E-mail this to a friend      Edit Published on 5 April 2007

When Kinnect – the expensive Lloyd’s sponsored trading platform – was terminated at the beginning of 2006 it could have been a major setback for electronic processing in the London market. But, if anything, the market appears to have been galvanised by its closure with a number of initiatives being announced by the Lloyd’s CEO Richard Ward or other influential parties, such as the G6 group of Lloyd’s insurers.

These have included progress being made on the electronic claims file (ECF) and the London Market Wordings and Accounting and Settlement repositories. Indeed, there is a feeling from insiders on Lime Street that the idea of electronic trading and facilitation of risk details is finally gaining momentum after years of hot air.

“The future is electronic; face-to-face is history,” stated Hiscox Ltd’s chairman Robert Hiscox in a recent speech at Lloyd’s.

Unlike Kinnect, which tried to provide a market-wide solution and died in the attempt, there is no “one size fits all” approach to electronic trading. Rather the market is now seeing the evolution of a number of (commercially developed) offerings that, in theory, should reduce costs and improve efficiencies in the market’s back offices.

The G6’s peer-to-peer systems have seen its members enter into electronic trading relationships with a group of brokers including Benfield, Aon, Marsh, Guy Carpenter, Miller and JLT.

The G6 was formed as an alliance between the Lloyd’s big guns Amlin, Beazley, Catlin, Hiscox, Kiln and Wellington to drive process reform within the market. They have now been joined by Brit after Catlin’s takeover of fellow member Wellington.

Peer-to-peer is a data messaging and electronic transfer system that is established directly between a broker and an underwriter.

However, the expense of creating a peer-to-peer system that can only transact with a limited number of a firm’s business partners may not be justifiable. Simply put, an underwriter and broker entering into a peer-to-peer framework would need sufficient volumes of business to generate economies of scale.

Consequently, other solutions for electronic trading are needed to allow businesses to transact with as many trading partners as necessary.

Amlin has confirmed it has utilised its peer-to-peer technology to work with RI3K and, subject to compatible messaging standards, could link with Advisen and Web Connectivity’s Easy Placement, eReinsure, or IBM’s (soon-to-be-launched) Insurance Messaging Service.

Meanwhile, on the broker side Aon is using its Aon Broking Connections platform to trade directly with some underwriters and RI3K to trade with others.

According to Amlin, the crucial common denominator between the types of system is that both use the internationally recognised ACORD data standards, a vital factor in the success of peer-to-peer.

Collectively these offerings have become known as hubs, although the term is somewhat misleading as some are simple messaging services while others can handle complex processing for (re)insurers.

“It is like the choice of a set-top box for a television,” a market source told The Insurance Insider. “Some want the basic Freeview system which opens up new channels, while others require Sky+ which will allow you to organise your viewing.”

The oldest of these electronic solutions is RI3K, which last year released its “V3” system allowing users to handle all types and classes of facultative and treaty reinsurance, as well as commercial “direct” insurance.

RI3K chief executive Alex Letts explained: “RI3K lets brokers distribute risk to their markets and to handle the process of transacting the risk through its entire lifecycle from quote to bind to signing down and endorsement. It keeps records of all parts of the transaction and offers a full audit trail for all types and classes of reinsurance and insurance.”

However, Letts continued: “We output the business data in ACORD XML so that it can be transported into customers’ back-office systems via whatever gateway provider they are using. We are agnostic about how or who the message is handled by.”

XML stands for Extensible Markup Language and is a general-purpose markup language that supports a wide variety of applications. Its primary purpose is to facilitate the sharing of data across different information systems.

An electronic gateway is needed to handle the data sent electronically via RI3K or other means. While 18 firms, representing half of Lloyd’s by capacity, have now invested in messaging gateway technology, the costs are relatively high.

One way round this is Web Connectivity’s Enabled B2B Gateway, which includes secure auditing and indexing, and reporting capabilities for accounting and settlement messages as well as ingoing and outgoing messaging capabilities.

The company also offers the Easy Placement system which allows brokers to connect to multiple insurance and/or (re)insurance underwriters simultaneously. Details about contracts and supporting documents such as the slip or exposure schedules are delivered using XML messages that conform to the ACORD standards.

Essentially Easy Placement is a placement messaging service for firms looking to take a first step in engaging in the G6 peer-to-peer initiative and require a simple, cost effective method of communicating. It does not handle the actual process and risk distribution.

eReinsure also provides a basic messaging service that allows cedants to disintermediate their business by offering it directly to a number of reinsurers. Again, it would handle the messaging to ACORD XML standards but the companies utilising it would need a degree of sophistication in both their systems and their users.

Latest on the London market scene is IBM, which is set to launch its Insurance Messaging Service (IMS) later this year. The electronic messaging system is built upon an existing system (called I-Market Polaris) that is owned and operated by a number of UK general insurers.

Users of the peer-to-peer trading systems and the Placement Implementation Guide for the ACORD RLC (Reinsurance Large Commercial) message developed by the G6 will be able to use IMS, while those underwriters not building peer-to-peer systems will be able to utilise IMS as long as they have the capability to send outgoing messages in the ACORD format.

One attraction of the system to underwriters who have yet to build an electronic gateway is that it will send messages as email as well as in the XML format.

IBM is developing the system and making the investment to see the product through its pilot phase.

The strength of IBM’s brand may be enough to persuade some in the market that their solution will be backed with the necessary experience and technical expertise. Conversely, Brit’s 85 percent stake in RI3K has long been seen as an obstacle to its progress, with competitors unwilling to support a venture owned by a rival. However, according to market sources, Brit is now very close to selling its majority ownership (as revealed in the February issue of The Insurance Insider).

This will all be music to Ward’s ears who, since joining Lloyd’s a year ago, has made process reform a clear priority after listening to warnings that the market’s inefficiencies could mean it loses business to rival centres such as Bermuda.

“We must develop new ways to bring business to the market – you can be sure that our competitors will – and so peer-to-peer systems and electronic placement is to be welcomed”, he remarked last year. “We need to support initiatives like the G6 and RI3K. Anything that makes it easier to do business at Lloyd’s, and is likely to keep the customers coming here, is obviously a good thing.”

Of course, different (re)insurers have different priorities. For some, they are merely looking secure links to its trading partners, while others may demand advanced processing.

Nonetheless, at a broader level – and notwithstanding the traumas of Kinnect and London’s famed inertia for adopting new processes – it would appear genuine progress is being made as commercial providers continue to develop and roll-out products for the market.

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