Contract Certainty

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Contract Certainty
End the deal now, detail later culture Iain
Saville
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Contract Certainty Governance
Influences
Reports to
Contract Certainty Steering Group (CCSG)
London subscription, retail/personal lines
AIRMIC
Market FSA
Market Reform Group (MRG)
STRATEGY DECISIONS

• Approving strategy
• Commitment
• Setting priorities

Chairmen and reform champions LMA,
LMBC,IUA, Lloyds
Recently strengthened by wider market involvement.
Market Reform Group Executive (MRGE)
DESIGN CONTROL

• Design
• Buy-in across mkt
• Manage resources
• Define projects
• Feasibility

LMA CEO, Lloyds COO, IUA CEO, LMBC CEO,
franchisor
London Market Standards Committee (LMSC)
Contract Certainty Impn Group (CCIG)

• Oversight of implementations issues

Major brokers, managing agents, companies,
Xchanging, Project team

• Oversight of benchmarking activity

Major brokers, managing agents, Project team
IMPLEMENTATION MONITORING
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Introduction

• MRG agreed at last meeting
• A London market wide project
• Project disciplines
• Delivering measured improvements
• Against stretch targets
• Using LMP slip as basis
• Developed through the CCI process (or equivalent
  in electronic systems)

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Summary

• Firms are individually responsible to FSA
• And
• Their efforts need to be closely co-ordinated, in
  the subscription environment, through LMP and MRG
  
• One definition of contract certainty
• One set of measures (which we need to develop)
  but starting with the slip
• One set of market wide targets
• Common philosophy for quality assurance (publish
  standards)
• One approach, through CCI, to wordings
  completeness
• Common umbrella for approach to FSA

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• Fully-claused placing document (using LMP Slip
  and policy)
• Use of model wordings and clauses, wherever
  possible (will increase over time)
• Wording/technical staff involved during placing
  process
• Early agreement and checking of the slip/draft
  policy by all parties and the bureau
• Early delivery by broker of an evidence of
  coverage for the client ideally before
  inception but within 30 days of inception
• Binders will achieve contract certainty by
  issuance of an approved certificate
• Thus achieving documented Contract Certainty

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Objectives Step 1 good slips

• KEY ACTIONS FOR YOU
• Drive up slip quality and coverage and
• Prove and implement CCI in order to
• Agree full wordings by bind
• Do QA during placing
• To achieve contract certainty pre-inception a
  fully claused, high quality slip

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Objectives Step 2 evidence of cover

• Sustained high slip quality is the essential
  prerequisite for efficient and quick supply of
  evidence of cover to the client. So we have some
  time in hand but not much.
• Agree end game for how evidence of cover is
  produced and transmitted - by June
• Implement thereafter .. Timing to be agreed by MRG

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Definition - summary

• Contract certainty is achieved by the complete
  and final agreement of all terms1 between the
  insured and insurers before inception.
• 1 Including signed down lines
• Note that this fits Step 1 it does not yet
  extend to evidence of cover

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Definition - detail

• Nine attributes
• Wording
• Law, Jurisdiction and arbitration
• Commercial terms
• Risk disclosures
• One version
• Compliance
• Sound legal basis
• Duties clearly allocated
• Other
• Need to be disaggregated to be made measurable -
  please see grid for details
• NB Adopted by the other CC group

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Definition low priority items

• We have put aside some important issues where
  measurement is hard, pro tem. E.g.
• Wording Complete and consistent
• Risk disclosures except as seen on slip
• Sound legal basis fully agreed by client
• Comprehensibility

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Tools, Barriers and Levers

• Tools are resources which help firms to improve
  certainty, or reduce the cost of achieving it
  for present purposes, those which might require
  some central co-ordination
• Barriers are the obstacles to be overcome
• Levers are the mechanisms available to the market
  to overcome the barriers

