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Transcript of 1 Contract Certainty End the deal now, detail later culture Iain Saville.
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Contract Certainty
End the “deal now, detail later” culture
Iain Saville
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Contract Certainty Governance
Market Reform Group Executive (MRGE)
STRATEGY & DECISIONS
•Design•Buy-in across mkt•Manage resources•Define projects•Feasibility
LMA CEO, Lloyd’s COO, IUA CEO, LMBC CEO, franchisor
Contract Certainty Imp’n Group (CCIG)
•Oversight of implementations & issues
Major brokers, managing agents, companies, Xchanging, Project team
IMPLEMENTATION & MONITORING
DESIGN & CONTROL
London Market Standards Committee (LMSC)
•Oversight of benchmarking activity
Major brokers, managing agents, Project team
Market Reform Group (MRG)
•Approving strategy•Commitment•Setting priorities
Chairmen andreform
champions LMA, LMBC,IUA,
Lloyd’s
Contract Certainty Steering Group (CCSG)
Influences Reports to
Market & FSA
London subscription, retail/personal lines & AIRMIC
Recently strengthened by wider market involvement.
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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)
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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
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This means within 2 years the Market will processnearly 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. Drive up slip quality and coverage; and
2. 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 attributes1. Wording
2. Law, Jurisdiction and arbitration
3. Commercial terms
4. Risk disclosures
5. One version
6. Compliance
7. Sound legal basis
8. Duties clearly allocated
9. 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”
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 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
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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
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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
Contract Certainty Attributes
70%
75%
80%
85%
90%
95%
100%
Jan-Apr 2004(n=388)
May-Jul 2004(n=803)
Sep 2004(n=494)
Oct 2004(n=497)
Nov 2004(n=693)
Dec 2004(n=727)
Jan 2005(n=663)
Feb 2005(n=484)
Pe
rce
nta
ge
of
att
rib
ute
co
mp
on
en
ts
(qu
es
tio
ns
) c
om
ple
ted
co
rre
ctl
y
Wording#Q=2
LawJurArt#Q=1
ComTerms#Q=11
RiskDscl#Q=1
SndLegalBase#Q=1
DutiesClrAllo#Q=10
ContractCertainty#Q=26
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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
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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
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%)
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
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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)
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)
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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!
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Contract Certainty