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Coverholder cliff edge

Implementation of Lloyd’s enhanced coverholder reporting requirements on 1 July is just weeks away. The market has known what to expect since August, but in the year since then few market participants have readied themselves adequately for Coverholder Reporting Standards Version 5. In short, the bordereaux used by almost everyone simply aren’t up to the job. They do not include the right data, or have the necessary functionality. Those markets that have chosen simply to demand that coverholders and third party administrators (TPAs) solve the problem themselves will probably be disappointed. V5 introduces a new de facto market reporting standard, but data transmission between underwriters, coverholders, and TPAs is desperately insufficient to meet it. The new standard requires the capture of information that simply isn’t included in standard bordereaux, such as loss agreement dates. Even the carriers that have introduced dedicated claims management systems probably need to gather more data to meet the new rules. Few coverholders and TPAs, if any, understand what they will soon be asked to deliver. Some will choose not to, even if they have the technology and resources. They already meet stringent reporting requirements for their home regulator. Many won’t want to meet those of others when instead they can turn to new, local markets with less cumbersome reporting demands. In 2014, according to the London Matters report, London insurers’ expense ratios were on average 9 points higher than their non-London peers. The gap has widened since then. The solution is to change the way business is transacted with coverholders and TPAs. It will have to begin with a shift in the prevailing London attitude towards technology. Today thousands of clerks pass their working hours processing the queries that arise from bordereaux, because the incumbent system is set up to highlight exceptions for investigation. Binder management systems help with the formatting, but cannot resolve the root problem of insufficient or incorrect data. We cannot add to the coverholders cost burden by making them do it, since we are already 9% more expensive. It is a worrying future with rates flat or falling, and claims steady or rising. The ultimate solution is straight-through processing, which must be driven (and paid for) by London carriers. STP fixes the problem at its source, the coverholders and TPAs. If we give them the systems, they can enter the necessary data once, and validate it immediately before it is sent without further intervention or re-keying to London. Ideally, the London market would deliver a market solution, and the problem is on TOM’s agenda, but placement has taken pole position. We need to solve the data problem now, or at least be actively offering a solution by 1 July. Advent Claims has an efficient, off-the-shelf system that will do the job. This new way of working, targeting greater efficiency and easier coverholder compliance, is tried, tested, and ready to use. Transactional cost is almost nil, and implementation is relatively inexpensive and straightforward. More difficult for some will be reimagining their business model: implementation of STP is more than a patch, it is a genuine solution. The first step is to open a discussion about the immediate challenge, and the steps we can take to work together to deliver solutions for our coverholders and TPAs, not more problems.



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