update on contract certainty john harvie, steve hulm contract certainty sponsors and pms 22 november...
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Market ReformProgramme Office
Update on Contract Certainty
John Harvie, Steve Hulm
Contract Certainty Sponsors and PMs
22 November 2006
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Contract Certainty
– Good news - Market set to achieve 2006 targets – August broker figure 88%
– FSA are ‘satisfied with progress to date’ but see key issues as…– Quality and robustness of data– Exception reduction, including value– Legacy reduction
NOTE: Data for December is only available at the end of February 2007
Industry Assessment of Success based on October, possibly November* data
*Trying to get November Data earlier from LMBC
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Time line to conclusion of FSA challengeFSA decision making timeline
Dec 2006 Jan 2007 Feb 2007 Mar 2007Nov 2006
14/15/11 18/229/10 18/311/2 11/37/117/1210/1226/11 4/224/1212/11 19/1115/10 3/12 25/328/1 4/3Task Name
FSA Decision Cycle
FSA firm visits
Consideration of position
Public statement
Template development
Heads of Association
CCSC
MRG
CCPB
Lloyd’s
CEOs
13/1215/11
19/10 21/1230/11
16/10 20/11 18/12
A form of publicstatement by John
Tiner 14/11/06CEIOPS Press release/press
briefing
Week of 12 DecemberHOA plus non Londonto discuss completed
draft template with FSA
8th Jan (prov) Formalsubmission of template
to FSA
25th JanuaryCEOs meeting
conclusion of FSAchallenge
Oct 2006
22/10 21/131/12 25/2
8th Jan 07Formal submission of
template to FSA
Template agreed byCCSC
Informal discussion with theFSA over template content
ID
Meetings with FSA
Public statements
Meeting where datesare still to be confirmed
24/01 22/02
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Key observations on the data• The overall score for Contract Certainty includes complete placements before inception, incomplete
placements and late placements. • The overall score reduced slightly but still exceeds end of year targets. • Evidence of cover within 30 days score increased by 2% in total to 83%, with an increase in open
market contracts; certificates of insurance score remained the same.
Summary• Brokers’ self-assessed score for open market August returns, reported in October, was 84% certain,
down from 86% in July.• Brokers’ self-assessed score for certificates of insurance August returns, reported in October, was 92%
certain, down from 93% in July.• Overall, the volume of contracts that were certain in August decreased to 88%, from 89% in July. • The volume of broker contracts between July and August decreased by 24% from 33,066 in July to
25,288 in August.
Broker Contract Certainty Report for August 2006 (reported in Oct 2006)
Broker Contract Certainty ReturnsBy inception to Mar-06, therefore inc late placements and late orders
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
Open Market Contracts Certif icates of Insurance Overall Average
Target
Evidenced to Client in 30 days
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
Open Market Contracts Certificates of Insurance Overall Average
Target
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Broker Contract Certainty Returns for August 2006 – breakdown for incomplete and late placements
Key observations on the data• Contract certainty achieved in August for open
contracts and certificates was 88%.• Order completed by inception decreased in
August by 2% compared to July. Now at 72%.• Order completed after inception decreased in
August by 1% compared to July. Now at 5%. • Firm order post inception increased in August by
1% compared to July. Now at 10%.
