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Market Reform Update

28 July 2005

Andy Brookes

Market Reform Programme Office

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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

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Contract certainty: Market Game Plan

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

MRG endorsed the following, for implementation by end 2006:

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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

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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

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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”

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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

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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

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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

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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

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LMP Slip Quality

Contract Certainty Attributes of LMP Slip

75%

80%

85%

90%

95%

100%

Jan-

Apr

200

4(n

=388

)

Sep

200

4(n

=494

)

Nov

200

4(n

=693

)

Jan

2005

(n=6

63)

Mar

200

5(n

=395

)

May

200

5(n

=521

)

Jul-2

005

Sep

-200

5

Nov

-200

5

Jan-

2006

Mar

-200

6

May

-200

6

Jul-2

006

Sep

-200

6

Nov

-200

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Open market score Binders score Target

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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

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Policy production: QualityXIS rejection data - XIS reasons

Rejection rate

0%10%

20%30%40%50%

60%70%

Q1-04b Q2-04 Q3-04 Q4-04 Q1-05

Binders

Open market

b – excludes Jan-04The volume of binders is about 15% of the open market contracts

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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

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QA Tool – Currently Available Bahamas Binding Authority Contract Checks

New, Amende

d or Deleted

Level 5 - Foreign Legislation Checks

Level 5 Ref.

Category

Description of Check - Level 5 Owner Ultimate Responsibilit

y

New Bahamas BA Contract

5.001 A Ensure that the contract contains provision for certificates to include a service of suit clause nominating a person resident in the Bahamas. Please check the Bahamas page of lloyds.com for the recommended service of suit nominee.

WWM Underwriter

New Bahamas BA Contract

5.002 Not checked by XIS

Ensure that the contract contains provision for certificates to include a law and jurisdiction clause allowing the insured to enforce his rights against insurers under Bahamian law and in any competent court in Bahamas.

WWM Underwriter

New, Amended or Deleted

Market Level 4 - Class of business

Level 4 Ref.

Direct

R/I Cat. Description of check - level 4 Owner Ultimate Responsibility

New Non-Marine

Personal Accident

4.001 Y Y A Check that where the policy exceeds 4 years 364 days that underwriters have agreed the use of a cancellation clause and that this is contained in the policy.

FPD Underwriter

Non-Marine Personal Accident Open Market Checks

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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?

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Legacy policy data

Stage I signing Stage II signing

Year account

Number of legacy policies as at Per cent increase / decease

Autumn 2004 Spring 2005

1993 - 1999 94,600 98,331 4%

2000 19,637 20,046 2%

2001 20,720 20,631 0%

2002 24,052 22,890 -5%

2003 28,105 24,516 -13%

2004 25,702 29,379 14%

Total 212,816 215,773 1%

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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

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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?

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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

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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

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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

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Market Reform Update

28 July 2005

Andy Brookes

Market Reform Programme Office