MRG Endorsements Initiatives S. Dean, 22 November 2007

Content Background Project Summary Approach to delivering Endorsement initiatives Market Reform Contract Endorsements (MRCE) Electronic Endorsements roll-out of ( ) revised process Benefits/success/risks and issues – “business case” Next steps

Background Endorsement is generic term for all mid-term contract changes from simple vessel name change to adding a construction project for Olympic development in London Endorsement is a binding agreement on insurers and policyholder and has to be evidenced in writing There are on average 3 endorsements for every contract, they can be administratively ‘heavy’ and in the London Market, many agreed by a face-to-face ‘broke’ Clients can regard them as ‘hygiene’, ranking them below policy issuance and claims negotiation in importance/value Goal is therefore to reduce time and effort spent of agreeing endorsements and reduce turnaround time from the insured’s instructions to confirmation to the insured of agreement

Pilot – Lessons learnt Received enough feedback and interaction to recommend continuation of project Requires cultural/behaviour change, internal organisation changes, decision on how brokers and insurers will agree ‘electronically’ Removing Honeycomb and replacing with Endorsement document enabled use as Insurer Authorised Document – this proved popular distribution (not surprisingly) is easy – businesses already doing this to and from international destinations Should have focussed more heavily on one class of business and got regular volumes to insurers More complex Endorsements will still require elements of negotiation and face-to-face contact

Approach to delivering Endorsements initiatives The work has been split into three main initiatives: 1.The introduction and implementation of Market Reform Contract – Endorsements (MRCE) standards to mandate the form and use of Endorsement documentation and agreement methodologies. This will be rolled-out to all market participants during Q The introduction and implementation of revised remote agreement process using agreement and other messaging communications. This will start in Q and continue through To co-ordinate endorsement activity with other Market forums with particular emphasis on input and adherence to ACORD standards for Endorsements and compliment the work of the MRG/LMA Electronic Placing Group. This will be accomplished via the Endorsements Steering Group as part of its general remit.

MRCE – Key elements Why Guidance No prior definitive guide to Endorsements Standardise the Endorsement format Formal launch of new style documentation Benefits Supports the principles of Contract Certainty by speeding up the prompt provision to the insured of contract change documentation Reduces the effort required to handle contract endorsements Encourages the document format to be consistent with that used in the original contract (MRC) Facilitation Sets out that the revised documentation can streamline the submission and agreement of non-complex contract changes Can be used as part of an electronic process for submission and agreement

MRCE – Market Reform Contract Endorsement Aims of the MRCE (in draft form for final agreement) To standardise the endorsement format for Contract Changes. This format may be used for all endorsements To allow the endorsement documentation to be used as the insurer contract change documentation MRCE Layout Revised document sections following MRC principles Examples in the guide Evidencing Agreement A copy of the MRCE A formal policy endorsement document A Broker Insurance Document (BID)

‘Old’ Honeycomb style

Cover Note Addendum

Market Reform Contract Endorsement (MRCE) CONTRACT ENDORSEMENT UMR:B Endorsement Ref: 001 Type:All Risks of Physical Loss or Damage Reinsured:ABC Insurance Ltd Original Insured: XYZ Ltd The contract is amended as follows: Effective Date:00.01 hours 1 August 2007 local standard time as the location of the property insured Situation:Amended to include the insured’s location at: 1 Lime Street London EC3M 7HA Sum Insured:GBP 100, any one loss in respect of the above location PremiumAdditional Premium due in respect of these changes is GBP Tax payable by insured5% UK Insurance premium Tax and administered by Insurers All other terms and conditions remain unchanged.

Electronic Agreement Process The MRCE is designed for use with different types of agreement methodologies including today’s face to face process: Electronic processes: The MRCE can be attached to an and the insurer responds by e- mail, attaching a scanned, signed, stamped MRCE. Alternatively, rather than scanning the MRCE, the Insurer may respond by confirming their agreement within the body of the return The MRCE is attached to an or e-message, where the or e-message forms part of an application. The insurer is likely to be able to respond either with an electronic signature or with a scanned signed MRCE The MRCE is used as part of an ACORD standards based messaging process. This may either be via direct peer-2-peer connection, via a hub for routing or via a trading service The remote processes shown are not definitive. However, the most important facet of remote agreements is to be able to produce final contract documentation Project focus

template From: Dean, Stuart Sent: 30 July :48 To: 123 underwriting Subject: ABC Insurance Ltd / B / End001/lead Effective Date: 1 August 2007 Your Ref: ASDF1234 Please find attached an endorsement request from ABC Insurance Ltd. As Slip Leader you are being requested for a formal response to this endorsement. Response request: Agree Decline Request negotiation If your response is "Agree", please send us by your agreed response and Leader response to the GUA details below: GUA Details: GUA present on slip: Yes Leader Response: Part One: Y/N Part Two: Y/N Part Three: Y/N If you have any questions, please contact the undersigned. ACORD Standards

