Transcript Document

Contract Certainty
End the “deal now, detail
later” culture
Iain Saville
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Contract Certainty Governance
London subscription,
retail/personal lines & AIRMIC
Contract Certainty Steering
Group (CCSG)
Influences
Market & FSA
Market Reform Group (MRG)
STRATEGY &
DECISIONS
•Approving
strategy
•Commitment
•Setting priorities
•Design
•Buy-in across mkt
•Manage resources
•Define projects
•Feasibility
Contract Certainty Imp’n
Group (CCIG)
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Recently
strengthened
by wider
market
involvement.
Market Reform Group Executive
(MRGE)
DESIGN &
CONTROL
IMPLEMENTATION &
MONITORING
Chairmen and
reform
champions
LMA, LMBC,IUA,
Lloyd’s
•Oversight of
implementations &
issues
Major brokers,
managing
agents,
companies,
Xchanging,
Project team
LMA CEO, Lloyd’s
COO, IUA CEO,
LMBC CEO,
franchisor
London Market Standards
Committee (LMSC)
•Oversight of
benchmarking
activity
Reports to
Major brokers,
managing
agents, Project
team
Introduction
MRG agreed at last meeting
 A London
 Project
disciplines
 Delivering
 Against
 Using
market wide project
measured improvements
stretch targets
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

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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
This means within 2 years the Market will process
nearly all risks in the following manner
•
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
1.
2.
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 terms[1] 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
1.
2.
3.
4.
5.
6.
7.
8.
9.
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”
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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
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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 Lloyd’s to drive standards and timeliness
What is the non-bureau equivalent?
Kinnect*, ri3k
GUA*
Threatened by outsourcing principles?
Model wordings(*)
Repositories(*)
XIS repository(*)?
MWD
Only exist for binders?
Brokers’ and underwriters’ proprietary repositories – interoperability
LMA exploration underway
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
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* means a CC project
(*) means a potential project
Barriers and levers

Main barrier is attitudes on the floor
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Levers:
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
Enforcement by FSA (threat..)
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Lloyd’s mandate and Byelaws
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Slip Measurement/benchmarking
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Error data from Checking
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Enforcement through systems

Top management – can use the above levers
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
Percentage of attribute components
(questions) completed correctly
Contract Certainty Attributes
100%
95%
90%
85%
80%
75%
70%
Jan-Apr 2004 May-Jul 2004
(n=388)
(n=803)
Wording
#Q=2
SndLegalBase
#Q=1
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Sep 2004
(n=494)
Oct 2004
(n=497)
LawJurArt
#Q=1
DutiesClrAllo
#Q=10
Nov 2004
(n=693)
Dec 2004
(n=727)
ComTerms
#Q=11
ContractCertainty
#Q=26
Jan 2005
(n=663)
Feb 2005
(n=484)
RiskDscl
#Q=1
Setting slip targets
This is the easy bit – familiar territory, good
achievement in last year.

Now at 91% - 9% shortfall

5% shortfall in June
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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 Lloyd’s
Issues:
Endorsements
Risks placed under binders – evidence of cover
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Completing the job - Bureau checking
(For Lloyd’s – but should raise standards everywhere)

In principle, picks up all slip checks and applies them to fully
placed slip and policy – but after inception
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Being codified and published (end June completion)

And measured, to improve standards and timeliness
1.
This QA needs to be focused during placing, to get it right first
time – one of the CCI deliverables
2.
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%)
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Continue to check 25% of Lloyd’s slips in 2005; and
IUA company slips
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Updated LMP slip guidelines published
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LMP Lineslip to be issued shortly
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Revised PPR’s 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” [1]timescale (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)
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CCI roll out (30/6 onwards)
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Adopt line slips (by 31/5)
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Proposal on converging measurement (31/5)
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Paper on evidence of cover (31/5)
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CCI details
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Initial Implementations Q1-Q2 2005; 300 risks across all classes.
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Classes identified: Aviation; PI; D&O; FI; NA Property Fac R/I; Treaty; Binders;
Marine
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Performance Monitoring in parallel (broker spreadsheet returns) to monitor key
dates achieved.
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Brokers committed to participate within initial implementations: Aon, Benfield,
Heath Lambert, JLT, Marsh, Miller, NCG, Willis
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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
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