Broker Contract Certainty - Open Market Contracts and Certificates
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
Order Completed by Inception Order Completed after Inception Firm Order post Inception
Target
Broker Contract Certainty - Open Market
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
Order Completed by Inception Order Completed after Inception Firm Order post Inception
Target
Broker Contract Certainty - Certificates
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
Order Completed by Inception Order Completed after Inception Firm Order post Inception
Target
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Underlying supporting statistics for Broker Contract Certainty Returns
Open Market Contracts
Targets
Yes % No % Yes % No % 30%Dec-05 13156 7991 61% 5165 39% 7702 59% 5459 41%Jan-06 29949 19616 65% 10333 35% 21401 71% 8548 29%Feb-06 12693 8695 69% 3998 31% 8518 67% 4185 33%Mar-06 18212 14215 78% 3997 22% 13428 74% 4797 26%Apr-06 21299 17218 81% 4081 19% 15291 72% 6008 28%May-06 16581 13434 81% 3147 19% 12240 74% 4341 26%Jun-06 17004 14486 85% 2518 15% 13072 77% 3932 23% 60%Jul-06 19836 17066 86% 2770 14% 15042 76% 4794 24%Aug-06 13725 11488 84% 2237 16% 10678 78% 2978 22%
Month TotalOpen Market Contracts
Open Market Contracts - Evidenced to Client in 30 days
Certificates of Insurance
Targets
Yes % No % Yes % No % 30%Dec-05 7520 5522 73% 1990 26% 5690 76% 1832 24%Jan-06 8345 6433 77% 1912 23% 7230 87% 1115 13%Feb-06 7881 6402 81% 1479 19% 7137 91% 744 9%Mar-06 10259 8463 82% 1796 18% 9318 91% 937 9%Apr-06 11559 10277 89% 1282 11% 10125 88% 1434 12%May-06 10655 9671 91% 984 9% 8899 84% 1756 16%Jun-06 13693 12074 88% 1619 12% 12597 92% 1096 8% 60%Jul-06 13230 12292 93% 938 7% 11782 89% 1448 11%Aug-06 11563 10678 92% 885 8% 10323 89% 1240 11%
Month TotalCertificates of Insurance
Certificates of Insurance - Evidenced to Client in 30 days
Open Market Contracts and Certificates
Targets
Yes % No % Yes % No % 30%Dec-05 20676 13513 65% 7155 35% 13392 65% 7291 35%Jan-06 38294 26049 68% 12245 32% 28631 75% 9663 25%Feb-06 20574 15097 73% 5477 27% 15655 76% 4929 24%Mar-06 28471 22678 80% 5793 20% 22746 80% 5734 20%Apr-06 32858 27495 84% 5363 16% 25416 77% 7442 23%May-06 27236 23105 85% 4131 15% 21139 78% 6097 22%Jun-06 30697 26560 87% 4137 13% 25669 84% 5028 16% 60%Jul-06 33066 29358 89% 3708 11% 26824 81% 6242 19%Aug-06 25288 22166 88% 3122 12% 21001 83% 4218 17%
Month TotalOpen Market Contracts and Certificates
Open Market Contracts and Certificates - Evidenced to Client in 30 days
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Underlying supporting statistics for Broker Contract Certainty Returns – breakdown for incomplete and late placements
Open Market Contracts
Order Completed
by Inception
Order Completed
after Inception
Firm Order post
Inception
Order Completed
by Inception
Order Completed
after Inception
Firm Order post
InceptionTargets
% % % Yes % No % % % % Yes % No % 30%Dec-05 13156 61% 0% 0% 7991 61% 5165 39% 59% 0% 0% 7702 59% 5459 41%Jan-06 29949 65% 0% 0% 19616 65% 10333 35% 71% 0% 0% 21401 71% 8548 29%Feb-06 12693 69% 0% 0% 8695 69% 3998 31% 67% 0% 0% 8518 67% 4185 33%Mar-06 18212 78% 0% 0% 14215 78% 3997 22% 74% 0% 0% 13428 74% 4797 26%Apr-06 21299 71% 5% 5% 17218 81% 4081 19% 63% 4% 5% 15291 72% 6008 28%May-06 16581 67% 6% 7% 13434 81% 3147 19% 61% 6% 7% 12240 74% 4341 26%Jun-06 17004 69% 8% 8% 14486 85% 2518 15% 62% 7% 7% 13072 77% 3932 23% 60%Jul-06 19836 70% 8% 8% 17066 86% 2770 14% 62% 7% 6% 15042 76% 4794 24%Aug-06 13725 66% 8% 9% 11488 84% 2237 16% 63% 8% 8% 10678 78% 2978 22%
