Process Vision and Operating Plan August 2014 v2.0
Process Vision and Operating Plan Managing Agents have between them over 7,500 binding authority contracts with over 3,000 Coverholders representing some 6.2bln ( 1 ) of premium income. Together with line slips, consortia and other delegated authority (DA) arrangements this is a highly significant area of business which has not always received the attention it warrants when the market has considered process modernisation. The purpose of this document is to set out the DAOC s ( 2 ) strategic vision for the future processing and servicing of DA arrangements in the Lloyd s market and to define DAOC s tactical goals and objectives over the next two years as steps towards achieving that vision. It aims to establish DAOC s priorities and provide insight into DAOC s thinking on these matters for all stakeholders 3. Contents Page Executive Summary... 3 Strategic Context... 4 Processing Vision... 5 The Problem Statement... 5 Process Vision... 5 Process Design Principles... 6 Business process... 6 Data and standards... 6 Regulatory approval and oversight... 6 The Operations Plan... 7 Execution... 7 Next Steps... 8 Appendix A Strategic Context... 9 Lloyd s Strategic Plan... 9 Broker Processing Requirements... 9 Central Services Refresh Project (CSRP)... 10 Lloyd s Planning... 10 Regulatory Oversight... 10 ACORD... 11 Appendix B Business Process Design Principles... 12 Business processes... 12 Data and standards... 12 Regulatory approval and oversight processes... 13 Appendix C DAOC s Primary Stakeholders... 14 1 Lloyd s "GrossNet premium" (i.e. premium received before taking account of outwards reinsurance premium but net of acquisition costs). The figure includes service company business. Source: Lloyd s August 2014. 2 LMA s 3 A list of DAOC s primary stakeholders is attached at Appendix C DAOC Process Vision and Operating Plan 2.0 2 of 14
Executive Summary A number of factors provide the strategic context for DAOC s development of an operations plan. These include Lloyd s strategic planning which notes a desire for growth in Lloyd s DA business, broker pressure for London market processes to be aligned with those in other markets, an increasing challenge from regulators for Managing Agents to have and to understand data and to be closer to customers, and pressure from Coverholders to interact with the Lloyd s market (and Managing Agents individually and collectively) in a more efficient manner. This creates the conundrum of Managing Agents and Lloyd s seeking to grow the DA book of business in the face of increasingly challenging regulatory scrutiny whilst the processes which support such business are outdated and inefficient. Based on this analysis DAOC has defined six key business problems it aims to tackle through this plan: business process consistency for Coverholders and brokers; reducing the overhead and friction of Lloyd s approval and regulatory oversight processes; improving service for Coverholders and brokers; ensuring data reaches those who need it, when they need it, in the most efficient manner; providing the market with operations focussed leadership and co-ordination in response to regulatory challenges; ensuring the work of Lloyd s overseas representatives and country managers is properly supportive of Managing Agents business appetite. By describing a processing vision and identifying a set of process design principles which draw on the LMG s Framework for the Future, Broker Processing Requirements, and other market sources, DAOC sets out how it visualizes the future operating model. In order to progress towards that model DAOC has identified ten objectives which broadly cover: An increase in the use of data messaging between Coverholder, Broker and Managing Agent and more efficient data processing and management An improved Coverholder experience throughout the on-boarding process, the management and oversight of the Coverholder during the lifetime of its relationship with Lloyd s, and through the lifecycle of each delegated authority contract Working in partnership with Lloyd s to ensure that Lloyd s processes, systems and tools support the drive towards an improved experience for the Coverholder, as well as efficient data processing, and to ensure that Lloyd s activities are appropriately resourced Providing leadership and a clear representative voice for Managing Agents on all matters impacting the operational management of DA business whether on regulatory, process, service or other subjects Ensuring close liaison with all stakeholders and other initiatives with an interest in the operational management of DA business. DAOC recognises that much of the work to achieve its stated objectives is the responsibility of other parties. In particular, Lloyd s and ACORD have ongoing projects and plans. DAOC s role here will be to state Managing Agents views clearly, to provide input where necessary, and to provide support. DAOC also needs to recognise the lead taken by other groups (in underwriting and claims, for example) and to work collaboratively. LMA support will facilitate the development of a roadmap and plan for achieving these objectives and will drive progress against that plan. DAOC Process Vision and Operating Plan 2.0 3 of 14
