Xchanging London market conferenceFri 30 Dec 2016
Speech by Shirine Khoury-Haq
Speech by Shirine Khoury-Haq
Good morning everyone.
In preparation for today, I looked back at what I said at this event last year. Back then, we had just agreed the components of the TOM and I was speaking to you about why we needed a coherent modernisation vision for this market.
I think we can agree we have come a long way since then and I am delighted to be here today to report that we have real momentum across all of the prioritised initiatives on the TOM.
I will come to the specifics of what has been delivered in a moment, but firstly I would like to step back slightly from the detail.
As many of you know, I have recently come back from a couple of months’ maternity leave. Being away from the market has given me the ability to look at how things are going with more of an outsider’s eye – for a short time at least.
One of the first things that struck me is how much corporate activity is going on in your businesses – most of it aimed at delivering both greater growth and increased cost savings. 2015 saw a slew of mergers, acquisitions, joint ventures and other partnerships and, after a brief pause in the first half of this year, these deals are back with a vengeance.
All of this means that the landscape of insurance and reinsurance is undergoing tremendous change, and we know that the industry is desperate to find efficiencies.
And we also know that much of this is being driven by market conditions, which are very tough. Brexit adds another level of challenge to individual businesses, as well as to London as a world-leading financial centre. We cannot take our current status for granted, and we need to ensure we maintain our focus, innovation and vigilance over our competition to stay in this privileged position.
And all of this is happening as we strive to provide our customers with the best possible service while the world undergoes a digital revolution.
That Digital Revolution is more than just a catch phrase – it is driving change in almost every industry, and in every country around the world. We are now in an age of unprecedented connectivity.
Consider this: right now there are 7.4 billion mobile subscriptions globally – and by 2021 there will be 9 billion, according to Ericsson. And in just 15 years there will be 500 billion connected devices, creating a vast “Internet of Things”.
This increasing digital connectivity is fuelling a data boom. Every day the world creates 2.5 quintillion bytes of data – so much that 90% of the world’s data has been created in the last two years alone. Global data is doubling every two years.
The data comes from everywhere; smart sensors, GPS systems, financial transactions, internet use, connected devices and of course social media. I don’t need to tell you the implications of this on our clients and our industry.
The global trend is the increasing movement of assets and infrastructure from the physical to the intangible. According to the S&P 500, in 1975, the split was 83% tangible, 17% intangible. Last year we saw that now just 16% are tangible, with 84% intangible.
While there is great diversity in industry and geography in our market’s client base, the digital revolution isn’t just a concept – many of our clients are living it in their own businesses. They are more savvy than ever before. In addition, many of them are driving efficiencies and automation in their own businesses.
On the other hand, as we know all too well, when it comes to adopting the latest technology and platforms, the global insurance industry has lagged behind other financial service providers and industries.
Having such a large gap between us and our clients is not a good place to be – and I think many people in our market agree, which is why we are seeing so much momentum across our modernisation efforts.
So with all of that before us, I returned more convinced than ever by the urgency of our mission.
The second thing I noticed on my return is that there is less cynicism towards the TOM. There is much less harking back to the failures of the past, and much more active debate about how we make this set of initiatives work. Difficult questions about how to increase adoption, how to manage new services and how to sustain modernisation beyond the life of the TOM are arising, but the debate around them is proactive, productive and focussed on delivering real change.
I believe that this is because the market sees both the threats and the opportunities for our market, and, very importantly, it is because the market is starting to see change happen.
And seeing is believing.
Importantly, each of the initiatives already underway is delivering on its promises.
Now let me add more colour and detail to some of the initiatives that have just been highlighted.
I would like to start with how we are moving risks through the market and the introduction of electronic placement.
On Monday, under the leadership of David Ledger and the PPL Board, our second line of business - financial and professional lines - went live on the PPL platform.
The system has been active since July, when Terrorism was launched with nine brokers and 42 carriers on the platform.
Activity in this first line of business is now rising and in the first three weeks of October, more risks were bound than in the previous three months.
The rate of adoption for any line of business on PPL is a crucially important topic so we have completed some case studies from the perspective of both the carriers and the brokers to reach consensus on the actual levels of adoption and we seem to have agreement around 45%.
