The London/Lloyd's insurance market can be an enigma to many–even those involved in general insurance. Despite the fact it is probably the best-known insurance source in the world, there is still a black hole in people's understanding of its workings as a subscription market and the fact deals are still carried out face-to-face.

Lloyd's is a truly competitive market, with brokers dedicated to keeping their clients with good service, and other intermediaries equally dedicated to “pinching” the business at annual renewal time. Similarly, underwriters–when they have the reserves–look for the good business. While this can be a friendly game in London's business center, there is an underlying hardness in negotiations.

There is then the service surrounding this business, which does not need to be anything other than similar to my “water supply” system–it must be kept simple.

London has always had a unique advantage over competing markets as it has a central technology company managing all of the periphery services of record capture, claims management and central accounting.

This means an underwriter or broker is provided with electronic transactions confirming business conducted in London. There also is a central reconciliation system that accounts for business with partners to the last penny! Indeed, London brokers and underwriters should not need accountants!

The London market also has all claims agreed to electronically, and is in the process of having electronic endorsements as well.

The company running this is Xchanging Insurance Services (XIS), which bought the system from the market in 2000 and runs it under an outsourcing agreement. The original system has been running successfully for nearly 30 years, and allows London brokers and underwriters to concentrate on the real business of client service.

The recent move by Lloyd's to introduce a competitive edge to the electronic messaging part of its business should not have been necessary. The Lloyd's Exchange, as the new service is called, has been introduced, backed by IBM, to provide initially an electronic means of communication. This is probably for the whole life of a risk, but on the basis of peer-to-peer electronic relationships, this is something the existing central system does now for claims and could have done for placing them.

While Xchanging doesn't always make the best moves, when the market it serves is 300 different organizations, it is sometimes worthwhile to sit on one's laurels and just perform the necessary actions demanded.

The Lloyd's Exchange, although deemed to be a passive competitor to the central bureau, has as its objective to provide all of the services currently provided by XIS.

At this point, the word “competition” has been introduced as if this will answer all criticisms. In fact, life has a way of making such change as difficult as possible.

Changing banks is a nightmare, for example, and unless really necessary is best avoided. In the same way, my water supply at home is a simple operation–as long as the tap always spurts out clean clear water, I am happy. I don't need two separate taps to provide “competition.”

The London market, by going down the path of two systems doing basically the same service, is a good example of shooting oneself in the foot. Competitors to Lloyd's around the world might even see it is to their advantage.

Technology for individual brokers or underwriters in London is mostly managed via one of the package suppliers. Therefore as an underwriter, all electronic messages (currently electronic data interchange, but also allowing for ACORD's XML messages) sent to me by the central bureau are automatically managed by the system, and as an underwriter I will have only one account with all London brokers.

The new system will mean that if as an underwriter I find that a London broker has broken away from the central system, I will need a second set of accounts. This could then lead to many such moves. At the same time, the central electronic-claims system in London–Class–will become two systems.

This sort of competition actually adds cost to what are in fact basic and in many cases very tedious parts of the London market's life.

The desire for an electronic placing system in London still bubbles under the surface, and the new exchange might profess to be the perfect platform. But yet again, the existing service could have been easily adapted.

Competition for the global client's business–together with its unique skills–is the London market's greatest asset. By the same token, it needs simple solutions to back it with light but correct regulation, the ability to understand risk, and a technology and administrative service to back it up.

Two such services, however, are overkill. Not only will they not help London, they will hinder it and also add to its costs.

Roger Foord is managing director of Roger Foord Associates in London, an independent consultant specializing in technology in the London and global reinsurance markets. His Web site address is www.rogerfoord.com.