Dave Matcham

E-Trading – A Good Walk Spoiled?

2010 looks set to be a year of significant growth in the use of ACORD data standards, and hence in the advance of electronic trading. At least that is what many market modernisation strategists would like to see. Could this growth of activity signal the end of the market’s traditional operation? I suspect not but there could well be a decrease in the exercise taken by brokers during the working day.

E-Trading as it is envisaged within the London Market Group is not a threat to the traditional face-to-face negotiations which are essential in the London subscription market. It should however assist these negotiations. The recent discussions on e-trading have found it hard to engender significant support for a full electronic solution for initial underwriting or renewal purposes. There is however a gathering momentum for subsequent risk changes to be dealt with electronically.

During 2010 there will be concerted efforts dedicated to the handling of endorsements electronically, and in an ACORD data standard format. The big brokers have already signalled a desire to do this either via the Lloyd’s Exchange or direct with insurers. Both IUA and LMA have begun seeking confirmation from their members that they will enter into reciprocal commitments. Ultimately, if the market pilot initiatives and bilateral arrangements prove to be successful, many brokers and insurers could be well placed to handle e-trading for endorsements and initial placements 12 months from now.

Aside from the growth in RI3K activity at recent renewal times, I foresee 2010 being the busiest year to date for the advancement of e-trading capability. Whilst this may reduce some of the shoe-leather wear and tear incurred by brokers, it is also likely to enhance the face-to-face placement process whilst also reducing the amount of paper carried during the broker’s walk to the underwriter.

Risk Packages by e-Mail

Many risks in London are first seen as an e-mail, be it a client e-mailing risk details to the broker or an underwriter receiving risk information from the broker.  This is not surprising as it enables a fast flow of information and gives underwriters time to evaluate the information and to actuarially analyse it for modelling purposes.

Building a large e-mail is too easy however, many attachments can be included in the risk package along with reference to websites and other sources of information which makes the underwriters job more complex and somewhat frustrating.

Can e-placing help? Certainly, but perhaps only to a limited extent by the use of a standard which contains basic information which can be transferred directly into an underwriting system.  There are providers in the market in this area however, both underwriters and brokers need to decide what solution is right for them and when.

One word of caution for the future as the use of e-placing grows in the market.  The Law Commission is proposing changes to insurance contract law many of which relate to risk packages, for example, the question of disclosure of material facts to the underwriter.  Currently, a client must ensure that all material facts are disclosed however, under the current proposals, notably for commercial business, the test of materiality may well be what a reasonable assured considers to be material and not as presently, what a prudent underwriter would think.  Large risk packages will not go away therefore, underwriters will need to be vigilant in their analysis of risk packages otherwise the implications during the policy period could be severe.