Surely it’s better to centralise data than pass it around endlessly. Duck Creek Technologies Europe Managing Director Bart Patrick thinks that claims can be the big win for the Future at Lloyd’s plan
The new ‘Future at Lloyd’s’ strategy is a step in the right direction. The plans have the potential to relieve London’s malaise of inefficiency, if only they can avoid becoming too watered down by market participants.
The consultation underway at Lloyd’s essentially asks what ‘good’ looks like in this market. The answer is clear. ‘Good’ looks like a central market that trades electronically, creating something like a derivatives trading platform for risk within the London subscription market.
They key word here is ‘central.’ Passing electronic data around, to duplicate it and repeat the same market processes in seemingly endless, slightly different ways, is not a smart way to operate.
Frankly, it’s bonkers.
Restructuring and centralising, like other financial markets have done, seems a thoroughly sensible thing to do.
Centralising trading, the placing of risks and the claims process would collectively revolutionise transparency and efficiency across the market. Competitive issues abound; it won’t be simple.
To my mind, claims is probably the least contentious area. The market tends to know which entities are on the slip for a claim once it comes in, and aside from those claims that are rejected or disputed, the brunt of the work is on managing claims.
What does centralised mean?
Current central settlement processes are, in truth, not really centralised at all. When a claim comes in, it goes into the Lloyd’s central service, it’s typed into an electronic message, and it still gets pumped around market in multiple forms and message standards, creating an unknown number of copies of the same data, for much the same purposes. In recent years it’s become electronic, but the process is otherwise unchanged.
To be frank, there’s not been a huge amount of claims innovation in the market beyond making the process electronic, and that’s partly due to its structure. But aside from the indemnity itself, it is this duplicative effort which wastes the market’s money through inefficiency.
The frictional drag caused by this process is the biggest turn-off for clients waiting for claims to come through, and one of the biggest lags to getting reinsurance claims paid out to insurers quickly.
A single point of entry
‘Good’ for claims at Lloyd’s looks like a central multi-tenanted claims system that entities can log in to, including brokers and underwriters, to settle the same claims centrally. Intrinsically we’re dealing with the same data. So, why don’t we just work on the same data? Why do we need to message it around and create thousands of copies of it?
Until recently, technology was a barrier to creating such a truly central claims system. What stopped us before were the limits of computing, processing power and storage capacity. Those technological issues have now disappeared.
Get your head in the clouds
Cloud means those things are no longer a problem and you can now run a market centrally. All the processing power that goes on in the London market is nothing in comparison to a business like Amazon or eBay.
Such a system would include areas for shared data and other areas only certain entities can access. Such a simple system allows for both transparency and confidentiality. When someone settles a claim it is notified instantly, without a lag and without any rekeying. That’s a modern way of doing things. It also means that some the initiatives for blockchain suddenly become more relevant.
The Lloyd’s plan will face greater obstacles to overhaul placement for which the market’s big beasts will be reluctant to tamely surrender competitive advantages of holding, controlling and owning valuable data.
In contrast, Lloyd’s can quickly take the helm on centralising claims. Lloyd’s can mandate it and the market should welcome it. The payoff: suddenly things will become simpler; and the cost of handling claims will plummet. And getting this right could boost efficiency at Lloyd’s and have a direct positive impact for insureds. So let’s get this right.