Strategic Context Over some years, the market has undertaken a great deal of analysis of this subject. This, and other activity inside and outside the Lloyd s market, help to establish context for DAOC s planning. Further detail (including information links) is included under Appendix A but in summary: Lloyd s Strategy 2014-2016, published in April 2014, highlighted a new emphasis for the market embracing (DA related) process improvement driven by ease of access to the London market and a five year goal of an increased number of distribution relationships including Coverholders. Lloyd s looks to Managing Agents to work with it and brokers in the governance, design and implementation of modernised systems and processes. In 2013, LIIBA published a list of brokers processing requirements, highlighting differences between Lloyd s and London processes and those operating in other markets. High level process requirements included that clients interests be at the heart of processes and services, that new processes be demonstrably better in terms of straight-through single data capture, and that all interfaces with London insurers back office be via international ACORD standards. Lloyd s delivery of a significant area of its strategy for market operations and distribution will be achieved through the Central Services Refresh Project (CSRP). Similarly, many of brokers processing requirements will be met through change promoted as part of CSRP. Having said that, the business and reporting processes as between Coverholder, broker and Managing Agent are not in scope for CSRP. Lloyd s drafted a number of documents during 2009 and 2010 setting out a future model for binder business. Whilst remaining in draft these set out Lloyd s (then) future vision and proposed a more centralised approach to Coverholder information management. Whilst this was not progressed, Lloyd s has an extensive program of work underway embracing conduct oversight, audits, compliance, facilities, certificates, wordings, technology, data, education and communications. Against the ambition of Lloyd s, and no doubt Managing Agents, to grow the delegated authority book of business, the market collectively faces increasing regulatory scrutiny. Related to this challenge, the current phase of Lloyd s Control Framework project is focussed on Coverholder business and requires Managing Agents compliance with the framework s provisions by the end of 2015. Also, Lloyd s Conduct Risk Minimum Standards and Guidance will, it may be assumed, drive the market towards changes in business processes, possibly greater co-operation to achieve consistency of process, and certainly greater richness of data and improved data handling. Finally, during early 2014, ACORD undertook an exercise to clarify the benefits of, and the barriers to, the adoption of ACORD standards for risks bound, premiums and claims bordereau. This study also reviewed the viability of the ACORD US P&C and AML standards being used together for premium/claims bordereau and risks bound bordereau respectively and assessed the market desire for an ACORD implementation community to coordinate the work underway, consider the implications on the business process and provide implementation advocacy. DAOC Process Vision and Operating Plan 2.0 4 of 14
Processing Vision The Problem Statement In working towards achieving improvements in the processing associated with DA business, DAOC aims to address the following business problems: The need for Coverholders and brokers to interact with insurers using business and reporting processes which are inconsistent with each other and with those in other markets creates an overhead for those Coverholders and brokers when dealing with the London market The need for Coverholders and brokers to engage with on-boarding, approval and regulatory oversight processes which are duplicative and create an overhead for those Coverholders and brokers when dealing with the London market acts as a disincentive to doing DA business with Managing Agents Downstream processes, such as those for reporting, documentation, claims handling, etc, do not deliver a service to Coverholders and brokers which is sufficiently fast or of high quality: the market should strive to remove any impediments to doing business with Lloyd s compared to other markets Processes do not deliver the necessary data to the parties that need it, at the time it is needed, in a consistent and efficient way and to a high quality; data should flow seamlessly between the parties with minimal rekeying Lloyd s and Managing Agents response to increasing regulatory scrutiny will need further development and leadership if it is not to adversely impact DA business: managed and coordinated communication with all stakeholders will be required in order to exercise that leadership and reduce confusion from the output of multiple messages from different market entities Coordinated planning is required to ensure that the work of Lloyd s and the overseas representatives and country managers supports the generation of Coverholder relationships in an appropriate manner and results in DA business which matches Managing Agents appetite. Process Vision DAOC s vision for business and reporting processes is that: Coverholders will be encouraged to provide structured risk data, based on agreed ACORD standards which are (therefore) consistent across the Lloyd s market and compatible with data standards used in the Coverholder s domestic market Risk data will be provided in real-time at risk level Where structured data cannot be obtained from a Coverholder the need will exist to capture, transform, and cleanse Coverholder provided information in an efficient way which does not duplicate effort and cost across Managing Agents Structured risk data will be available to all Managing Agents on a DA contract and to central processing and for other requirements such as exposure or catastrophe reporting DAOC Process Vision and Operating Plan 2.0 5 of 14
