100% ECF and a Partridge in a Pear Tree

ACORD's London office hosted a very nice Christmas champagne breakfast this morning for those involved in using ACORD standards to do electronically in London what is now done by paper.

Andy Brookes runs the Market Reform Office and acts as a program manager for underwriters and brokers and has his finger on the pulse of progress. I asked about how many claims are "in scope" to get a sense of the true progress to date, I wanted some clarification to the goals set in the Lloyd's 3 Year Plan.

Andy explained that 80% of all new claims brought to the market are "in scope" for Electronic Claims File (ECF). Of this 80%, the market has achieved 60% conversion from paper.

In Accounting & Settlement, paper processing is expected to be retired on 100% of new deals by the end of March 2008.

All of this electronic processing is conducted through the Insurers Market Repository (IMR). Now that the Web Connectivity gateway is operational, the IMR is processing over 30,000 claims and A&S document messages per week. Notably, gateway traffic (ACORD DRI messages) accounts for the majority of IMR activity (the remainder being direct upload by website which means double-keying by brokers).

This is real progress on back-office processing. Advisen will follow this story closely on Front Page News.

Lloyd's, a 3 Year Plan

Yesterday Lloyd's of London issued its updated 3 year plan covering 2008-2010. On the heels of announcing 6-months results this fall of £1.8b in pre-tax profit, and with an influx of new capital providers (Goldman Sachs, Bank of America to name a few), and Lloyd's Managing Agents like Kiln fetching nice valuations in the M&A market (story here) you would assume that all is well.

The report details why there is major cause for concern.

First among these concerns is the soft market - see the chart of Advisen's premium index to the right. Insurance pricing continues to fall and with a benign claims environment, there is no sign of a reversal in this pricing trend (even in the face of mounting subprime losses sure to trigger D&O claims).

Lloyd's offers a unique platform for underwriting investment (carrot) and polices underwriting discipline to protect its Central Fund (stick). While total capacity will shrink slightly in 2008 at Lloyd's, underwriters are keeping their clients after years of fighting to win this business. Dave Bradford of Advisen wrote about this in "The Myth of Underwriting Discipline" in the latest edition of Insider Quarterly.

Second among concerns facing Lloyd's is the cost of doing business at Lloyd's both in terms of processing and taxation, with the report citing global competition as a threat.

Lloyd's is key to driving a change agenda for processing online versus by paper and will miss its goal to have all "in-scope" claims filed electronically by the end of 2007. Lloyd's currently processes 60% of "in-scope" claims files online.

The 3 year plan sets the goal of all claims to be filed electronically by the end of 2008, meaning that all claims will be "in-scope". Further, the goal is for all Accounting & Settlement to flow through the online repository by July 2008.

There are two ways from brokers and underwriters to achieve this goal:

1) re-keying and copying files to the repository web sites

2) having electronic filing be part of the regular workflow

Clearly the second option with the integration via ACORD messaging gateways is the preferred route and I hope Lloyd's will encourage more brokers and underwriters to sign up for Web Connectivity.

Last among the concerns I highlight is a need for better information. In a soft market where underwriters are tempted to relax their scutiny of the risk and chase the rates down to keep their business, tools like Advisen are more in need than ever.

According to the 3 year plan, the trading floor at Lloyd's is here to stay but much is said about Lloyd's "as an institution, not a place" and that access to this institution needs to be easier. Together with the dedicated staff at Web Connectivity, the Advisen London office works hard to help Lloyd's brokers and managing agents achieve these goals.

Time Warp in London

Walk down Lime Street in London, it will shock you.

All around you will see progress, old buildings torn down in favor of modern architecture.

But don't look up for too long or you will bump into a broker carrying armfuls of paper. Literally folders and folders of new policies or changes to existing policies, or if it's an attractive, young female broker, odds are that she'll be carrying a claim to Lloyd's.

The fact that this market still processes trades by paper is just incredible to me. The stock market has been clearing trades electronically for decades, and in the mid-'90s I was part of a team at Bloomberg that helped fund managers trade bonds online.

"Market Reform" is a key initiative of Richard Ward's and there is much progress Web Connectivity is a leading agent for change. Advisen invested in Web Connectivity and is helping to take their ACORD messaging gateway to Bermuda and the US.

The Subprime Century Mark

Advisen now details 101 different large loss events and actions related to the Subprime lending debacle. Subprime is one of over 425 root causes to which the 7,500 loss events in Advisen's loss database are linked. The breakdown by case type:

19 Fraudulent Trade Practices
1 Banking Malpractice
4 Derivative Action
11 ERISA Class Action
5 Other
1 Legal Malpractice
2 Auditing Malpractice
11 Underwriting Malpractice
47 Securities Related

Additionally, the regulatory actions include:
• The SEC opening at least 12 investigations into potential securities fraud with respect to securitization and sale of sub-prime loans.
• Regulators looking into predatory sales tactics used by mortgage lenders.
• NYAG investigating inflated appraisals.
• EU announcing an investigation into rating agencies.
• FSA published review of UK sub-prime market criticising bother brokers and lender and referring 5 firms to enforcement actions.