Month TotalOpen Market Contracts
Open Market Contracts - Evidenced to Client in 30 days
Certificates of Insurance
Order Completed
by
Order Completed
after
Firm Order post
Inception
Order Completed
by
Order Completed
after
Firm Order post
InceptionTargets
% % % Yes % No % % % % Yes % No % 30%Dec-05 7520 73% 0% 0% 5522 73% 1990 26% 76% 0% 0% 5690 76% 1832 24%Jan-06 8345 77% 0% 0% 6433 77% 1912 23% 87% 0% 0% 7230 87% 1115 13%Feb-06 7881 81% 0% 0% 6402 81% 1479 19% 91% 0% 0% 7137 91% 744 9%Mar-06 10259 82% 0% 0% 8463 82% 1796 18% 91% 0% 0% 9318 91% 937 9%Apr-06 11559 78% 1% 9% 10277 89% 1282 11% 78% 2% 8% 10125 88% 1434 12%May-06 10655 76% 2% 13% 9671 91% 984 9% 71% 2% 11% 8899 84% 1756 16%Jun-06 13693 79% 1% 8% 12074 88% 1619 12% 83% 2% 7% 12597 92% 1096 8% 60%Jul-06 13230 80% 2% 11% 12292 93% 938 7% 78% 2% 9% 11782 89% 1448 11%Aug-06 11563 80% 2% 11% 10678 92% 885 8% 79% 2% 9% 10323 89% 1240 11%
Month TotalCertificates of Insurance
Certificates of Insurance - Evidenced to Client in 30 days
Open Market Contracts and Certificates
Order Completed
by
Order Completed
after
Firm Order post
Inception
Order Completed
by
Order Completed
after
Firm Order post
InceptionTargets
% % % Yes % No % % % % Yes % No % 30%Dec-05 20676 65% 0% 0% 13513 65% 7155 35% 65% 0% 0% 13392 65% 7291 35%Jan-06 38294 68% 0% 0% 26049 68% 12245 32% 75% 0% 0% 28631 75% 9663 25%Feb-06 20574 73% 0% 0% 15097 73% 5477 27% 76% 0% 0% 15655 76% 4929 24%Mar-06 28471 80% 0% 0% 22678 80% 5793 20% 80% 0% 0% 22746 80% 5734 20%Apr-06 32858 73% 4% 7% 27495 84% 5363 16% 68% 3% 6% 25416 77% 7442 23%May-06 27236 71% 5% 10% 23105 85% 4131 15% 65% 4% 9% 21139 78% 6097 22%Jun-06 30697 73% 5% 8% 26560 87% 4137 13% 72% 5% 7% 25669 84% 5028 16% 60%Jul-06 33066 74% 6% 9% 29358 89% 3708 11% 68% 5% 8% 26824 81% 6242 19%Aug-06 25288 72% 5% 10% 22166 88% 3122 12% 70% 5% 9% 21001 83% 4218 17%
Month TotalOpen Market Contracts and Certificates
Open Market Contracts and Certificates - Evidenced to Client in 30 days
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Data from Managing Agents and Companies continues to support Broker data
Managing Agent Contract Certainty
• 89% - Total Contract Certainty in Sept ‘06• September performance remained same
as August ‘06
• 89% - Open Market in Sept ‘06• September performance remained same
as August ‘06
• 90% - Binding Authority in Sept ’06• September performance UP 1% from
August ‘06
Company MarketContract Certainty
• 94% - Total Contract Certainty in Sept ‘06• September performance UP 1% from
August ‘06
• 93% - Open Market in Sept ‘06• September performance remains same
as August ’06
• 100% - Binding Authority in Sept ’06• September performance remains same
as August ‘06
Managing Agent Contract Certainty Returns
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
Open Market CC% Binding Authority CC% Overall Average
Target
IUA Company Market Contract Certainty Statistics
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06
Open Market CC% Binding Authority CC% Overall Average
Target
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Legacy challenge
– The number of Lloyd’s Priority 2 and Priority 3 items are reducing as Managing Agents focus on legacy reduction
– The number of Priority 1 items is continuing to rise.