The roles performed by Coverholder, broker, supplier and Managing Agent will add demonstrable value to this early capture and seamless transmission of structured data Premium accounting and claims processes will demonstrate similar characteristics in terms of the use of structured ACORD data and efficiency throughout the distribution chain with all parties adding demonstrable value Use will be made of existing business processes (for example central services for the settlement of premium and claims) wherever possible. DAOC s vision for approval and regulatory oversight processes is that: Coverholders will be required to engage with management and regulatory processes only to the extent necessary to achieve the desired outcomes (this includes the nature and frequency of management and regulatory demands placed on Coverholders as well as the duplication of such demands across the Coverholder s relationships with different Managing Agents) Coverholders will engage with management and regulatory processes through a single portal for the Lloyd s market, wherever possible, to drive consistency, familiarity and efficiency in both the processes performed and associated communications Approval and regulatory oversight information sourced from Coverholders will be available to Managing Agents through an interface between central and market firms systems and processes. Process Design Principles DAOC s view is that the modernisation of DA processes and services should be based on a set of process design principles. These are listed in Appendix B and draw heavily on the LMG s Framework for the Future work ( 4 ), Broker Processing Requirements, and other activity covered in Appendix A. The key characteristics of these principles are: Business process speed, efficiency, consistency and transparency the removal of redundancy flexibility choice over system or supplier selection based on agreed data and process standards use of and alignment with existing market processes where practical Data and standards use of structured data to agreed standards justification for data collected earliest entry of data with minimal rekeying speed of transmission consistency across parties Regulatory approval and oversight access of information to all relevant parties interfacing between central and market firms systems and processes co-ordination across Coverholder (one) to Managing Agent (many) dimension. 4 The London Market Group s Framework for the Future http://www.londonmarketgroup.co.uk/index.php/currentresources/future-processing-model DAOC Process Vision and Operating Plan 2.0 6 of 14
The Operations Plan Clearly this vision cannot be realised overnight. This Operations Plan therefore identifies a limited number of steps towards achieving that vision. These are DAOC s objectives over the coming two years and are: Objective 1: To significantly increase the use of ACORD structured data by Coverholders for risk reporting Objective 2: To achieve the straight-through processing of risk data from Coverholder to Managing Agent Objective 3: To make a demonstrable improvement in the end-to-end Coverholder experience throughout the on-boarding process, the management and oversight of the Coverholder during the lifetime of its relationship with Lloyd s, and through the lifecycle of each delegated authority contract Objective 4: To work with Lloyd s to achieve a significantly improved delegated authority portal whether through development of BARS and Atlas or otherwise which can provide Coverholders with a single point of access and reference to the Lloyd s market and to secure a designated budget for the ongoing enhancement of such a portal Objective 5: To engage with Lloyd s to ensure that the level of resources available to support business representing 30% of the market s income (see footnote 1) is sufficient, particularly in the context of Lloyd s ambition to grow this sector of the market and in the face of increasing regulatory scrutiny Objective 6: To undertake an annual review with Lloyd s of the Delegated Authority Code of Practice Objective 7: To exercise leadership by clearly articulating Managing Agents requirements to Lloyd s both as part of any debate about resourcing, to support specific areas of change and improvement, and on a continuing basis Objective 8: To establish DAOC as the voice of the delegated authority community and as the recognised representative of that community with stakeholders Objective 9: To exercise leadership in identifying and addressing relevant regulatory issues, working collaboratively with stakeholders and managing communications in order to ensure a more coordinated market response Objective 10: To provide the Central Services Refresh Project, The Market Exchange Limited, ACORD and other bodies and projects with relevant input as the voice of the delegated authority community. Execution DAOC recognises that much of the work to achieve the above objectives is the responsibility of other parties. In particular, Lloyd s and ACORD have ongoing projects and plans. DAOC s role here will be to state Managing Agents views clearly, to provide input where necessary, and to provide support. Achievement of all of these objectives will DAOC Process Vision and Operating Plan 2.0 7 of 14
require DAOC to work collaboratively with stakeholders and the absence of specific objectives relating to some process areas (claims, for example) recognises that the lead is taken by other groups. DAOC s membership includes representatives from the Delegated Underwriting Committee and the Binding Authority Claims Group and meetings are attended by representatives of Lloyd s. LMA support will facilitate the development of a roadmap and plan for achieving these objectives and will drive progress against that plan. Next Steps Engage with relevant stakeholders to socialise and obtain support for DAOC s vision and operating plan Assess current market projects and activities to confirm their alignment to DAOC s objectives and help DAOC understand their contribution to its vision and objectives Create a detailed activity plan and roadmap to achieve the stated objectives giving due consideration to quick wins and low hanging fruit. DAOC Process Vision and Operating Plan 2.0 8 of 14