Exposures to the insurance industry could affect policies covering:
• Directors & Officers Liability
• Fiduciary Liability
• Partnership Liability
• Errors & Omissions
• Lawyers
• Auditors
• Financial institutions
• Credit Risk Insurance

Subprime case database now 86

No sooner had we quoted 80 cases for today's Daily Telegraph article did we add 6 more cases, bringing the total to 86. A little over two weeks ago I was quoted saying the database would double in six months' time, it's just about happened already.

In addition to the big news that US States Attorneys General are issuing subpoenas, the recent filings we're tracking include cases against:

Morgan Keegan, Inc. (Securities Class Action)
Morgan Asset Management (Securities Class Action)
Regions Financial Corporation (Underwriting Malpractice)
PricewatehouseCoopers LLP (Auditing Malpractice)

All of these cases are available in Advisen.

Congratulations

Congratulations to our friends at TIW for picking up an award at this year's Insurance Day Awards dinner.

Using the gateway from Web Connectivity, TIW built an easy way for brokers in the London market to communicate accounting, settlement and claims information.

For brokers wishing to integrate with in-house or vendor-bought document management systems, the full Web Connectivity gateway is the choice.

Advisen is a strong supporter of accelerated market reform in the Lloyd's and London market through its investment in Web Connectivity and through engaging the Bermuda and US markets using the Web Connectivity gateway.

See yours truly at the play-money blackjack table at last year's Insurance Day awards - £10 of real money to the first reader to guess who was to my left...

Small Businesses & Web 2.0

Alan Meckler posted yesterday about the over-hyping of Web 2.0 citing a good story on internet.com about how small business owners need to have clear ROI before engaging in blogging, wikis, social networking, etc.

The report covered in the article says that these small business owners are twice as likely to care about e-mail newsletters and having quizzes and calculators on their site rather than blogs or wikis or social networking.

I will need to read the report to see if the businesses rely on internet marketing or if their web site and internet marketing are not core.

We're forming our 2008 marketing plan at Advisen and determining exactly where some Web 2.0 products could help. Our goals are to deliver great content to new and existing readers and to drive them to consider the advisen.com premium product as well to deliver a higher level of customer service by informing our clients about new information and analysis that is relevant to their book of business. We want to do this with technology versus more staff.

Advisen's #1 marketing tool is a series of vertical e-mail newsletters and Advisen has had great marketing success with topical surveys so we have some of the "web 1.0" bases covered.

In terms of web 2.0, I started this blog in large part to learn how blogging has helped other businesses and to show our team that it is not too difficult. We launched one in 2004 that covered the Spitzer investigations into the insurance industry and I'm very pleased to see that our developers have installed new software and that we will launch a new blog soon, likely to cover the developing subprime story for commercial insurance professionals.

I'm particularly delighted that they built the blog into the advisen.com navigation like our newsletter so that with the first release of the blog we will not only show in natural search engine resuls but also drive interest in our premium subscription offering.

If I've learned anything from Alan it's that you can't be all things to all people, small businesses can become bigger businesses by publishing vertical content. We are betting that social media can generate additional vertical content and help achieve our goals for growth and a higher level of service to premium customers.

Further D&O Exposure?

There have been many predictable types of actions taken against companies related to the subprime meltdown.

The newer actions are less predictable and more interesting.

Advisen's database of large losses now tallies 76 actions related to subprime. But as noted by Kevin Lacroix on the D&O Diary (here) the exposures by undisciplined loan underwriting are likely to blow up in credit card, auto loans, commercial real estate and perhaps beyond.

As Advisen has pointed out, this is the tip of the iceberg. While subprime mortgage defaults can be predicted to peak and then fall off (there is no new issuance), the ripple effect of this credit crunch will mean increased D&O exposure for many types of companies that have exhibited poor loan underwriting.

Since the success of new and different cases may depend on the ability for plaintiffs to win subprime cases, readers will be interested in following the developing story on Front Page News, in Advisen's database of cases and indeed on excellent blogs such as Kevin's.

Momentum

Chaucer Syndicates Ltd is the latest Lloyd's Managing Agent to take Web Connectivity's ACORD messaging gateway. More than half of Lloyd's capacity can now communicate electronically, with Web Connectivity having 90% marketshare.

Aon has been a leader in the drive to replacing paper-based communication with online messaging and Ian Summers, Director of Change Strategy, Aon added, "Implementation of Web Connectivity will enable Chaucer to benefit from secure, seamless data and document transfer, one of the key benefits of the new system."