Contract Certainty

1. Contract Certainty End the “deal now, detail later” culture Iain Saville

2. 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, Lloyd’s 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, Lloyd’s COO, IUA CEO, LMBC CEO, franchisor London Market Standards Committee (LMSC) Contract Certainty Imp’n 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

3. 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)

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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 Lloyd’s 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

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

14. 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.

15. Measured performance

16. 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

17. 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

18. 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 • 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?

19. Contract certainty news • February LMP Slip BSA headline 91% (from 93%) • Continue to check 25% of Lloyd’s slips in 2005; and IUA company slips • Updated LMP slip guidelines published • LMP Lineslip to be issued shortly • Revised PPR’s for Binding Authorities issued

20. 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

21. CCI timelines

22. 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)

23. CCI details • Initial Implementations Q1-Q2 2005; 300 risks across all classes. • Classes identified: Aviation; PI; D&O; 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!

24. Contract Certainty