We know that scope is an issue and that several types of business, such as facilities, cannot be currently placed on the platform until some enhancements are made. The PPL Board has a clear roadmap to address these issues with major enhancements to be delivered in the first half of 2017.
The launch of Directors & Officers, Financial Institutions and Professional Indemnity will bring with it a significant step up for usage of the platform – with over 1,200 new user accounts online for the go-live. So far, the launch has gone ahead without incident, which demonstrates the excellent work the PPL board, the PPL programme team and Ebix are doing.
The rollout of additional lines will continue at speed, but also with a very careful eye on doing it in the right way and at the right time.
But getting the lines of businesses onto the platform is only the beginning. Getting underwriters and brokers to use PPL more widely is vital, and for that to happen, there has to be a focus on the bigger picture.
Underwriters have told us that certain steps in the process of moving the risk through the market are slower on PPL than they are if the underwriter and broker are at the box. Nothing can be quicker than the underwriter signing the slip with a pen – it’s a matter of seconds.
But to borrow a phrase from Joe Dainty, we are not trying to invent a faster pen. That is not possible. What we are doing is working towards a more efficient market across the whole value chain. When I was in the front office in a previous life, I hated the thought of my hard-earned business profit (and, let’s be honest, my bonus!) being depleted due to inefficiencies and waste in the back office. The gain for you is not that the underwriter can do one stage faster. It is that your businesses will benefit by data going in once at the front end, correctly, and feeding all the way through the process while also reducing E&O risk. PPL is the first vital step to straight through processing while bringing efficiencies to individual organisations and to the wider market.
We are also making strong progress in refreshing our central services so that money can flow through the market faster and more accurately.
Through the CSRP programme, under the leadership of Stuart McPhee, premium submissions have been using a new channel since April and since then, we have achieved our target by submitting over 1,600 global standard messages. Validations have also significantly increased the accuracy of information going through the system.
Building on this success, the first global standard claims messages are expected to go live at the end of November.
We will also see the introduction of an online portal which will allow more brokers and service companies to make submissions to Central Services. The portal has been built and three brokers are now taking part in market acceptance testing.
CSC’s acquisition of Xchanging has been a tremendous boon to this piece of work and I am very grateful to the teams under Natalie Carter’s leadership for delivering to agreed timelines in very challenging circumstances.
Delegated authorities are a hugely significant part of the market’s business. But in in process terms they have always been something of a problem child.
The vision is that coverholders have a single audit, compliance processes are consistent and data is collected once and shared with the relevant stakeholders. And I am delighted that we have made real progress across all three of these areas.
This autumn we appointed providers to design and build a permanent solution for centralised audits. This system will allow us to manage the scheduling of the 1,000+ co-ordinated audits that have been agreed for 2017. It will dramatically simplify processes both for coverholders and the businesses providing the capital.
This is a win-win situation which eliminates multiple audits every year and enables our coverholders to focus on what is important – writing profitable business and providing clients with outstanding service.
This system has now been launched and the TOM team, under Peter Montanaro’s leadership, is working with the providers to work out any teething problems and ensure that the system and processes are right for the market.
Our second project focusses on centralising that process; collecting, collating and analysing compliance information once on behalf of the market. Thanks to the fantastic work done by our group of market representatives, we have been able to define a list of the necessary compliance information for all coverholders. And by appointing a third party service provider we can restrict the number of contact points, further reducing the burden on our coverholders.
And finally, we are making great progress in achieving standardisation of data requests for coverholders doing business across the London Market. By being specific about what data is required, coverholders will have clarity and consistency in dealing with many carriers. We are well on the way to achieving our aim to have an agreed data set covering all key aspects of delegated underwriting business.
And last but very much not least I want to talk about data, which Helen Crooks is leading on behalf of the TOM.
I know that some of the market has doubts about whether data should really be included in the TOM but those with experience in this area will know that this is the cornerstone of our work. Data is the life blood of our industry, and the industries of our clients, yet so far we have not been able to establish global data standards with our colleagues around the world, nor implement governance for common data in our market.
If we can’t rely on data being entered only once and kept clean through the process, then almost everything else we do will be undermined.
Getting all these aspects right is vital and underpins all the other initiatives in the TOM Programme, for example Structured Data Capture, which converts information from a number of sources into something that is universally acceptable.
