The Intelligent Quarterly from the publishers of The Insurance Insider

Winter 2017 / 2018

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Graham Sheppard

The development of a Single Claims Agreement Model for non-complex claims within an agreed financial threshold took a significant step forward recently.

After gaining approval from both the International Underwriting Association (IUA) and London Market Association (LMA) boards, following a proposal from the London & International Insurance Brokers' Association and the broking community, the agreement appears to have obtained unanimous agreement from a London market that has proved notoriously resistant to structural change.

The single party agreement is a worthy attempt to improve the service the market provides to customers but there will be challenges ahead.

The broking world says that the Single Claims Agreement will expedite the handling, agreement and payment of uncontroversial, small to medium-sized losses to benefit clients. The LMA believes the model will make the settlement of claims in the London market more efficient and will offer an improvement in service and customer experience. And the IUA, for its part, says the model will make the processing of claims in London faster, cheaper and more effective.

Lloyd's, meanwhile, claims it provides further evidence of the London market's commitment to modernising and making it easier for our stakeholders to do business with us.

All the associations say that they will be looking for market representatives and existing groups to play a key part in shaping and delivering the model, taking into account carrier, regulatory and legal requirements.

Barriers and opportunities

Lloyd's reported in March 2017 that conditions over the course of the 2016 reporting year were extremely challenging, with continued downwards pressure on pricing whilst traditional and alternative capital remained attracted to the insurance industry.

It's against this challenging backdrop that the single party agreement has come into focus. So in layman's terms what is being proposed here? Let's go back to basics.

Imagine if a company is the lead on a major risk, say it's a large marine or aviation loss. At the moment Lloyd's has a single party agreement party in place, where individual syndicate followers always agree to follow the lead, as set out in Lloyd's regulations.

The company market is slightly more complicated in the sense that it hasn't got an equivalent Lloyd's central regulatory authority, therefore every company has to agree every claim that comes through individually because they are agreeing on their own behalf, not on behalf of anybody else.

The central ambition of the single party agreement is that everybody on the risk presented by the broker will follow the lead underwriter on the risk, whoever that may be, whether it is a Lloyd's syndicate or a company. First off, the companies will have to change their practices markedly because they at least have to agree to follow a leader.

If that leader happens to be a company then Lloyd's also has to agree to follow it because both Lloyd's and the bureau are bound by their own sets of regulations.

So Lloyd's has to follow the Lloyd's constitution, which has obtained approval through the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), but now the London market as a unified entity has to go to the PRA and the FCA and outline how it wants to operate.

The recent Single Claims Agreement Party Update written by the LMA explains that "continued engagement with PRA and FCA" is the next step, adding that "there has also been engagement to provide an overview of the proposed approach".

The LMA is leading the charge to wholesale reform on behalf of the whole market. The next step will be to manage a way through the legal minefield that lies ahead, obtain agreement with the PRA and FCA and then the market - where both the LMA and IUA members agree.

To conclude, we will need to overcome the technical and operational barriers, starting with the current bureau model, which is currently not aligned with a central regulatory structure that works.

Technical and operational challenges

Technology systems will need to change, because for every claims management system that sits on WriteBack, for example, we go by company code, which determines what set of screens the claims team receives, and that will apply to Lloyd's and company market carriers.

Another complicating factor is that there are two different sets of company versions - the old Institute of London Underwriters (ILU) and London International Insurance and Reinsurance Market Association (LIRMA).

The ILU effectively represents the old marine companies and LIRMA the non-marine companies so, depending on what type of business is being processed, it also splits across companies as well.

As it stands today, the agreement is different because if it's the Lloyd's version then the lead agrees it and everyone else receives it as a following claim under a certain threshold.

However, if it's a LIRMA company claim it goes to the first underwriter, then it will be circulated to all the others and they all have to agree it, creating more technical and operational barriers.

At present the broker will send the business into Lloyd's and wait for its process to conclude, while also sending it to companies and waiting for each of those processes to happen. That is partially why the end clients don't get their money for about three months!

Now we will have one leader agreeing on behalf of the whole market. The broker will send the claim to the leader, which agrees to pay. It will be paid out automatically. This will result in enhanced customer service, cost savings and modernisation, which is what the single agreement is all about.

All our conversations with insurance carriers have demonstrated to Docosoft that our clients are looking for ways to operate more efficiently in every major part of the costs column. Claims expenses, costs of operations and customer acquisition costs are the number one priority and we are hearing this message loud and clear.

Global competition, standards, capital flows and insurance jurisdictions that are connecting London to a new world of insurance will require major investment in new technology, systems and processes to keep up.

The rationalisation brought about by the Single Party Agreement will play an important part in that process.

Graham Sheppard is business development manager at Docosoft

This article was published as part of issue Summer 2017

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