ComputerWeekly.com - Lloyd's members learn lessons of Kinnect as insurers pick up the e-trading baton

Christian Annesley, Tuesday 25 April 2006

It is almost three months since Lloyd's of London pulled the plug on its £70m Kinnect electronic trading platform, arguing that the development of a common IT infrastructure was best left to participants in the insurance market.

Since then, some of the insurance market's leading lights have spoken out about the thorny issue of technology, including Lloyd's chairman Lord Levene, who said earlier this month that Lloyd's needed to "drag itself out of the Dark Ages", and condemned the reliance on paper documentation as "ridiculous".

Levene's comments followed similarly strong words from Robert Hiscox, chairman of Lloyd's underwriter Hiscox. He warned in March that Lloyd's would "wither away" if it did not embrace technology to improve efficiency in the face of competition from alternative global insurance hubs such as Bermuda.

When Kinnect shut down in January, interim chairman Michael Dawson blamed its failure on the fact that developments in technology since 2001 had rendered the platform redundant. However, others argued that the problem lay not with the technology itself, but with the flawed nature of the programme, which tried to impose a centralised electronic hub on a complex and divided market whose participants were, for the most part, sceptical about the need for change.

And three months on, it is starting to look as if the market's underwriters have determined to learn from past mistakes.

A group of six Lloyd's insurers (known as managing agents) who began collaborating last year, have picked up the electronic trading baton by working together to create a common set of data standards and underlying processes to enable the electronic transfer of data and documents on a peer-to-peer basis.

The managing agents, collectively known as the G6 group, are Amlin, Beazley, Catlin, Hiscox, Kiln and Wellington. They say the agreed standards and processes build on existing international insurance standards laid down by the New York-based Acord group, and will ultimately allow risk-related data and documents to be transferred electronically between the six of them and among four leading insurance brokers - Benfield, Aon, Marsh and Willis.

Hiscox chief operating officer Sue Langley, who chairs the G6 group, said the move to develop the peer-to-peer standard was given urgency by the death of Kinnect but was always on the cards.

The G6 has no plans to expand its membership base, but it is sharing the standard with other Lloyd's members.

"We are not a breakaway group," said Langley. "These are building blocks that anyone can use - whether hubs or gateways - but we really want G6 to stay as G6 to keep things as simple as possible and avoid some of the problems that Lloyd's encountered with Kinnect."

Langley said the initial phase of G6's work, for the placing of risks, would not bring about huge savings, but was a symbolically important first step.

"We want to move the market forward, but step by step. For that reason, we are keeping all of our projects very small - anything over six months is out - but hope to take things on incrementally over time."

Simon Sperryn, chief executive of the Lloyd's Market Association, which represents underwriters, said the work undertaken by G6 demonstrated that the way ahead was likely to be based on pairs or groups of businesses working together, rather than a market-wide approach.

"Flexibility is the way forward. Kinnect has taught us the difficulty of using a monolithic infrastructure. That does not mean there is no space for a common approach, but we need to work smarter in future," he said.

Sperryn said it was important to remember that Lloyd's was still using paper "not because we are foolish, but because we have always had to find a means of communicating that everyone can share, across hundreds of often global businesses".

He said, "Paper may be everyone's last choice, but everyone can use it."

However, Sperryn acknowledged that competition and regulation were strong imperatives for making better use of technology, and called G6's work a "small but valuable example of the setting of explicit standards for processes within Lloyd's".

Sperryn also said the planned roll-out later this year of an electronic claims repository (see box) should also be set against Kinnect's failure.

"This is a two-year project that has run to schedule and within budget, and will shortly be available to all participants in the market, giving brokers and carriers contemporaneous access to a single claims file," he said.

Alongside this, Lloyd's is also planning to launch a market-wide claims settlement system that should be available when the electronic claims repository goes live.

"These systems, together with the market's other initiatives, show that Lloyd's is still engaged in rethinking its approach to technology and to enabling new patterns of working," said Sperryn.

"Kinnect may have failed, but that was only one of several battlefronts. I believe that overall the market is winning the war."

New Lloyd's CEO has e-pedigree

Richard Ward takes over as chief executive of Lloyd's this week, more than six months after the departure of his predecessor Nick Prettejohn.

As chief executive of the International Petroleum Exchange - now ICE Futures - Ward was instrumental in moving the exchange from open outcry to electronic trading, and some Lloyd's members may want him to take a similarly robust lead with technology in his new role.

Officially, however, Ward's main task will be to oversee the three-year strategic plan the market announced at the start of the year , which aims to make Lloyd's the "platform of choice" for insurers to do business by improving processes across the board.

Lloyd's trials e-document repository

Next month, Lloyd's will start testing an electronic document repository for storing new claims that has been two years in development. The full roll-out of the system is expected to begin in September.

The Electronic Claims File repository has been built by Xchanging, a technology company part-owned by Lloyd's. It will give brokers and underwriters contemporaneous access to a single, centrally hosted claims file and is expected to speed up claims processing.