London leaders begin push for contract certainty
London Market leaders last week announced a road-map for delivering contract certainty in time for the FSA-imposed end-of-2006 deadline – with a key aim being an improvement in measured slip standards to 99 percent by March 2006.
They have also committed to adopting a new process to demonstrate that wordings have been fully agreed and checked before contracts incept.
The plan, created by the Market Reform Group (MRG), the body responsible for process reform and modernisation in the London Market, was outlined in a letter sent to all brokers and carriers in the Lloyd’s and London Market.
In the letter, Lloyd’s chief executive Nick Prettejohn, chairman of the MRG, highlights the “massive” challenge facing the industry in its quest to achieve contract certainty and defines contract certainty as: “The complete and final agreement of all terms (including signed down lines) between the insured and insurers before inception.”
He adds that carriers and brokers are “individually responsible for meeting the FSA challenge” but that “the interactions in the subscription market make it essential for there to be commonality of approach and of goals”.
As a first step, businesses have been asked to respond to the letter by 13 May with details of a board level sponsor for ensuring contract certainty. Around 30 large brokers and carriers will then be asked to provide more detailed information about the project.
Further initiatives will be introduced later in the year to increase the ease of measuring contract certainty. Eventually, there may also be an element of “naming and shaming” those companies that have failed to work towards increased contract certainty, with published “data on contract certainty and checking measures, identifying common sources of failure, to foster better performance”.
In a statement, Prettejohn observed: “Contract certainty is crucial if the London market is to remain competitive, control its risks, and deliver the service our customers demand. A market solution is infinitely preferable to one imposed by a regulator.
“While we have already made good progress through the London Market Principles reform programme there is a substantial challenge left to address. The FSA has set us a tight deadline, and the clock is ticking.
“It is clear that a positive response makes obvious commercial sense for the market, even before the very real threat of enforcement through capital loadings and rule changes.”
The MRG comprises the International Underwriters Association (IUA), the London Market Insurance Brokers Committee (LMBC), the Lloyd’s Market Association (LMA), - as well as other “reform champions” from brokers and insurers.