Our initial proof of concept earlier this year showed that we can automatically extract data from slips, eliminating the need to key it in manually.
The next stage is adoption of a Global Placement Message so that this data can move between systems and organisations, and I am pleased to say that the London Market moved a step closer to its aim of ‘straight through processing’ recently by publishing a global message standard supporting risk placement.
The publishing of the revised standard is the result of a successful collaboration between ACORD, the global association that defines standards for the insurance industry, the Ruschlikon community and the London Market.
We are also alive to the fact that, while we are working on today’s solutions – we cannot ignore developments which might affect how we work in the future.
The Innovation Council, under Justin Emrich’s leadership, is driving our research and development workstream, identifying ways to solve tomorrow’s issues as well as resolving today’s. Ensuring we work better, smarter and faster. The objective is to triage, prioritise and explore new ideas in low risk, flexible way.
According to a PWC report, investment into InsurTech has increased fivefold since 2010. And right at this moment, there are hundreds of insurance start-ups in Silicon Valley, London and around the rest of the world. These are mainly focused on personal lines, but Insurtech innovation is crossing over to commercial insurance, so we are engaging with these firms to improve our thinking about modernising the way we do business so that we remain in the driving seat, determining our own future in this digital age – being the disruptors, not the disrupted.
We have been running three Blockchain proofs of concept to determine whether this is a viable technology for our market. The outcome of this work will be presented to the TOM board by the end of this year.
In October we announced that we sponsoring a research project with Z/Yen designed to investigate the potential for ‘insurance contracts of the future’ that encode performance conditions and rules-based outcomes, and can be mediated by technological means without any human third party intervention.
This work will bring together a range of wholesale brokers, insurers, re-insurers and transaction processing organisations to create a common view of the potential benefits that smart contracts could bring.
And there is more to come in 2017. Under Adrian Thornycroft’s continued leadership –
And, when the market is ready, the next phase of work will focus on Claims.
The market can then use the TOM Blueprint to make choices about what happens after that. Which proposed solutions and whether it implements certain enhancements to services or not. Is it about convenience, cost or speed?
These are decisions that the market will make.
But before I conclude, I also wanted to deliver a message to our hosts at this event as well as to the other service and technology partners.
This work is critical not only to the broking and underwriting firms, but also to you. Without this thriving London market hub, many of those who provide these services would not have the client base they need to survive. We hope you will agree that we are playing very fairly and we are giving everyone an opportunity to be part of the solution.
Also, this market is getting on top of its game in terms of managing technology and service. However, you also have a responsibility. Play fair with this market, do what you say you’re going to do – and when you say you will do it. Think strategically, invest in solutions for the future and price fairly. This way, we can all benefit from modernisation for a long time to come.
So, I am delighted to be able to report progress across all initiatives.
As always, we could not do this work without the support from the market associations and so many leaders at all organisational levels. These are people who consistently give up their time, energy and political capital to drive these initiatives forward because, very simply, it is the right thing to do and key to our continued survival in these difficult times.
The TOM was designed by the market for the market. And we, that is the TOM team and the hundreds of market people who are engaged in this work, are doing what we promised by delivering the components of modernisation we collectively decided we needed.
But we need more. We need the market to now change how they work in order to make this modernisation a reality.
Collective action is incredibly difficult to generate – people are cautious and inevitably want to wait and see how things are going before they commit their resources
And I know that there are still many questions in everyone’s minds. Will it work? Is it worth getting my teams involved? Will it undermine the way we do business today? Will the benefits outweigh the costs? Why now? Or, even, just why?
But waiting will doom us to stagnation and failure. The biggest challenge we face is not technology. It is inertia.
We can build a modern London market, a market where clients entrust the risks that matter to them, where those risks are processed in a way that is simple, swift, secure and seamless and where they know they will receive the world’s best service.
We can build a modern market that thrives and leads the world for at least another 300 years.
We can keep the best of the past and embrace the best of the future.
The choices will be yours.
These are ambitious goals but our market deserves nothing less. This is a time for the London Market to embrace the courage of its convictions.
I very much hope what you have heard today strengthens your belief in what we are doing and encourages you to take the bold steps needed to make the changes we all know are key to our continued prosperity.
Thank you for your time.