Market Processes newsletter November and December 2011 

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A warm welcome to those of you that signed up to subscribe to the newsletter after receiving a copy from a friend or colleague.

Based on your feedback, it sounds like we’ve got the balance about right, both in terms of the breadth of topics covered, and the format of a preview in the emailed newsletter linked to more detail on the LMA website.

In order to ensure the newsletter remains relevant, we are always keen to hear from you.

Rob Gillies, Head of Market Processes

Solvency II and XIS premium processing

Work on updating the LPSO Agreement (you'll need to be logged on to view a copy of the Agreement) is progressing and we expect a new version to be available  towards the end of the year.

As well as modernising many of the provisions in the agreement, LMA's XRB has worked with Xchanging and Lloyd’s to review the Lloyd’s Solvency II guidance on outsourcing governance and how it applies to the LPSO Agreement. This work, which included a managing agency focus group, was validated by the LMA Solvency II governance sub-group.

The overall conclusion was that much of the Agreement was already fit for purpose. However, the refresh will ensure appropriate governance and recognition of Solvency II within the Agreement.

PAG take steps to speed up underwriter premium cash flow

The Process Advisory Group (PAG) has looked at a number of ways to ensure premium cash flow is not unnecessarily disrupted. It wishes to draw managing agents’ attention to the impact underwriters can have when agreeing Settlement Due Dates (SDDs) as part of the placement and endorsement process.

Whilst it is entirely a matter for underwriters and brokers as to the clauses agreed in respect of any risk, managing agents’ should understand the effect of broker clauses which typically move SDD to a later date, either because processing dates fall on a weekend or bank holiday, or to align it with payment dates specified in PWWs or PPCs. These can impact the timely receipt of premium by managing agents.

Based on a sample of clauses, the following are recurring themes:

• Some clauses are not clear as to their intent: underwriter agreement to clear and unambiguous wordings enables XIS to more accurately interpret and record the appropriate SDD.

• Clauses to accommodate weekends and bank holidays can, in some cases, add an additional seven working days to the SDD.

• Ambiguous wordings could reasonably be interpreted in a manner which “extends”  the SDD by as much as a month.

• Some clauses may potentially conflict with the terms typically found in Terms of Business Agreements.

• Some examples were unclearly worded, leading to potential exposures to PPW and PPC compliance issues.

In addition, some of the clauses reviewed requested XIS to record resubmissions (that were the result of rejections due to queries) as presented on time.  This may have the effect of undermining the usefulness of late settlement reporting.

Introducing the Process Advisory Group (PAG)

The LMA's Xchanging Review Board (XRB) is supported by the Process Advisory Group (PAG) which works with XIS on premium and policy processing matters.

The PAG is chaired by Phil Romano of Kiln, with representation from Amlin (Gary Clark), Atrium (Jason Townshend), Canopius (Kevin Dudley), Catlin (Mike Coldicott), Faraday (Phil O’Rourke), Hiscox (Emma Smith), Markel (Mandy Savage), Mitsui (Ian Cassidy), Newline (Dick Micklem), QBE (Susan Blackman), and Travelers (Denise Durkin). In addition, support is provided by Xchanging (Brian Sweetenham) and Lloyd’s (Brian Austin).

Typically the group meets monthly and investigates and makes recommendations to XRB on how the market might process work more efficiently as well as assisting in raising market awareness on premium and policy processing matters.

Topics the group has considered this year include UK IPT, acquisition costs, profit commission, Enquire service levels, overseas IPT, subjectivities, administrative USMs, slip orders, the small pool scheme, SDD wordings, and lines to stand.

While the PAG focus for 2012 remains on supporting XRB, the group is keen to assist the market with community-wide premium and policy processing issues. Please feel free to contact any of the groups’ members or Keith Welch at the LMA, (020 7327 8409) keith.welch@lmalloyds.com 

Underwriter reference corrections - avoiding unnecessary charges

If your managing agency wants to avoid unnecessary USM transaction charges then recent Process Advisory Group (PAG) work is likely to be of interest to you.

We probably all recognise the reduced back office reconciliation effort arising from an underwriter taking a few moments to write their reference clearly when putting down their line. The E-Accounts Release 2 programme is looking at how this situation might be improved but incorrect underwriter references will continue to be a market challenge while lines are recorded with pen and ink.

Xchanging Ins-sure Services (XIS) provides two types of correction processing to assist managing agents in ensuring data they receive is as correct as it can be. However, the type of correction a managing agent requests will have messaging and charging implications. PAG recommends that before a managing agent requests XIS to undertake a reference correction, the implications to themselves and fellow co-subscribers is understood.

A "full" reference correction involves a retroactive amendment, resulting in a USM for a contra and a re-entry. This will incur an XIS transaction charge (shared across participating syndicates regardless of whether they are directly affected by the reference change) along with a USM charge.