– Change request needed to allow current items with Alternative Evidence of Cover (AEC) not to appear on LUPR
– Agreed by LMBC (Concert)
– Agreed by Lloyd’s (& funding)
– Agreed by LMA (XRB)
– Intent for implementation by the end of 2006
– G6 insurers have written to brokers with legacy reduction proposals
– Brokers writing to managing agents with legacy reduction proposals
– G6 and LMBC have a consolidated approach to legacy agreed.
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MR Slip adoption
– MR Slip format published June 2006
– Originally Lloyd’s mandated for October 2006 inceptions
– Whilst MRS in current use – Some brokers still amending their templates
– Lloyd’s mandate put back to November 2006
– Further guidance on ‘Order’, Fiscal & Regulatory and licencing
– MRS being used for Contract Documentation Pilot
– Issue regarding variant (CD format) outstanding
Press on with MR Slip adoption
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Measurement FAQs
– What is the issue?– Clear that organisations are applying the Code of Practice & Checklist in different ways
– Result - inconsistency of measurement
– What are we doing?– Clarifying the recommended approach wherever possible via FAQs.
– Reviewing the Code
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Key messages to feedback to firms
– Data quality
– Firms need to ensure that they are able to demonstrate that they are achieving contract certainty and have in place appropriate systems and controls to ensure that their reported data is robust.
– Legacy
– Firms in the Subscription Market need to work on scoping and addressing the backlog of policies and on ensuring that they are in a position to demonstrate quantifiable progress by the year end.
– Exceptions
– Organisations need to have a clear understanding of the value and complexity of those policies that do not achieve contract certainty and have a process defined by which lessons learnt on failures can be captured and fed back into further improvements.
Contract certainty remains a regulatory priority for the FSA through 2007
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Key messages to feedback to firms
– Contract certainty is one apspect of operational risk. The FSA will use their powers under ICA and existing insurance regulation to regulate firms:
– Firms need to ensure that they understand this relationship and are prepared to respond.
– Solvency II is just round the corner. This takes a broader view of risk, contract certainty is only one aspect:
– Firms need to recognise that this approach to regualtion is here to stay. Just look at banking if you are in any doubt.
– Ultimately it is not the CC score that matters, it is a firms ability to demonstrate a mature approach to operational risk management.
– Through 2007 the emphasis will shift from the FSA focusing on the market as a whole to focusing on individual firms, be prepared.
Don’t be a laggard
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Plan for 2007
– FSA Liaison– Continue existing information flow for 2007– Build on existing levels of CC performance
– Guidance– Revision of guidance into a consolidated set in order to simplify, remove inconsistencies and ambiguity,
improve clarity - strictly retaining the principles-based guidance approach (Q1 2007).
– Measurement– Continue to reduce exceptions and demonstrate reduction to a set target (by volume of contracts) (end
of Q2 2007)
– Late placements– Continue to reduce late placements and demonstrate reduction (end of Q2 2007)
– Stamp conditions and subjectivities– Continue to drive through agreed approach
– Signed lines and Signing provisions– Review in the light of practical experience
– Legacy– Work for the remainder of 2006 and into 2007 will be to devise and implement a coherent plan and
monitoring regime to demonstrate progress and eradication to the FSA.
CCSC and CCPB will stay in place through to the end of 2007
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Are we there yet?
• 10 minutes in groups.
• 3 questions:
– What things have we missed from the CC forward agenda for 2007?
– How do we maintain the momentum for change?
– Should the market set targets for 2007? If so what should they be?
• Email back to me at: