By Paul Bermingham, Advent Insurance Management
Technology advances in recent years mean Lloyd’s, with minimal input from coverholders, can now electronically compile its own reports using data already held by the market.
Recent research undertaken as part of the Future at Lloyd’s initiative and the Lloyd’s Market Association project Dare has provided fresh impetus to double down on the market’s ideal of removing bordereaux.
According to Dare, in 2018 delegated authority partnerships accounted for more than 27% of London market premiums and for Lloyd’s this was even higher at around 40%. Despite this, it found delegated authority revenues into the market had declined 3.5% since 2016 and continue to do so.
Many reports have shown over the years coverholders are placing business in local markets because they are more cost-effective and simpler to do business with than Lloyd’s, which has become increasingly complex. Much of that stems from bordereaux, yet it used to be simple, just requiring details of policies sold and claims paid.
Complexity increased following the Financial Conduct Authority’s (FCA) thematic review of delegated authority arrangements in 2015 to address concerns about firms’ oversight of outsourced arrangements. The conclusion – insurers can outsource this work but cannot delegate away their responsibility for entire books of business – resulted in the FCA requiring much more information from insurers. This was in turn passed on by them to coverholders and has led to more information being funnelled through bordereaux than was ever imagined it would need to, which is why it has become so inefficient.
Bordereaux, now at version 5.2, has since grown to be more than 100 columns long and is simply trying to accomplish too much. This means reporting on binding authority contracts (of which there are around 8,000 to 9,000, with an average of three or four years of account) is producing millions of lines of bordereaux data every month, often with widely varying degrees of accuracy.
This is an enormous amount of work for a questionable result and gathering evermore data via bordereaux and trying to improve it is not the solution. As time goes on this will only become increasingly inefficient, which is not sustainable. Financial and service data should ideally be separate and transferred via technology built for modern requirements, rather than continuing to shoehorn it into one that is not.
Given the slow erosion of business from delegated authority partners and the negative effects on insureds, it is time to harness the technological means available to bypass the bordereaux bottleneck.
Coverholders exist to build products, sell policies and settle claims as quickly and cost-effectively as possible, not to issue complex reports back to London. Any market approved coverholder or managing general agent must submit huge amounts of data upfront about their business in the initial stringent vetting and onboarding process. Then there is the contract, which will have also been scrutinised by Lloyd’s delegated contract and oversight manager. This means much of the data third-party administrators (TPAs) are being asked to provide monthly has already been submitted.
Rapid advances in technological innovation mean tried and tested systems have been developed in recent years, which, with minimal input from coverholders, could enable Lloyd’s to electronically compile its own reports using data already held. This would greatly reduce the administrative and compliance burden that is driving delegated authority partners away. In addition, capturing this data automatically and electronically would further dramatically improve the accuracy of information Lloyd’s, managing agents and TPAs all rely on to run their businesses.
Inaccuracy and inefficiency
The fact inaccuracy and inefficiency are now part of the common experience of using bordereaux demonstrates just how far it has been stretched beyond its original remit. Crucial information is often lacking, creating delays that also have an indirect impact on insureds, with bordereaux-related delays in claims payments all too common. This is far from the intent in Blueprint Two, which spells out the vision to place the “customer at the heart”. Achieving that will involve a return to simplicity and cost-effectiveness but, again, recent technological innovation has produced systems proven to be capable of doing just that.
Now there is a move to standardise data, which is perfectly sensible and would make trading electronically far simpler if all parties used the same data set. However, the Acord standard that is being considered, while proven and robust, is neither cheap nor easy to implement.
For coverholders, many of which are small businesses, this would be a further burden, once more requiring our customers and business partners to change rather than adapting ourselves. An alternative would be to adopt one of the many systems capable of accurately and quickly converting disparate data into a single format, which would allow coverholders to provide data in whatever format they choose.
Given the slow erosion of business from delegated authority partners and the negative effects on insureds, it is time to harness the technological means available to bypass the bordereaux bottleneck. A decade ago the technology to do that simply did not exist but that is no longer the case. Now, transferring information in real time is a modern-day reality, yet many still do not believe it is possible. Not only is this possible but there are various solutions delivering that today, to companies greatly relieved they are no longer waiting months on end for bordereaux.
To achieve the aims of Blueprint Two, a greater willingness to adopt these technologies and to adapt ourselves is needed if the market is to be truly “open and flexible to enable customers to interact and transact in a way that works for them”.
Paul Bermingham is managing director of Advent Insurance Management and chief executive of Ecliptic.Tech
First published in Insurance Day 03/11/21 https://insuranceday.maritimeintelligence.informa.com/ID1138698/The-capabilities-of-bordereaux-have-been-stretched-beyond-their-limits