 page report sets out recommendations to implement the Forum’s mandate. It summarizes the four most important goals as follows:

• Single underwriter to manage the underwriting and administration process on behalf of the whole market.

• Restructured London market slip, designed to bring clarity at the point of contract. It will set out who is expected to do what and by when.

• Single claims lead. The leader will be expected to inform and consult the other participants, but there will be just one claims interface.

• Powerful market standards agency whose job will be to collate, verify and publish statistics. IUA members, Lloyd’s syndicates and brokers will be able to compare themselves against 11 performance measures.

The specific timing for the implementation of the proposals is expected in September.

Already in place is the Market Wordings Database, that “holds over 8,000 of the most commonly used wordings, clauses and policy forms in the London market, and is continually growing to keep pace with changes in the insurance documentation.” It can be consulted at www.marketwordingsdatabase.com.

James emphasized that the London market reforms and the integration of technology were in furtherance of the ultimate goal of making the Lloyd’s market more transparent and easier to access.

Easier access also meant broadening the channels of distribution of Lloyd’s products. Breaking with a 350-year-old tradition, Lloyd’s has adopted proposals to open the London market to brokers from outside the U.K. Under the new rules, all brokers doing business at Lloyd’s, including existing Lloyd’s brokers, must adhere to the regulations of the General Insurance Standards Council (GISC), which sets minimum criteria for capitalization, procedures and reporting.

James said he expected that a number of U.S. brokers would seek such accreditation after January 2001, when the new rules are slated to go into effect. Some brokers, who have existing contractual relationships with Lloyd’s brokers, are already eligible to apply, if they meet the GISC requirements.

It is the underlying presence of the Internet that makes such radical transformations as Lloyd’s has undertaken both necessary and possible. “The growth of technology is exponential,” James said. ay tracking Hurricane Debby, people are increasingly using computers; there’s more and more information available.”

James warned, however, that the sheer volume of information available made critical interpretation of it even more important, and greatly increased potential risks. “The emerging focus on E-commerce is typically the largest potential risk facing business this century,” James said.

“It requires innovation and new policy forms to cover the new conditions. Lloyd’s great strength is its willingness to assume new risks and to offer terms and conditions that cover them. A Lloyd’s underwriter’s reaction to a new risk is, ‘why not?’ “He views risks positively.”

It’s this blend of historic expertise with modern technology that Lloyd’s hopes to capitalize on. “Technology wouldn’t have prevented the losses Lloyd’s has incurred over the last few years, which were the result of over capacity and an unusual number of natural catastrophes,” James said.

“But the amount of information available along with the ability to interpret data and make sense of it will lead to the selection of higher quality risks which will attract capital.”