1. 1 Market Reform Forum Update on business reform 26 May 2005 Andy Brookes LMP/Lloyds BPR

2. 2 Objective: up to speed in half an hour…… A reminder – why we are doing this Contract Certainty LMP slips CC Implementations Evidence of cover Supporting projects, including Kinnect Back office electronic infrastructure Accounting and Settlement Electronic Claims Files What you should be doing Today special topic: measurement

3. 3 Why do this? The challenge In London sufficient talent (underwriting, broking,advisory) meets sufficient capital to create a market But business is mobile and….. cost of business process is too high operational risk is too high -lack of audit trail, lack of proper/timely documentation London does not meet increasing regulatory standards -Spitzer – transparency; Tiner – certainty So, London (including Lloyds) must improve its processes to Reduce cost Reduce risk Increase transparency

4. 4 The aims of market reform Contract Certainty Clarity of contract, leading to certainty of coverage, fewer disputes, less time wasted, a reduction in legal bills and improvements in downstream processing. Service to the client Process Efficiency Efficient capturing, storing and reuse of data, reduced error rates, and quicker premium payment processes. Lower costs. To adopt processes that speed up the agreement of the contracts, the issuance of documentation and the subsequent agreement of claims. Londons competitive position Includes defending market share in traditional markets and promoting growth in new markets Global standards To facilitate adherence to (or creation of) accepted internationally standards for accounting, message/business flows, and technology.

5. 5 Principles underpinning reform Reduce Londonisms: international firms must buy-in – governance role Change requires authority and a degree of neutrality: individual firms cannot do it alone; Lloyds and the Associations will lead Commitment to co-operate essential, on design and implementation Network effects: a convoy for implementation Cost / benefit case is rarely convincing on its own. FSA Transparency

6. 6 Vision for market processes Exchange of data and progress of transaction is captured in collaborative electronic systems Placing process built into electronic system Placing data to international standards Standard slip generated by electronic system. Ditto, the policy. slip/policy distinction blurs Policy based on model wordings; changes tracked and audited electronically. Or auditable bespoke wording created. Checking in real time Placing systems retain the data and audit trail Claims: international standard messages for data and claims management. Repositories for simultaneous access Accounting and settlement: ditto

7. 7 Approach To support each stage in the life cycle of a contract: simplified, harmonised business process standardised data structured electronic messages community infrastructure platforms - minimise interfacing costs and enforce discipline Why? Drive changes – including behaviour - within firms. Hence -reduce risk -reduce cost -make process transparent to market users so that they can measure and manage

8. 8 Contract certainty: FSA challenge Tiners speech: end to deal now, detail later End 2006 deadline Lit the already smouldering platform Answering the FSA requires: -clear plan pulling together components -measurable progress against that plan -your participation

9. 9 Contract certainty: the programme Key projects Improve LMP slips – 99% March 2006 During bind: agree wordings; get checking done -Contract Certainty Implementation, CCI -30% of business end 2005; 85% end 2006 Evidence of cover – within 30 days Supporting projects Kinnect/placement systems – -Consistent with all this, but reduce compliance cost Policy checking by Xchanging -Prudential Practice Requirements; binders done; publish open market checks (June); publish compliance stats (Q4 2005) Legacy -Agree cross market priority rules – end June -Recalculate stats; thats it?

10. 10 End Game Fully-claused placing document (using LMP Slip and policy) Increased use of model wordings and clauses (as basis for negotiation) Wording/technical staff involved in placing process Early agreement and checking of the slip/draft policy by all parties and the back office QA function Interaction, wordings, risk details, negotiation undertaken partly through, and all logged in, Kinnect – the single version of the truth Early delivery of evidence of coverage for the client – ideally before inception but within 30 days of inception – from Kinnect, so no transcription risk Binder placings evidenced by issuance of approved certificates

11. 11 LMP Slips – wider and deeper March BSA headline: 92% Continue to check 25% of Lloyds slips in 2005; IUA timetable set for companies LMP Slip 2005 -published in April Extending to lineslips -Should be agreed in Q2 -Mandated late Q3? Monitoring BA LMP Slips – commenced Jan 05 -March 05 94%

12. 12 Kinnect 3 additional customers announced in May -Chaucer, Cathedral, Limit/QBE Three brokers and fifteen carriers -+60% of Lloyds capacity 500 risks, 1300 signed lines and $800m of premium in last year New release 1 June as planned -Enhanced placing functionality -Slip creation by brokers in Kinnect -One-way data flow initially but appetite for two-way Risk class expansion -North American propertyNow -TerrorismJune -International propertyNov. Further risk classes agreed for 2006 Data light template for any risk class being considered

13. 13 Accounting & Settlement Technical and data information: Phase 1, published in April -Who is digesting it in your firm/supplier? Views please - Phase 2 likely to be June (was May) – claims, ORI Accounting splits: Code of practice being finalised Migration (legacy and crossover): Complete for premium, claims (Section 2 of technical information) MRIB and Project Board working on implementation timetable -Key deliverable is content, sequence and dates in implementation timetable -Key issue is risk appetite and management: dearer or slower? -Dont doubt commitment to progress -Had planned to publish in Q1, aiming for Q2

14. 14 Electronic Claims File Purpose: electronic claims for Lloyds (and then…..) XIS development work Phase 1 - Operational in February Phase 2 - Now live Overall business process spec being signed-off later than planned -Better end outcome for practitioners; but pressure on timelines Phase 3 DRI design signed-off -Wider functionality issues; LMA, LMBC and Claims Project Board managing Implementation 6 partnerships operational (was 4) Low volumes – 44 claims completed; major volume increase post-DRI 57 (up from 40 last month) potential partnerships identified Governance – Project Board and MRIB -Named brokers commit to deliver 100% new claims from Q3 2006 -Named Managing Agents commit to use ECF for new claims from Q3 2006 Live issues Cross market procedures and practices Policy issues starting to surface eg access control

15. 15 Market Reform Forum Update on business reform 26 May 2005 Andy Brookes LMP/Lloyds BPR