elcome to the 21st century, Lloyd's of London style. Not for the insurance market the Big Bang that propelled the London Stock Exchange into the technological age 17 years ago, but the changes now sweeping away 315 years of history are equally dramatic.
On the way out are some bizarre archaic sights. Brokers still stagger under huge bundles of paperwork as they hawk their business from one underwriter to another looking for the best price, just as they originally did in the City's coffee houses. Suitcases full of papers recording deals done are dispatched daily to a clearing centre. Claims circulate through the labyrinth of brokers and underwriters who have split up the risk among themselves. It is quite usual for 30 photocopies to be made, though that at least is a concession to modern times.
Yet a quiet revolution has been going on behind the scenes at Lloyd's since the dawn of the new millennium and it will all spring into the open early in 2004 when the Kinnect project goes live.
Kinnect will provide a central computer platform to which all brokers and underwriters will ultimately be connected. It will reduce the enormous scope for errors and the delays that mean a claim can take as long as five months before it is settled.
Ashok Gupta is chief executive of Kinnect, a private firm in which Lloyd's has a stake. "Take a developer building a condominium in the Gulf of Mexico," he enthuses. "The owner goes to a retail broker, who goes to a local insurer, who can't touch a hurricane risk. The local insurer goes to a specialist US broker, who goes to a specialist US insurer, who needs to send it to a London broker who insures through Lloyd's. By the time it comes to London it has been through at least four parties.
"The reinsurance of an aircraft can easily have 25 or more counterparties involved. The details go into and out of their systems and rekeying and emailing can create errors. A secure electronic system in the middle will send the information straight out of system A into system B and on to system C and so on."
No specific date has been set for this great leap forward as Mr Gupta refuses to be a hostage to fortune. He says: "We always publicise in the past tense. It is more important that we get it right than we get it early. We do not want to raise expectations that will force us to go ahead before the users are ready. I am not a fan of hyping up expectations."
Julian Avery, chief executive of underwriter Wellington and a Kinnect enthusiast, agrees: "The way Lloyd's of London is doing this is absolutely right. We don't go for a slam-bang solution over- night because inevitably it will all fall down."
Mr Gupta has spent 25 years promoting change in the insurance industry and is in no mood for excessive haste. It has already taken two years to get Kinnect this far - one to build the system and one to refine how it works - and it could be another three before everyone is connected. Lloyd's spent £20m on the project last year and put up another £20m in October.
A big problem is that it must be able to cope with the plethora of different computer systems used by the various members of Lloyd's and by brokers and insurers in the 120 countries where Lloyd's does business. Kinnect will have to be compatible with systems that many of the big companies have built for themselves.
When it goes live in the new year, there will be just six participants. Among these are Marsh in the US and Willis Group in London, respectively the largest and third-largest brokers in the world and accounting for 40 per cent of the UK broking market. Ace, Amlin, Beazley and Wellington, accounting for a fifth of the underwriting capacity, are also raring to go.
Mr Gupta rejects suggestions that participation will always be a problem because there are too many hidebound Lloyd's companies. "People are resistant to change. Typically you get a third really keen, a third pragmatic who will come on board once it is proven, and a third who say 'over my dead body'."
Another six to eight parties, representing at least a further 20 per cent of Lloyd's capacity, are interested.
Lloyd's is keen to stress that Kinnect is only one of several initiatives. For example, data warehouse Xchanging is already processing all documentation on agreed deals electronically, and its work will be streamlined when it gets feeds direct from Kinnect instead of having to cope with suitcases of paperwork. And, for the first time in three centuries, the London Market Principles programme has introduced a mandatory standardised form to record all deals done.
Two factors appear to have provided the impetus for progress. Traditionally, Lloyd's was simply a marketplace - a location where all its independent members could do business. Because of this, it didn't have the power to drive the agenda. But then disastrous losses from risks like asbestos prompted the setting up of Equitas, which took over non-life liabilities dating back before 1992. It was the first step towards central control.
As Mr Gupta says: "The Kinnect project would not be possible if we didn't have Lloyd's as a catalyst in the middle making it happen. Lloyd's is very active in encouraging brokers and underwriters to make greater use of technology."
Second, there is a growing realisation in the market that Lloyd's could lose out to more go-ahead competitors. Greater efficiency is a theme constantly stressed by Lloyd's and those who participate there.
Chris Watney, head of marketing at Xchanging, says: "Anybody you speak to says that if we leave it too long, other markets will pick up our business. Bermuda, for example, could take great chunks away. There is a lot of US money in Bermuda."
For Lloyd's, the message has long been "reform or die". For once, it is choosing reform.Reuse content