Benefits Matrix for MRCE and Remote Agreements Endorsements DocumentationNegotiationAgreement Party / Activity Honeycomb replaced with MRCE Essential data built into MRCE “Header” distribution as the preferred delivery methodology (In the absence of electronic platform, peer to peer etc.) Use Broker or message template to attach and deliver endorsement Use Insurer or message template to respond to Endorsement Use different agreement methodologies: 1)Message response; 2)‘Seal’ MRCE 3)Scan MRCE 4)‘Broke’ MRCE Send confirmation of change to Client / Policyholder using MRCE as an IAD or as part of a BID Brokers Adopt new style Endorsement – the MRCE. Enables document streamlining further down the process Ensure a minimum data standard is used which will assist ACORD standards objectives Can focus on taking complex endorsements to Markets and ‘mailing’ others. Reduces number of box visits and endorsement distribution time and effort Allows brokers to adopt uniform data and layout. Reduces broking time through the negotiation and agreement process. Assists ACORD standards objectives Allows broker to receive insurer agreement and/or instruction quickly, reducing broking time and elapsed time. Assists ACORD standards objectives Allows flexibility with regulatory and internal compliance and technology capabilities. Allows informed choice, dependent on complexity / number of agreement parties resulting in optimal turnaround time Avoid creating Addenda from MRCE by using MRCE as basis of the document that is sent to the client. Reduces errors due to incorrect transfer of information. Reinforces Contract Certainty (Re)Insurers Sees the document that is intended to be sent to clients / policyholders Data and information required will be on the MRCE. Will experience a common Market presentation Reduces box visits and frees up underwriting time. Can allocate work easier by agreeing endorsements remotely and seeing brokers on more complex matters Recognise e-message as an Endorsement request. Will allow better internal work allocation by using Market standard – easier to understand basis of request Can agree endorsements without discussion or can issue an instruction to brokers. Allows following market to see audit trail of ‘Leader’ Agreement Allows choice of what the Insurer sees as the most efficient process for their business. Remote handling reduces time and effort to agree and record Endorsement agreements Stronger audit trail from Insurer agreement to Client / Policyholder. Reinforces Contract Certainty Clients / Policyholders Sees the document that has been sent to the Market for agreement Can expect a more uniform Market approach to documentation received Should expect quicker turnaround on agreement process Can easily have sight of agreement correspondence Will benefit from efficient Market process with quicker turnaround times Sees the document in its original form agreed by Insurers. Speeds up confirmation

Benefits Accumulation Face to Face MRCE delivery agreement Application/ Platform Data Integration Implementation phase Benefit increments not to scale Benefits Accumulation Technology phase These may be interlinked

What are the risks and issues Requires commitment from each organisation to adopt and adhere to new practices and procedures Introduce the MRCE being mitigated by Implementation Pack guidance and the work of the Electronic Placing Steering Group Standards and common processes from usage scenarios. Service Providers are already building Endorsement solutions Simple measurement approach for now; count what is sent “remotely” and what is agreed “remotely” Requires commitment from each organisation to adopt and adhere to new practices and procedures Introduce the MRCE being mitigated by Implementation Pack guidance and the work of the Electronic Placing Steering Group Standards and common processes from usage scenarios. Service Providers are already building Endorsement solutions Simple measurement approach for now; count what is sent “remotely” and what is agreed “remotely” Have to change the Culture and Behaviour No formal written guidance for Endorsements other than Contract Certainty code of Practice statement Varying views from Brokers/Insurers on method of deploying electronic endorsements can act as barrier to take-up No common infrastructure or (placing) systems platform that facilitates endorsement agreements Endorsement numbers are not currently officially monitored. For proper and accurate measurement of the penetration and success of the initiative, Market-wide endorsement statistics will be required and centrally monitored Have to change the Culture and Behaviour No formal written guidance for Endorsements other than Contract Certainty code of Practice statement Varying views from Brokers/Insurers on method of deploying electronic endorsements can act as barrier to take-up No common infrastructure or (placing) systems platform that facilitates endorsement agreements Endorsement numbers are not currently officially monitored. For proper and accurate measurement of the penetration and success of the initiative, Market-wide endorsement statistics will be required and centrally monitored Key Risks and issuesResolution/mitigation

Summary and next steps Pilot completed, lessons learnt, revised recommendations MRCE being issued once formally agreed by MRG Ramp-up of e-MRCE (electronic endorsements) Key decision: What technology/method will I use to send endorsements remotely – broker What ‘electronic’ process will I use to bind Endorsement agreements - Insurer Technology has a part to play now

MRG Endorsements Implementation S. Dean, 22nd 2007