Independent Reviewers Conference6th December 2016

Agenda

Market Presentation Brian Secrett

Data Quality Binder & Lineslip PMDR Thematic Review Jane Adams

The Road to Contract Quality Mark Williams

Managing Agent Panel Various

Delegated Underwriting Code of Practice – Line Slip & Consortia Lindsey Davies

Questions & Close Leslie Edmonds

Data Quality Binder & Lineslip

PMDR Thematic ReviewJane Adams, Executive, PMD Standards Review – Lloyd’s

Binding Authority Business

38%

62%

GNWP 2015

Binders & LS

Other

0%

5%

10%

15%

20%

25%

30%

35%

2011 2015

Binding Authority business

Reasons for Review

The ability to effectively monitor rate change and price adequacy is essential for Managing Agents to deliver against their business plan.

The accuracy of figures is becoming more important as market conditions continue to soften.

Participants

Findings

Granularity ofMI differs

Rates often only reviewed at renewal and only mid-term if advised of a material change

Majority of MAs have robust EPI

review processes

Little consideration given to change in business mix or

DA portfolio

Minimal tracking/monitoring ofRARC and EPI for majority of

limited & full binders

Bordereaux received ad hoc and do not capture rate change fields – no

appetite to require this

PMDr documentation already in place

Of the 12 Managing Agents reviewed, how many . . . . ?

1. Review binder and line slip EPI at least quarterly?

2. Use “Not Completed” instead of zero in RARC fields?

3. Use a dedicated bordereaux management system?

1. Review binder and line slip EPI at least quarterly?

Of the 12 Managing Agents reviewed, how many . . . . ?

Of the 12 Managing Agents reviewed, how many . . . . ?

2. Use “Not Completed” instead of zero in RARC fields?

Of the 12 Managing Agents reviewed, how many. . . . ?

3. Use a dedicated bordereaux management system?

Proposal for Future Changes to Minimum Standards

Board/Committee MI to include rate change and

price adequacy KPIs.

Split by binder & non-binder business at a

minimum.

Pricing and Rate Monitoring policy to

require regular review of RARC & price adequacy. (For limited & full binding

authorities, risk-based approach.)

Controls to identify and escalate where

bordereaux not being received at the frequency

agreed in the slip.

Controls to ensure EPI reviewed for accuracy at least on a quarterly basis.

Committees reviewing EPI to receive regularly:

- estimated value of outstanding bordereaux;

- average time between inception & processing.

Underwriting systems to allow “Not Completed“

rather than “0” (e.g. if not able to calculate rate change due to lack of

reliable data).

The Road to Contract Quality…Mark Williams, Senior Executive, PMD Standards Review – Lloyd’s

Tools Training

ReviewClaims

• Market wide training programme• LMA/wordings Forum• CII certificate/exam?• LMG• Wordings seminar

• Review disputes/complaints • Challenge agents re Contract Quality • Agents amend contract

• QA• Crystal• Adsensa tools• LWR repository/MWL• Clause library/skeleton policy per LOB• MRC

• Enhanced Min standards on CC and rate change

• PMD review contracts• Regular update of preferred

clauses/clause library• Re-introduce stage 2 Xchanging checks

Contract Quality - December 2016

Tools Training

ReviewClaims

• Market wide training programme LMA foundation

• LMA/wordings Forum profile? • CII certificate/exam? LM3• LMG Talent & Diversity• Wordings seminar Feb 2017• Lloyd’s Grad scheme• CII Uni presentations• Nottingham Trent Uni

• Review disputes/complaints 4 MAs/ lessons learned/internal report

• Challenge agents re Contract Quality Fact Finding/thematic review

• Agents amend contract lessons learned

• QA planned update • Crystal v.2.0 to be developed• Adsensa tools still available• LWR repository/MWL• Clause library/skeleton policy per LOB

CQTT• MRC updated

• Enhanced Min standards on CC and rate change done

• PMD review contracts Fact Finding/thematic review?

• Regular update of preferred clauses/clause library CQTT/LMA

• Re-introduce stage 2 Xchanging checks ?

Contract Quality - December 2016

Part I - Fact Find Questions to all MAs

1. What % PBQA checks are conducted on the business you lead?

2. What is your approach on follow business?

3. How many staff are employed in your organisation whose sole/primary role is preparation/review/agreement of wordings? What percentage of wordings is reviewed by them?