Appendix A Strategic Context Over some years, the market has undertaken a great deal of analysis of this subject. This, and other activity inside and outside the Lloyd s market, help to establish context for DAOC s planning. In particular: Lloyd s Strategic Plan Lloyd s Strategy 2014-2016 ( 5 ), published in April 2014, highlighted a new emphasis for the market whereby Coverholders should find it as easy to access Lloyd s as they would local market carriers. It notes that Coverholders and service companies provide efficient access to local markets and sets a five year goal of an increased number of distribution relationships including Coverholders. It also commits the Corporation to working with interested Managing Agents to develop further consortia arrangements where market and client demand exists. Lloyd s aspires to act as a catalyst for change, provide market leadership, and to engage with market participants in the case for change and in the governance, design and implementation of modernised systems and processes. Lloyd s looks to Managing Agents to work with it and brokers in this process, to improve operational and processing arrangements, and to conduct business in line with agreed market process standards wherever appropriate. The strategy notes that this improvement in operational and processing arrangements includes the removal of London-specific back office processes and the development of significantly more arrangements where Coverholders have straight-through processing to syndicates. Lloyd s envisages use of The Exchange to move ACORD standard data messages and documents across the market, resulting in increased use of structured data by brokers and Managing Agents. Broker Processing Requirements In 2013, LIIBA published a list of brokers processing requirements ( 6 ), highlighting differences between Lloyd s and London processes and those operating in other markets. High level process requirements included that clients interests be at the heart of processes and services and that new processes be demonstrably better in terms of straight-through single data capture. Brokers wished to see all interfaces with London insurers back office via international ACORD standards. Specifically in relation to binder business brokers wished to see: continuous contracts consolidation and coordination of Coverholder audits a proportionate and consistent response to increasing regulatory pressures a more consultative process for the development of contract wordings with more focus on selling this process to the Coverholder a more efficient (faster) process for agreement and settlement of below authority claims net settlement. 5 http://www.lloyds.com/~/media/files/lloyds/about%20lloyds/strategy/lloydsstrategy20142016.pdf 6 http://www.londonmarketgroup.co.uk/index.php/current-resources/central-services-refresh-programme/downloads DAOC Process Vision and Operating Plan 2.0 9 of 14
Central Services Refresh Project (CSRP) Lloyd s delivery of much of its strategy for market operations and distribution will be achieved through CSRP. Similarly, many of brokers processing requirements will be met through change promoted as part of CSRP. In 2013, CSRP published a Future Services Register (FSR ) which provides a definition of the central services that may be required by London market organisations in respect of all aspects of transaction processing of all business and placement types. The purpose of the document was to drive discussion about the level of demand and the level of anticipated benefit from each service. CSRP anticipates that this will lead to identification of the gaps between current central services and those defined in this document. Work on a target operating model for the first phase of CSRP (Market Submissions) was completed in July 2014. It should be noted, however, that the business and reporting processes as between Coverholder, broker and Managing Agent are not in scope for CSRP. Lloyd s Planning Lloyd s drafted a number of documents during 2009 and 2010 setting out a future model for binder business. Whilst remaining in draft these set out Lloyd s (then) future vision: Lloyd's vision over the next five years is to standardise the flows of risk, premium, claim and accounting information between Coverholders and the Lloyd's market by working with market participants and ACORD to agree data standards which can be used both within and outside the Lloyd's market. It is anticipated this will improve efficiencies, enable greater use of technology and more informed decision making as well as improve monetary settlement processes; whilst allowing Coverholders and other market participants to be free to choose their systems, technologies and roles. While the more centralised approach to Coverholder information management proposed in these documents has not been progressed, Lloyd s has an extensive program of work underway embracing conduct oversight, audits, compliance, facilities, certificates, wordings, technology, data, education and communications. Regulatory Oversight Against this ambition of Lloyd s, and no doubt Managing Agents, to grow the delegated authority book of business, the market collectively faces increasing regulatory scrutiny. In response to this anticipated heightened degree of supervisory attention Lloyd s has issued its Conduct Risk Minimum Standards and Guidance ( 7 )which will place broad obligations on Managing Agents. Even before detailed analysis, it may be assumed that this increased regulatory scrutiny will drive the market towards changes in business processes, possibly greater co-operation to achieve consistency of process, and certainly greater richness of data and improved data handling. The current phase of Lloyd s Control Framework project ( 8 ) is focussed on Coverholder business. Managing agents compliance with the framework s requirements is required by the end of 2015. 7 http://www.lloyds.com/the-market/operating-at-lloyds/lloyds-minimum-standards/conduct-risk 8 http://www.lloyds.com/the-market/operating-at-lloyds/control-framework DAOC Process Vision and Operating Plan 2.0 10 of 14