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Tools

• LMP slip development (line slip standards)
• CCI process - see below
• Training Partnership with CII train the
  trainer, and proactive design to anticipate needs
• PPRs Enables Lloyds to drive
  standards and timeliness What is the
  non-bureau equivalent?
• Kinnect, ri3k
• GUA Threatened by outsourcing
  principles?
• Model wordings() Only exist for binders?
• Repositories() Brokers and
  underwriters proprietary repositories
  interoperability
• XIS repository()? LMA exploration
  underway
• MWD
• Default wordings May not be credible
  except as unsatisfactory backstop
• Earlier submissions Hard to achieve,
  commercially
• Legal advice Especially
  important for law and jurisdiction but better
  to spend up front, than on litigation
• Model subscription agreement
  Credible??
• PPS XIS policy preparation Note
  Needs to be subject to same QA as other
  suppliers
• means a CC project () means a
  potential project

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Barriers and levers

• Main barrier is attitudes on the floor
• Levers
• Enforcement by FSA (threat..)
• Lloyds mandate and Byelaws
• Slip Measurement/benchmarking
• Error data from Checking
• Enforcement through systems
• Top management can use the above levers

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Measurement

• We have measures for 26 of about 50
  sub-attributes, through the slip audit
  programme. So we are doing the GCSE foundation
  level, not the A level.

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Measured performance
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Setting slip targets

• This is the easy bit familiar territory, good
  achievement in last year.
• Now at 91 - 9 shortfall
• 5 shortfall in June
• 3 by year end
• 1 shortfall on current basis in March 2006
• We must get these basics right, quickly, to be
  have a chance of completing the job

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Completing the job - developing the slip

• Adding items to the checks from grid
• Lineslip (and declaration) standards
• Auditing slips led outside Lloyds
• Issues
• Endorsements
• Risks placed under binders evidence of cover

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Completing the job - Bureau checking

• (For Lloyds but should raise standards
  everywhere)
• In principle, picks up all slip checks and
  applies them to fully placed slip and policy
  but after inception
• Being codified and published (end June
  completion)
• And measured, to improve standards and timeliness
• This QA needs to be focused during placing, to
  get it right first time one of the CCI
  deliverables
• And we need to converge the LMP and XIS measures
• Issue equivalent standards and QA for
  non-bureau business?

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Contract certainty news

• February LMP Slip BSA headline 91 (from 93)
• Continue to check 25 of Lloyds slips in 2005
  and IUA company slips
• Updated LMP slip guidelines published
• LMP Lineslip to be issued shortly
• Revised PPRs for Binding Authorities issued

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Completing the job - CCI

• to agree wordings during placing and
• to incorporate XIS checking into the placing
  process, rather than leaving quality audit till
  after inception and
• to ensure the client receives evidence of
  coverage for the client within a prompt
  1timescale (as required by the FSA)
• 1 As a working definition of prompt we have
  adopted within 30 days of inception.
• Issue Market resources

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CCI timelines

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Major next steps

• Write to major firms for project structures (due
  by 7/5)
• Co-ordinate their plans (especially for CCI)
  (31/5)
• CCI proof of concept assessment (31/5)
• CCI roll out (30/6 onwards)
• Adopt line slips (by 31/5)
• Proposal on converging measurement (31/5)
• Paper on evidence of cover (31/5)

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CCI details

• Initial Implementations Q1-Q2 2005 300 risks
  across all classes.
• Classes identified Aviation PI DO FI NA
  Property Fac R/I Treaty Binders Marine
• Performance Monitoring in parallel (broker
  spreadsheet returns) to monitor key dates
  achieved.
• Brokers committed to participate within initial
  implementations Aon, Benfield, Heath Lambert,
  JLT, Marsh, Miller, NCG, Willis
• Now engaging with markets (43 IUA, LMA non-IUA
  companies proposed)
• 11/43 carriers signed up (and 45 risks are in the
  market)
• 9/43 carriers pondering .
• More is needed!

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Contract Certainty