Conversely, an "in place" correction amends XIS systems and is applied going forward, with no contra/amending entries made to the initial signing. The correct reference will be applied to all subsequent transactions processed through XIS and XCS. No USM is despatched and there is no charge made for this service.

Further details of the process are published in Xchanging’s Market communication reference 2008/133. Details of the current transaction and messaging pricing are published in Xchanging’s Market communication reference 2011/022. Communications are available from the Xchanging insurance portal at https://insuranceportal.xchanging.com/

In the meantime PAG is working with XRB and Xchanging to investigate potential options for syndicate staff to be able to correct their references in XIS systems online.

IT Congress 2011

This year’s Insurance Day and ACORD Insurance Technology Congress took place in the recently opened Grange Tower Bridge hotel and conference suite. Over the two days delegates heard key note speeches from a variety of London market luminaries, participated in interactive panel sessions, and provided input to the annual LMA-sponsored Insurance Day technology survey; the latter will be covered in more detail in the next newsletter.

Insurance Day, co-organisers of the event with ACORD, have published a number of features on their website – to find out more, search for “ITC2011” on the Insurance Day website.

A date for the diary - 13 December

The LMA Market Processes team will be hosting a briefing session in the Old Library on Tuesday 13 December. The briefing aims to bring you up to speed with a variety of market modernisation activities along with an update on XRB’s work this year with Xchanging Ins-sure Services in support of the premium and policy services provided to the market. A formal invitation will shortly be issued to those on our operations and change contacts list to which this email is sent.

Premium settlement data

Xchanging have recently launched an interactive analytical application that provides managing agents with graphical analysis of broker premium payment data. The service provides various views of data including settlement due date vs actual payment dates, settlement of delinked submissions, payments still due, and broker deferment of instalments.

The underlying data that feeds all of the graphs can be viewed, enabling managing agents to dissect data by pointing and clicking on graphs, using pre-defined filter selection, and drilling down to view individual contracts’ details.

Further details are published in Xchanging’s Market communication reference 2011/139 which is available from the Xchanging insurance portal at https://insuranceportal.xchanging.com/

E-Accounts update

Release 1 (Xchanging’s ability to receive and process electronic accounts messages) is live with the following broking houses: Miller, Price Forbes, UIB, Guy Carpenter, AON, AON/Benfield, Ropner, Towers Watson and Lockton. All brokers are being encouraged to implement by LIIBA.

The analysis and design phase of Release 2, which includes the carrier accounting entries service, is underway with current schedules indicating a broker roll out starting later in 2012. Market resources have been identified to progress current activity, however support for Market Acceptance Testing in 2012 will be resourced from a specialist company as was the case for ECF2.

In order to gain maximum benefit from E-Accounts, it will be necessary to interface placing data into Xchanging alongside (or in advance of) premium transactional detail. Amongst other benefits, this will potentially enable the electronic update of carrier references, a long term problem that has plagued carrier premium processing.

For further background on this work, so our Bluffer’s Guide

Electronic support for placing

Visits to all managing agents will be undertaken during November and December to review the roll-out of electronic support for endorsements.  There has been, and continues to be, a growing spread of electronic endorsements into classes beyond those agreed for the July roll out (which included property, professional indemnity and specie in addition to the marine classes piloted last year).  All managing agents are expected to be live for all classes of business by 5 March 2012.  In addition, plans have been developed with LIIBA to engage brokers which have yet to become involved with the initiative. Message volumes are growing but remain less than expected.  Whilst insurers want volume, brokers are frustrated by unacceptably long response times by underwriters.

An October software release went live as planned, solving all of the smaller issues that were identified in the post-pilot review earlier in the year and firms are reporting that this upgrade was completed exceptionally well.  Tactical solutions to address Subjectivities and Multi-Sections are planned for release in 2012 and additional enhancements are planned in both those areas to introduce further efficiencies through additional structured data and a cleaner interplay between face-to-face trading and the subsequent recording of the agreement electronically.  The trialling by some firms of tablets (e.g. iPads) is about addressing this specific issue and we are already seeing the creative use of this new technology being employed to support placing in the market.

A LIIBA plan for the adoption of messaging to support placing has been reviewed by PSSG and it is expected that agreement on the approach will shortly be achieved.  It is likely that processes and procedures for electronic support for placing will be completed and published in the first half of next year and market firms will start transacting placing messages in the second half of 2012. It is expected that a comprehensive roadmap to drive adoption with emerge in due course.

And finally…

Thank you to all the managing agents and market practitioners that have given of their time this year to support the LMA Market Processes team and workstreams.

While it’s a little early, we wish you a merry Christmas and peaceful and prosperous New Year.