On the 20th and 21st May, the Insurance Day London Summit was held at the Grange Hotel and it was for the first time that Scyllogis Consulting attended as exhibitors at the event. This year’s event was held in the context of: the ‘credit crunch’; ongoing Market Reform; softening market conditions; encroachment of the capital markets into the province of catastrophe reinsurance, among others. The current market conditions mean the insurance industry is facing many pressures to change and many of the changes the market needs to make are dependant on technology as an enabler.

The summit was opened by Stephen Catlin. He covered a number of topics: effects of the ‘credit crunch’, cycle management and a market review. Catlin cited the US as the ‘land of opportunity’, but is hampered by regulation and a strong local brand is required. Bermuda has the advantage of a beneficial tax and regulatory regime, but the big constraint is the infrastructure, which is stretched and means Bermuda will never ‘take over the world’. London is the world’s only true subscription market, but the downside is it tends to be mainly wholesale with little connection to the insured and experiences volatile pricing. New markets are emerging: Dubai, Ireland, Singapore and Switzerland. Catlin believes that an insurer needs a strategic presence in global locations. Favourable opportunities exist in the mid market sector in these global locations. If you can ‘tap into’ this then that is beneficial in diversifying your portfolio. This raises some technology questions: Can the traditional London Market systems cope with mid market demands? Can they cope with local requirements such as tax, regulatory and market practices? If other London market operations follow his advice then there will be more headaches for the CIO. According to Catlin, the other pressure to move ‘down the value scale’ is that the Cat business is being eyed by the capital markets.

Catlin also mentioned costs. He said that Catlin has $100mio of operating costs per annum. They also paid $375mio to brokers. He questioned whether the brokers are doing 3.75 times more processing than Catlin are? There is a value in introducing the business, but not enough to justify the whole cost; there needs to be more ‘value add’ from the brokers. Where is this going to come from? An obvious answer is more electronic trading, especially electronic settlement. More ‘straight through’ data processing will certainly add value by enabling organizations to streamline processes and staff numbers.

Considering Market Reform is currently high profile, an important session was Sue Langley’s review of Market Reform. Ms Langley gave a positive update of progress in adopting Electronic Claims File. Ms Langley answered the question of why ECF is vital. London takes 35 – 40 days to pay a claim once proof of loss is established. Compare this with 6 – 10 days in Bermuda, US or Europe. This effectively means that cover holders are funding claims. Brokers are now categorizing markets according to service levels and London is not Tier 1! The solution to this delay is seen as automating the claims process through ECF.

A break out discussion group further considered ECF and tackled the question of: ‘ECF, why has take up lagged behind expectations’? The opinion among claims practitioners seemed to be that it did speed up the process on simple claims, but for complicated ones it took longer! This was put down to the usability of the data sent by brokers. For example, if a broker sends 10 documents with the structured data and only names them ‘doc 1’ etc, then each one has to be opened. The analogy given was for a claims broker to come into the office, throw the paper file on the desk and say ‘read that’. They don’t do this; they lead the adjuster through the file. Technology is needed here too. Mata data would help the adjuster navigate around the data. A move to ACORD would also facilitate this. Other points of disappointment that hampered take up were: No management information from ECF; ECF is not replacing systems it is just creating another layer; ECF does not show the current state ‘on demand’, you must wait for information to arrive. This is another example where the big benefits come if you can process the data ‘straight through’ into back end systems where it can be processed in exactly the way you want. A key success factor raised was use of workflow management to improve the efficiency of the business process.

Roger Oldham of HSBC Insurance Brokers gave a broker’s perspective on Market Reform. He started with a great quote; “you can not expect to meet the challenges of today with yesterday’s tools and expect to be in business tomorrow”. Roger had an interesting list of challenges he feels the market is facing: emerging markets; soft market – reduced margins; outdated practices; expensive and complex business model; poor service levels; not benefiting from investment in technology and increasing customer expectations. There really is a common theme developing in terms of market challenges. HSBC are one of the ‘frontiersmen’ in the market in terms of reform and tackling these challenges that Oldham raised. They have enthusiastically adopted Market Reforms (contract certainty and ECF so far). They have major projects ongoing for P2P trading and e-trading, although Oldham admitted that e-placing is still a sensitive topic. One fascinating point was that Oldham also believes that system integration is key to the success and take up of electronic initiatives. According to his experience, this is a CEO level issue. Technology is now seen at the board level is a key enabler.

The London subscription market has come under scrutiny from the EU competition commission. The EU believes that the concept of lead underwriter pricing and the following market adopting this is anti-competitive, the reason being that maybe the following market would have written it cheaper if they had had the chance. There then followed a discussion on whether electronic placing actually helps legitimise the process. The conclusions were that it does by bringing more transparency and giving other companies a chance to offer best price. An alternative is for everybody to price their share independently (known as vertical pricing). This is not possible at the moment, as it would place too much of a processing burden on the broker. However, with broker systems and underwriter systems integrated into a market or ‘hub’, with ‘straight through’ data processing this could be a reality.

The closing presentation was given by Anthony Hilton, Finance Editor of the London Standard. He spoke amusingly and depressingly on a number of topics and offered these as the challenges he thought the insurance market was facing: current growth is in Asia, what are you doing there? There are ‘pace setters’ but he thought that the market was still too US centric. Position of Sterling; it has been strong but will drop. Companies need to re-invent themselves, but can they? He felt that the dynamism and creativity needed existed outside the traditional companies and suggested the future was ‘virtual’ companies and services outsourced. There is a competition for talent: The City is losing its attraction to bright Europeans and insurance is not a popular finance sector industry; it has not traditionally attracted the best, who rather go into banking. Lastly the convergence of insurance with the capital markets, which was another recurring theme.

There were some positive opinions on London, in terms of the Lloyd’s Market, given at a panel debate on why foreign investors are attracted to Lloyd’s. The conclusions were that Lloyds offers an attractive regulatory environment; less onerous capital requirements; a good global spread of licences and a pool of skilled insurance resources. A question asked of Yasuyuki Sezaki, Chief Operating Officer, Tokio Marine Global, whose parent company recently acquired Kiln, was whether a foreign investor was discouraged by the antiquated and inefficient process within the Market? Sezaki responded that it was not their place to criticise a Market into which they were new entrants. Max Taylor responded that this was being modest and that he hoped these new entrants would bring pressure to change a system that needed changing.