ACORD During early 2014, ACORD undertook an exercise to clarify the benefits of, and the barriers to, the adoption of ACORD standards for risks bound, premiums and claims bordereau. This work also: Compared and contrasted the key features of current vendor initiatives Reviewed the viability of the ACORD US P&C and AML standards being used together for the premium/claims bordereau and risks bound bordereau respectively and recommended measures to mitigate the additional complexity this introduces Ascertained market desire for an ACORD implementation community to coordinate the work underway, consider the implications on the business process and provide implementation advocacy Reviewed how brokers and insurers will receive binding authority XML and compared this with other initiatives such as e-endorsements or e-accounting Considered the work necessary to extend the scope of the ACORD standards to cover liability classes of business as well property binding authorities Considered the work necessary to extend the scope of ACORD standards to cover property business for countries other than the USA. A copy of the report is available from ACORD or the LMA. DAOC Process Vision and Operating Plan 2.0 11 of 14
Appendix B Business Process Design Principles The following principles describe a future process to address the business problems stated above as well as driving other benefit. Business processes Processes should be quick and efficient, with minimal duplication of effort or rework for all parties and should provide the Coverholder and broker with consistency across all Managing Agents. Processes should not provide a disincentive for Coverholders to do business with Managing Agents and should be consistent with those in other markets, as far as applicable. Processes should be transparent: a straightforward approach to processing that is easily understood by and serves the needs of all parties. Changing processes should improve service to insureds, brokers, Managing Agents, Coverholders and third parties, as applicable. Processes should allow for flexibility of roles between Coverholders, brokers, Managing Agents and other parties to maximise service to the Coverholder and insured, to achieve efficiency and minimise redundancy in the process: where the business partners agree it will add commercial value the responsibilities or communication lines can take a nontraditional approach. Processes should enable the early capture and re-use of structured information, with the goal that data is captured as early as practicable and by the party with an interest in capturing that data: no data is re-keyed so reducing duplication, cost and the scope for error. Processes should be flexible enough to cater for the different requirements of diverse business models, e.g. from SME s to large multinational organisations; the process may be supplemented by additional services (which may be shared services) to fill gaps in process capability. Processes should be consistent with open market processes where possible and appropriate: the boundaries and hand offs between DA processes (e.g. to report risks bound) and general processes (e.g. to agree transactions and settle monies) should be clear. Data and standards ACORD data and message standards will be used to support the entire process allowing parties freedom to choose their own technologies and systems while working to a common standard. Standards should be in place to cover the placement of the facility, negotiation of any outside authority risks and claims and any subsequent reporting of risks, premiums and claims. Data should reach the party requiring it as soon as possible using technology and automation: e.g. risk data should reach Managing Agents soon after the binding of a risk. DAOC Process Vision and Operating Plan 2.0 12 of 14
Information and data should be consistent across all parties (Coverholder, broker, leading Managing Agent, follower, etc). Data should be no more than is required to meet the needs of the parties to the process, brokers, Managing Agents and Lloyd s (including for tax and regulatory reporting purposes): the Coverholder should not be asked for data for which there is not a clear and agreed need. Regulatory approval and oversight processes Key information on Coverholders, contracts, brokers, Managing Agents, TPAs and others should be readily available to appropriate parties to maximise service to the Coverholder and insured, to achieve efficiency, to improve communication, and to enable straight through processing with automated look-ups of key details. Central systems and processes should interface with those of Coverholders, brokers, Managing Agents and other parties as appropriate to enable the efficient maintenance of data and ensure the quality and consistency of data across all parties. Interactions with Coverholders and brokers should be coordinated to minimise duplication and ensure that the Coverholder s and broker s experience of the Lloyd s market is as consistent and efficient as possible. DAOC Process Vision and Operating Plan 2.0 13 of 14
Appendix C DAOC s Primary Stakeholders Delegated authority managers of Managing Agents The DA underwriting community in Lloyd s as represented by the LMA Delegated Underwriting Committee The DA claims community in Lloyd s as represented by the LMA Binding Authority Claims Group The compliance and regulatory community in Lloyd s represented by the LMA Regulatory Committee The Corporation of Lloyd s Brokers and the London and International Insurance Brokers Association Coverholders and their representative associations worldwide ECF User Group DAOC Process Vision and Operating Plan 2.0 14 of 14