April 28, 2005 by Canadian Underwriter
With the deadline for achieving contract certainty standards looming, a blueprint for change has been sent to all brokers and insurers in the London markets, including Lloyd’s.
The U.K. Financial Services Authority (FSA) has given insurers until the end of 2006 to meet a certain level of standard when it comes to contract certainty. The FSA wants to end what it calls the “deal now, detail later” practice in insurance where coverage is bound with no firm contract issued, explains Nick Prettejohn, head of the Market Reform Group (MRG) and CEO of Lloyd’s.
“The challenge [of reform] is massive, even though useful progress has been made in recent years,” Prettejohn says. “It is clear that every broker and carrier must respond; a positive response makes obvious commercial sense for the market, even before the very real threat of enforcement through capital loadings and rule changes.”
The first step to be taken is to improve measured slip standards to 99% by next March the MRG, through its London Market Principles (LMP) program has been working on a slip improvement process, including creating an action team of slip auditors last fall.
Also, a new process is to be created to demonstrate that contract wordings have been fully agreed to and checked before the contract period begins.
Among the interim steps is a definition of contract certainty adopted by the MRG: “Contract certainty is achieved by the complete and final agreement of all terms (including signed down lines) between the insured and insurers before inception.”
The MRG is giving members until May 13 to identify a board-level sponsor for their contract certainty efforts and to respond to the blueprint for change.