Lloyd’s CEO Puts the Hammer Down

July 12, 2007

“I have no doubt that there is a shared will in the market to improve our processes and much progress has been made,” stated Lloyd’s Chief Executive Richard Ward in response to a letter sent to the market by Market Reform Group (MRG) Chairman Dane Douetil.

Then the other shoe fell: “The pace of change, however, is still too slow. Improvements to the market’s processes are fundamental to the ongoing competitiveness of the Lloyd’s market,” he continued. Ward’s letter to managing agents, warned that the Franchise Board will take “firm action, where necessary” to ensure that progress is made.

His warning centers on the “slow take-up of electronic processing through the Electronic Claims File (ECF) and the Accounting and Settlement repository (A&S),” said a Lloyd’s bulletin. Ward is determined to ensure that the market processes claims, premiums and policies electronically, making the whole system faster and more efficient. He has the full backing of Lloyd’s Chairman, Lord Peter Levene, the Board and many leading managing agents and brokers to do so.

However, the published MRG targets for A&S take-up are 40 percent by end of the second quarter of the year, 60 percent by the end of the third quarter and 80 percent by the end of 2007. Lloyd’s current use of A&S stands at just 17 percent.

“This is disappointing,” Ward stated. “We will continue to engage with the brokers and [Xchanging Insurance Services] to improve the speed of take-up and I would ask that you use every opportunity to encourage your broker counterparties to do so.” He did note that “the market level use of ECF over the last two weeks is 28.5 percent. This is encouraging but we need to ensure that the momentum is maintained.”

The urgency in Ward’s message underlines the high priority Lloyd’s leaders have placed on modernizing its procedures. On a number of occasions they have stated that the future of the London market in general, and Lloyd’s in particular, depends on adopting state of the art electronic processing. “Failure to improve processes is a significant risk to Lloyd’s efficiency, ratings and reputation,” said the bulletin.

In seeking to modernize Lloyd’s processes, Ward laid out three of the Franchise Board’s future intentions, as follows:
— A heightened level of engagement with managing agents and Lloyd’s brokers to understand how ECF and A&S usage can be accelerated and what support the Corporation can provide.
— Publication of performance figures for managing agents and Lloyd’s brokers – to be released end of September.
— Mandating the use of ECF and A&S – only necessary if take-up has not accelerated by the end of the third quarter.

To support that mandate, Ward indicated that the Franchise Board could, among other initiatives, require managing agents to enter into revised terms of business agreements with Lloyd’s brokers to contractually agree appropriate use of ECF and A&S. The Board could also require managing agents whose use of ECF is poor to commission a “skilled persons’ report,” identifying causes of poor performance and how it can be improved.

“I hope that these steps will not be necessary but there should be no question of the Franchise Board’s commitment to take them if needed,” Ward concluded.

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