Following on from the survey conducted in 2008 by Watertrace into ePlacement and RI3K in particular, this year Aon have again commissioned them to conduct another, more extensive,  survey into ePlacement in London, with the objective of gaining an insight into what progress has been made. Watertrace gathered information from a combination of quantitative and qualitative research, through interviews with 118 people from 28 firms, including brokers and underwriters, practitioners and management; although by brokers they mean only individuals employed at Aon, which hardly constitutes a balanced sample and makes most of the broker responses and conclusions somewhat one-sided.

In the 2009 survey, the scope was broadened compared with 2008 to include attitudes towards the entire range of ePlacement support tools; it also considered the range of market reform initiatives including the Lloyd’s Exchange.

The findings brought out the following key points in the area of continuing progress:

Increased use of ePlacing support tools: The majority of brokers (73%) and underwriters (77%) have increased their use of ePlacement support tools over the past year. Given that Aon were the only broker included, that they sponsored the survey and are committed to ePlacement, the broker statistic is not necessarily representative of the market, but the underwriting figure is still very encouraging. Why did brokers and underwriters increase their use? The next area addresses this.

Greater understanding of ePlacing drivers: Top In the broker’s response at 52% was ‘Company Strategy’ (given broker respondents were all from Aon, hardly surprising!), underwriting respondents came in at 22% on that one. Top of the underwriters list at 31% was ‘Broker pressure’. Interestingly, brokers’ responded ‘Carrier pressure’ at less than 10%, maybe that is why other brokers are not getting involved as there is no pressure from the underwriters? Underwriters also scored 20% on ‘Disadvantaged if we don’t’ and 22% on ‘market is moving that way’; not sure what the difference is between these two categories? Overall this means that 73% of underwriting respondents sent a message that reads ‘we are only doing this because we have to in order to see business’, compared with only 22% who said it was company strategy (presumably meaning the company sees some other benefit other than it is the company’s strategy to continue to see business)! Does the vast majority of the underwriting fraternity really see no benefit other than they have to? A supplementary question I would have asked is ‘why is it your company strategy’?

Improved functionality: Respondents felt that their functionality suggestions were being considered and included within development plans. They have seen those recommendations such as email alerts and the ability to process multi-section business have been implemented. Presumably this is specific to RI3K?

Adoption of the Process: Watertrace concluded from the interviews that it was evident that Aon brokers and operations staff is becoming more proficient in their use of the tools (presumably RI3K), possibly due to greater experience and adaptation within existing work practices. It is also clear from the report that underwriters who have adapted their processes to take advantage of electronic submission are seeing greater benefits. A move to standard and consistent approaches for each line of business, through the publishing of protocols and process documentation, is progressing. Again I would have liked to see a supplemental question to the underwriters of ‘what categories of benefits are you seeing’?

Perceived benefits, particularly for brokers: Brokers (Aon brokers remember) are clear that ePlacement tools are bringing benefits in the later stages of the placing process, such as binding and electronic advice of signed lines. Underwriters are not yet as convinced, though most believe benefits will come

The survey concluded that there were the following major issues facing ePlacement:

Lack of take-up by broking firms:  Watertrace found that the volumes of business transacted using these tools continue to increase. However, Aon brokers and underwriters demonstrated in interviews some frustration with the slowness of broking houses moving to ePlacement platforms, making it more difficult for underwriters to create a common approach to placement, they said. It seems strange that Aon would want other brokers to participate, but I can see the sense in this logic: the more brokers participating the more underwriters will feel compelled to get involved (remember 73% said that their involvement is based on ‘having to’) thereby giving Aon a greater ‘electronic market’, which is consistent with their future strategy.

Processes not fully embedded: By design, the approach and process differs across business line. This has not been clearly understood by some brokers or underwriters, Watertrace conclude. Within some business lines, brokers and underwriters have vastly different perceptions of how ePlacement should work and, this may have resulted in varying degrees of adoption. Watertrace focus groups also revealed that, despite senior management commitment, there were individual underwriters who were reviewing their continued use of the tools, claiming difficulty with the system and process. Anyone who has worked for more than two minutes in IT will be familiar with this situation; the best way to kill something you don’t want is to claim ‘system or infrastructure problems’. These respondents should be pressed to objectively demonstrate the issues.

Management Divide: Analysis in Watertrace focus group sessions led them to conclude that there is an ePlacement perception gap between management and practitioners. It is straightforward to arrive at a benefits case for each firm that is derived from cost reduction, increased volume of transactions and better data on each transaction which improves the audit trail. However, the missing link between this obvious business case and the relatively slow rate of adoption of ePlacement support tools is that individual practitioners are not yet fully convinced. Despite dispelling the myths of ‘doing away with face-to-face’ and ‘turkeys voting for Christmas’, there is, at a personal level, little incentive for broking and underwriting practitioners to change (at least) some of the risk trading process to an electronic means.  So, we finally arrive at the conclusion that we did not need any survey to tell us; anecdotally all ‘reformers’ know that the cultural barriers are not in any way broken down by the cold logic of the business case and never will be until senior managers force the issue; always presuming that they don’t also secretly feel that way!

Integration: Whilst underwriting firms’ corporate strategies are now perceived to be supportive of ePlacing, little progress has been made to integrate with back-office systems. The introduction of the Lloyd’s Exchange is being hailed as the catalyst for change. RI3K does offer a data feed that underwriters can take to populate back office systems, but the take up of this is slow. This puzzled me and I put this to one of the largest users of RI3K. Their response was that inconsistent use of the message structure made the data unusable.  This is an issue in that it flags that ACORD only provides the data structure and there is still the danger of people using the standard differently. This would imply that there need to be market agreed protocols on how the ACORD standards should be used.

All, in all, it seems that progress is being made; the assertion made many times by many different people about success being dependent on ‘critical mass’ is once again proven to be apposite. I have long maintained that integration with back office systems to allow ‘straight through’ processing is the key that will unlock the major benefits. With these benefits being realised it should be easier to overcome and argue against the cultural barriers. That is why it is vital to take all possible steps to ensure that there is an agreed protocol on how to actually implement the data standards.