Lloyd's of London chief Richard Ward can boast an impressive track record. Ward's first year as chief executive saw completion of Lloyd's project to achieve contract certainty and was further distinguished by two major achievements: October's $7 billion deal with Warren Buffett to transfer Equitas' lingering liabilities and the ratings upgrade to A+ bestowed by Fitch in March this year. He could turn this dual achievement into a hat trick by accelerating Lloyd's lethargic progress from paper-based systems to full electronic trading.
Ward's appointment was largely based on his success as chief executive of the International Petroleum Exchange in phasing out its traditional system, known as an open outcry system, and replacing it with electronic screen-based trading.
But Lloyd's volumes of paperwork continue to consume acres of forestry. As The Times of London recently reported, the "Chatham Van"--which despite the name consists of three trucks that transport the market's claims files from central London to its administrative office in Kent--still carries a four-ton paper mountain on a 66-mile round-trip twice daily.
"It's ridiculous to have grown men and women still going around the city weighed down with masses of paperwork," said Rupert Swallow, head of global operations at broking group Benfield.
But efforts under Ward's predecessor, Nick Prettejohn, to push through a paperless trading platform called Kinnect faltered after its early supporters failed to convert others to support the initiative.
Last year, Lloyd's launched a plan that established targets for phasing out paperwork and adopting electronic claims files. It was hoped that Lloyd's would avoid intervention from the U.K. regulator, the Financial Services Authority.
In an open letter to all of the market's participants in July, Ward described progress to date as disappointing. "Failure to improve our processes represents a significant risk to the market's efficiency," Ward wrote.
The sought-for improvement involves doubling the usage of electronic files from the current figure of 30 percent to 60 percent by the end of September and achieving total usage before the new year. The Chatham Van will be consigned to history sometime in 2008.
The move is coupled with a threat to "name and shame" those that are hampering progress and the possibility that Lloyd's franchise board may insist on managing agents introducing clauses that make electronic trading mandatory and that force laggards to scale back their business plans.
Such moves would also speed up the even less impressive progress toward using an accounting and settlement repository to modernize premium payment and policy issue processes.
What's slowing the advent of the electronic era? Swallow suggested that, although Electronic Claims File is "a no-brainer," back-office functions or "below the line" processes are hard to get on top of and often don't feature in the top three priorities for either syndicates or managing agents.
"The technology can be assimilated quite easily," he added. "The big challenge is to change the market's mindset and behavior, which is a far more difficult challenge than the technical one."
But the big stick has now been wielded, and those who don't assimilate could risk losing their franchise. People "are sitting up and taking notice at last," said Swallow.
And this at the end of the day is thanks to Ward's leadership. He has been able to "plant a flag in the ground and rally people around it," said Swallow.
The next six months will prove whether he has succeeded in carrying all the troops with him.
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October 1, 2007
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