4. What tools/software/systems do you use for review of wordings? Pre or post bind? What % of wordings is subject to this review?

5. Aside from review by the underwriter, specific wordings personnel and system checks, do you have any other controls to identify if a wording is outside your risk appetite?

6. What quantitative and qualitative reporting do senior committees and/or board receive on wordings?

Lead BusinessPost bind checks and/or

no oversight of UW checks

Risk based pre-bind 100% checked pre-bind

Follow BusinessNo checks or only post

bind checksRisk based pre-bind 100% checked pre-bind

Wordings Experts

None 1 or 2 >2

Tools None Risk based 100%

Other ControlsNo Peer or

Independent ReviewPeer and/or

Independent ReviewOther (additional)

controls

Committee Reporting

No specific reporting Included as requiredIncluded in regular

reporting

Strength of Controls - applicable to all peer groups

9 20 29

27 18 13

23 19 16

10 25 23

14 30 14

16 19 23

17

“…extend the CC process to include a risk based review of a sample of

‘non-lead’ contracts based upon the following criteria…”

“We will develop a set of risk-based criteria to determine the level of

due diligence.”

“We will also consider performing checks on a thematic basis in accordance with the major

class renewal seasons.”

MA Responses to Fact Find - Follow Business

18

“We have formed a working party . . . looking at

broadening Peer and Independent Reviews to

incorporate T&C within the peer review process.”

“Formalising a review/ feedback process between

Wordings and Claims to improve our wordings in

respect of ‘lessons learnt’ from disputed claims.”

“Our Executive & Risk Committee will begin to receive Independent Review Reports, which include wording provisions specifically to ensure that all

relevant issues are addressed within the reports.”

MA Responses to Fact Find – Additional Controls

19

“We will be enhancing reporting on wordings and contract certainty

themes to the Underwriting Committee.”

“Reporting metrics will be developed and reported to appropriate internal forums

with wordings expert present. Significant issues will be

escalated to the Underwriting Committee…”

“The syndicate will develop a Wordings report that will be presented

to the Underwriting Committee.”

MA Responses to Fact Find - Committee Reporting

Lead BusinessPost bind checks and/or

no oversight of UW checks

Post bind checks and/or no oversight of UW

checks

Follow BusinessNo checks or only post

bind checksNo checks or only post

bind checks

Wordings Experts

None None

Tools None None

Other ControlsNo Peer or

Independent ReviewNo Peer or

Independent Review

Committee Reporting

No specific reporting No specific reporting

Strength of Controls - applicable to all peer groups

9 0

27 4

23 9

10 3

14 4

16 3

Part II Thematic Wordings Review - to date

2017 review work

Part II Report – Thematic & fact find conclusions

Fieldwork complete - themes and conclusions

Evidence reviewed

10 MAs interviewed P

P

P

CQTT - why now?

o Lloyd’s estimates the market is wasting £500m+ p.a. on disputed claimso The market has lost some of its focus on contract certaintyo Wordings talent shortage:

o 450k+ wordings agreed in Lloyd’s market however <100 wordings specialistso talent pipeline is severely lacking

o >50% of follow MAs do not carry out pre bind checks, even risk based, therefore only 35% of follow GWP being checked by MAs

oA significant number of MAs do not report on wordings to senior management.

Carrier Business Process

Bulk upload of expiring wordings into CQT

Tool

Receive draft

contract from broker

Scan/upload new and/or

expiring contract into CQT Tool

Run relevant CQT Tool

checks and review results

Refer to underwriter/

senior underwriter/

wordings specialist via

CQT tool

Make underwriting

decisions and carry

out negotiations with broker

Agree final contract

Download CQT Tool

results

Internal Audit of

CQT Tool output

Carrier’s DMSPPLIMR

Carrier’s DMS

Pre-bindPre-renewal Post-bind

Key step

Optional step

Peer review

Re-run of documents through CQT Tool checks throughout negotiation

PPL

CQTT - The Benefits

o Assisting UWs in factoring changes to T&Cs into risk selection & pricing o Provides a clear evidential trail for wordings decisionso Opportunity for syndicates to develop bespoke ruleso Potential for reduced endorsements/addenda to slips and contractso Assist MAs to comply with minimum standards on PBQA, CC and CQo Potential to reduce claims disputes (£500m)o Can lead to a tenfold increase in contracts reviewedo Reduced Operational Risk Capital allocation.

