MRG Endorsements Initiatives S. Dean, 22 November 2007

1. MRG Endorsements Initiatives S. Dean, 22 November 2007

2. Content Background Project Summary Approach to delivering Endorsement initiatives • Market Reform Contract Endorsements (MRCE) • Electronic Endorsements roll-out of (e-mail) revised process Benefits/success/risks and issues – “business case” Next steps

3. Background • Endorsement is generic term for all mid-term contract changes from simple vessel name change to adding a construction project for Olympic development in London • Endorsement is a binding agreement on insurers and policyholder and has to be evidenced in writing • There are on average 3 endorsements for every contract, they can be administratively ‘heavy’ and in the London Market, many agreed by a face-to-face ‘broke’ • Clients can regard them as ‘hygiene’, ranking them below policy issuance and claims negotiation in importance/value • Goal is therefore to reduce time and effort spent of agreeing endorsements and reduce turnaround time from the insured’s instructions to confirmation to the insured of agreement

5. Pilot – Lessons learnt • Received enough feedback and interaction to recommend continuation of project • Requires cultural/behaviour change, internal organisation changes, decision on how brokers and insurers will agree ‘electronically’ • Removing Honeycomb and replacing with Endorsement document enabled use as Insurer Authorised Document – this proved popular • E-mail distribution (not surprisingly) is easy – businesses already doing this to and from international destinations • Should have focussed more heavily on one class of business and got regular volumes to insurers • More complex Endorsements will still require elements of negotiation and face-to-face contact

6. Approach to delivering Endorsements initiatives • The work has been split into three main initiatives: • The introduction and implementation of Market Reform Contract – Endorsements (MRCE) standards to mandate the form and use of Endorsement documentation and agreement methodologies. This will be rolled-out to all market participants during Q4 2007. • The introduction and implementation of revised remote agreement process using e-mail agreement and other messaging communications. This will start in Q4 2007 and continue through 2008. • To co-ordinate endorsement activity with other Market forums with particular emphasis on input and adherence to ACORD standards for Endorsements and compliment the work of the MRG/LMA Electronic Placing Group. This will be accomplished via the Endorsements Steering Group as part of its general remit.

7. MRCE – Key elements • Why Guidance • No prior definitive guide to Endorsements • Standardise the Endorsement format • Formal launch of new style documentation • Benefits • Supports the principles of Contract Certainty by speeding up the prompt provision to the insured of contract change documentation • Reduces the effort required to handle contract endorsements • Encourages the document format to be consistent with that used in the original contract (MRC) • Facilitation • Sets out that the revised documentation can streamline the submission and agreement of non-complex contract changes • Can be used as part of an electronic process for submission and agreement

8. ‘Old’ Honeycomb style

9. Cover Note Addendum

10. Market Reform Contract Endorsement (MRCE) CONTRACT ENDORSEMENT UMR: B123412345678 Endorsement Ref: 001 Type: All Risks of Physical Loss or Damage Reinsured: ABC Insurance Ltd Original Insured: XYZ Ltd The contract is amended as follows: Effective Date: 00.01 hours 1 August 2007 local standard time as the location of the property insured Situation: Amended to include the insured’s location at: 1 Lime Street London EC3M 7HA Sum Insured: GBP 100,000.00 any one loss in respect of the above location Premium Additional Premium due in respect of these changes is GBP 100.00 Tax payable by insured 5% UK Insurance premium Tax and administered by Insurers All other terms and conditions remain unchanged.

11. Electronic Agreement Process Project focus The MRCE is designed for use with different types of agreement methodologies including today’s face to face process: Electronic processes: • The MRCE can be attached to an e-mail and the insurer responds by e-mail, attaching a scanned, signed, stamped MRCE. Alternatively, rather than scanning the MRCE, the Insurer may respond by email confirming their agreement within the body of the return email • The MRCE is attached to an e-mail or e-message, where the e-mail or e-message forms part of an application. The insurer is likely to be able to respond either with an electronic signature or with a scanned signed MRCE • The MRCE is used as part of an ACORD standards based messaging process. This may either be via direct peer-2-peer connection, via a hub for routing or via a trading service • The remote processes shown are not definitive. However, the most important facet of remote agreements is to be able to produce final contract documentation

12. e-mail template • From: Dean, Stuart Sent: 30 July 2007 10:48To: 123 underwriting • Subject:ABC Insurance Ltd / B123412345678 / End001/lead • Effective Date: 1 August 2007 • Your Ref: ASDF1234 • Please find attached an endorsement request from ABC Insurance Ltd. As Slip Leader you are being requested for a formal response to this endorsement. Response request: • Agree  • Decline • Request negotiation • If your response is "Agree", please send us by e-mail your agreed response and Leader response to the GUA details below: • GUA Details:         GUA present on slip:  Yes • Leader Response:  • Part One:                Y/N                                   • Part Two:                  Y/N                                       • Part Three:                Y/N                             • If you have any questions, please contact the undersigned.   ACORD Standards

13. Benefits Matrix for MRCE and Remote Agreements

14. Benefits Accumulation These may be interlinked Data Integration Application/ Platform Benefits Accumulation E-mail agreement E-mail delivery Technology phase MRCE Face to Face Implementation phase Benefit increments not to scale

15. What are the risks and issues Key Risks and issues Resolution/mitigation • Have to change the Culture and Behaviour • No formal written guidance for Endorsements other than Contract Certainty code of Practice statement • Varying views from Brokers/Insurers on method of deploying electronic endorsements can act as barrier to take-up • No common infrastructure or (placing) systems platform that facilitates endorsement agreements • Endorsement numbers are not currently officially monitored. For proper and accurate measurement of the penetration and success of the initiative, Market-wide endorsement statistics will be required and centrally monitored • Requires commitment from each organisation to adopt and adhere to new practices and procedures • Introduce the MRCE • being mitigated by Implementation Pack guidance and the work of the Electronic Placing Steering Group • Standards and common processes from usage scenarios. Service Providers are already building Endorsement solutions • Simple measurement approach for now; count what is sent “remotely” and what is agreed “remotely”

16. Summary and next steps Pilot completed, lessons learnt, revised recommendations MRCE being issued once formally agreed by MRG Ramp-up of e-MRCE (electronic endorsements) Key decision: • What technology/method will I use to send endorsements remotely – broker • What ‘electronic’ process will I use to bind Endorsement agreements - Insurer Technology has a part to play now

17. MRG Endorsements Implementation S. Dean, 22nd 2007