London as the centre of international insurance and reinsurance business is being challenged. Bermuda, Dublin, Dubai and Continental Europe are all growing their market offerings, to provide alternative sources of capacity. More than 70% of Lloyd’s capital is now controlled by organisations with at least one underwriting platform outside of Lloyd’s – several have Bermudian businesses.

High-level estimates from ACORD have put the costs of doing business through Lloyd’s at 26% of premium income, compared to circa 19% for the London Market as a whole and 17% for Bermuda; these are the kinds of comparison that should silence anyone who doubts the benefits of market reform.

Market reform is moving too slowly towards addressing the added costs and complexities associated with doing business through Lloyd’s. Despite the relatively high costs, the excellence that is still associated with the Lloyd’s brand draws in clients - the main attractions being the entrepreneurship and ability to place complex risks.

However, there are likely to be further challenges to Lloyd’s from markets such as Bermuda. In addition to the tax advantages, the lack of any infrastructural, or more importantly it would seem, cultural ‘legacy’ for these relatively new markets is likely to be a major benefit. In theory it should be easier for them to secure the added benefits from electronic placement and ‘straight through processing’ compared with the established competition; but is this really happening or are they simply replicating ‘Londonisms’?

The failure of many initiatives to provide a single electronic placement system for the Lloyd’s market demonstrated three things. Firstly, that the implementation of large-scale holistic solutions through ‘committee-based collaboration and agreement’ is fraught with problems. Secondly, that ‘mandating a single solution across a group of independent businesses’ is not achievable, when there are alternative market options available and when the price tag is too high.  Thirdly, the cultural barriers cannot be broken down simply by demonstrating an economic case for the benefits of electronic placing.

RI3K’s  work with Aon appears to have illustrated another key characteristic for  success – demonstrate the value of solutions by ‘stealth’ or pilot. Their work with Aon appears to be on track to deliver 100% of Aon’s reinsurance business through electronic placement. Insurers will have to write lines of business on-line to take the business placed by Aon. Given the scale of business that Aon brings to the market, this initiative alone would result in close to 20% of Lloyd’s business being traded electronically. When coupled with the apparent success of the more recent full electronic placement solution for Lloyd’s in China, the art of the possible has been clearly illustrated.

So the ideal would appear to be to prove a solution in as pragmatic a way as possible, founded on standards of interoperability, within the context of a clearly articulated overall framework of the solutions and options available and their potential configuration – providing a level of choice to participants.
I am not sure what RI3K has planned for Bermuda, but this provides an interesting dimension. It could be argued that this should increase the pressure upon London to move more quickly towards electronic placement – on the assumption that the solution will make Bermuda an even more attractive alternative on cost and convenience grounds. In addition, it introduces some commonality of solutions that should be encouraging to the multiplatform insurers.

The challenge for the insurers that operate (or may be planning to operate) across multiple markets is to ensure that they are able to drive through their own internal change to remain competitive on cost and service grounds which means: Efficient and effective connectivity between their own underwriting administration systems and the market(s) placement, clearing and settlement services; Intelligent and flexible underwriting support and systems that facilitate rapid and accurate responses.

For most of the insurers, this will require the streamlining of administration and technology solutions that support their multi-platform business models. Clearly, the goal must be to capitalise on the use of common solutions wherever possible, with an eye to future business and market options to ensure emerging as well as current requirements are satisfied. This is not a straightforward goal to realise, given the speed with which demand for new lines of business and target markets can emerge. In such circumstances, organisational agility and the speed with which new offerings can be established tend to differentiate the winners from the losers.

The right choice(s) of processing and platform will depend upon a range of factors, including: Specific markets that it is intended to operate within and their respective priorities (regulatory, tax requirements etc; Business scale / volumes by line of business (Casualty, Property, Energy, Marine); Sources of origination of business (client and risk location, direct and/or broker distribution); Existing investments in platforms and technology solutions.

For businesses that are Lloyd’s centric the options are relatively few. Platforms such as Xchanging, Room, Intech, Eurobase and Sequel Business Solutions are all credible options and can be configured to meet Lloyd’s specific messaging, wordings and clearing/settlement interfacing standards. Where businesses are looking to establish themselves in the companies market and/or in specific jurisdictions, such as the US or capitalise on Lloyd’s licences in Brazil, Poland or Asia, then the systems considerations change.

Clearly, there are technology solutions that can support business written in more than one market – however a degree of compromise or tailoring is typically required. Some are tailored for use in specific markets and/or excel at supporting specific lines of business. The extent to which single or multiple solutions are appropriate will depend upon current and future cost and fit to requirement trade-offs. The use of multiple solutions then of course introduces the question of integration, which is necessary to add flexibility and avoid the ‘silo’ situation.

The challenge of determining the right path towards a business architecture with supporting systems that best enables future business growth as well as efficiency of today’s operations should not be underestimated. We believe that this will be a challenge facing more and more players as they look to capitalise on the changing landscape of insurance markets and the trading platforms that underpin them.