PPL Firm Order High Level Design

PPLBroker System

Word MRC

12 fields of data

1

Contract Quality Tool SDC

2

4e-Bind

Attributes1. Auto Data Creation2. Basic Data Validation3. Error Highlighting (no query loop)

ACORD Post-placement Message

3

Broker

Underwriter(s)

5

Attributes1. Doc Comparison2. Contract Certainty Checks3. Cause Library Checks4. Risk Appetite Checks

Contract Builder

(optional)

Key:Current / Enhanced Live ServiceIn-flight or delivered outside TOMNew TOM serviceOutside of TOM scope

U/wr Ref(s)

Underwriting System

6

Signed Line Advice 7

8

Progress so far

oSoftware developer selected Dec 2015o 250 hours of workshops early 2016oRequirements agreed & prototype

developedoPresentations & Demos to MAs/LMA

panelsoOffer to market to be an “Early Adopter”oAgreeing “Early Adopter” T&Cs oSystem build due to start Dec 2016o First release April 2017o Full release of all modules early 2018

Independent Reviewers Considerations:

oReview contract T&Cs as part of IPR

oReview Contract/PBQA/Contract Certainty processes

o Look at RARC

oReview tools & reporting on contract wordings issues

Managing Agent Panel

Paul Restarick - Chaucer Syndicates LimitedKevin Iles - Chaucer Syndicates LimitedDavid Cooney - QBE Underwriting LimitedMervyn Sugden - Ark Syndicate Management Limited

Delegated Underwriting Code of Practice -

Line Slips & Consortia

Lindsey Davies, Delegated Authorities Manager, PMD – Lloyd’s

303030© Lloyd’s 30

“It feels like the wild west out there!”

313131

Current Oversight of Line Slips & Consortia

o Minimum Standards - line slips mentioned once

o MRC is out of date

o Code of Practice concentrates on bulking/non-bulking differences

o Intermediaries Byelaw

o Definitions Byelaw

o Fragment and not easy to follow or implement

323232

What does this mean? Why change?

Managing Agents can not meet the Minimum Underwriting Standards = prudential risk.

Frameworks and rules in place to safeguard Lloyd’s licences are ignored, putting licences at risk.

333333

The Line Slip MRC - the contract is the key

o Transparency of contract

o Complex v non complex

o Understanding of terms - execution of process

o Document issuance

o Reporting

o Lead/follow relationship

343434© Lloyd’s 34

Minimum Standards

Bulletin

Code of Practice

LMG – MRC

Review and test regularly

Thematic reviews

Six monthly reviews

Strengthen Lloyd’s requirements under Minimum Standards

Update existing market guidance

Improve monitoring of Standards

353535

Thank you for your feedback!

363636

Recommendation: The PBQA tool in its current form sets unreasonable expectations around minimum requirements. These should be clarified and the QA tool should be reduced in scale to a document that is more usable.

Recommendation: Remove the mandating of the specific KPIs within this section as they may not be appropriate to all managing agents……

Recommendation: Postpone the implementation of Line Slip / Consortia reporting standards until further consideration has been given to the purpose of the reporting standards, the data needed to meet that purpose and to align with proposed market modernisation initiatives.

Response: Lloyd’s will remove the PBQA tool for the moment until some further work in conjunction with the LMA has been carried out.

Response: Lloyd’s will remove the specific text around KPI’s for the moment – we will ask what measures you measure and monitor your book with. We will then assess if it’s adequate.

Response: Lloyd’s will postpone the Standards for 2017 and look to work with the new technology and the market for a further solution. We will test however that followers are receiving information to meet Minimum Standards.

Recommendations and Response

373737

Consortia

o Main issues with Consortia

o No model contract

o No reporting

o Little understanding of setting up or processing

o No central register

o 9000 numbers

383838© Lloyd’s 38

Minimum Standards

Bulletin

Code of Practice

Lloyds.com

LMA wording

Review and test regularly

Thematic reviews

Six monthly reviews

Strengthen Lloyd’s requirements under Minimum Standards

Update existing market guidance

Improve monitoring of Standards

393939

Consortia

o What have we achieved?

o LMA model contract due out by December

o Code and Minimum Standards changed to ensure information sharing

o Code and Lloyds.com - guide to set up

o Central register created at Lloyd’s

o 9000 number - project