Lloyd’s/IUA Choose ‘Xchanging’ To Streamline London Insurance Market

On Oct. 24, Lloyd’s and the International Underwriting Association (IUA) announced that they had selected Xchanging, an Internet and information technology specialist, as a partner in a joint venture to develop and operate a unified premium processing and claims service covering the London market.

When the Lloyd’s/IUA Forum was first launched in July 1999, it set out to create a set of standards for all insurers, brokers and agents doing business in London, and to simplify premium and claims processing. The signing of a letter of intent with Xchanging brings the achievement of those goals several steps closer.

Together, the three plan to form a separate company unifying Lloyd’s Policy Signing Office (LPSO) and the IUA’s London Processing Centre (LPC), thus giving “the market a unified processing and settlement service for the first time.” Xchanging is putting up $21.7 million for a 50 percent stake. Lloyd’s and the IUA will contribute proportionate amounts, and each will retain a 25 percent share. Xchanging will be responsible for daily operations, but will consult with Lloyd’s/IUA representatives to determine strategy.

“It is expected to process premiums and claims worth in excess of £20 billion [$29 billion] annually on behalf of some 220 insurance companies and Lloyd’s syndicates,” according to the announcement. It will handle “some 1.8 million accounting transactions each year” and 13 million electronic transactions, making it one of the world’s largest insurance service operations.

The announcement was greeted with enthusiasm. Lloyd’s CEO Nick Prettejohn stated: “The new company will provide London with unified back-office processing, leading to lower costs and better service for our customers and their brokers.” IUA Deputy Chairman Tony Medniuk likewise praised the initiative, saying it “will take us rapidly towards the latest Internet-based generation of business-to-business processing, whilst simultaneously helping to take the cost out of current procedures.”

The exact details will be worked out during the three months period specified in the letter of intent. But according to Adele Browne, the project director and a co-founder of Xchanging: “We hope to form the company in early January, and within five years time we expect to integrate all of the different areas into a functioning business.”

Xchanging founder David Andrews, former managing partner for Western Europe and a board member of Andersen Consulting, was one of the early pioneers in the formation of outsourcing for business data processing. He has assembled a team of experts over the last two and a half years, which shares his vision that such entities can exist and prosper as stand-alone companies.

The Lloyd’s/IUA plan is a bold one; it goes well beyond the original concept of standardizing and uniting back-office processing. Xchanging proposes to create a separate profit center, capable of not only doing premium and claims processing for them, but also able to offer its services on a competitive basis to other insurers.

The immediate goal remains to harmonize the standards and processing forms of the London insurance market, using the latest technology to reduce costs, and integrate it all into forms accessible over the Internet. That alone is not an easy assignment, but Browne expresses confidence that it can be done. “We anticipate cost savings on a joint basis of around two million pounds [$2.9 million] a year using an Internet-based, e-enabled universal type of processing,” she said.

While still a young company, Xchanging has both the experience of Andrews and his team, and solid financial backing. Half of its capitalization comes from General Atlantic Partners LLC, one of the world’s largest venture capital firms with $10 billion under management and $4 billion available for investment.

Ironically, the Lloyd’s/IUA initiative, which has been heralded as a response by British insurers to the increasing American dominance of the insurance market, will itself profit from the Americans, as AIG is one of the largest investors in General Atlantic. Last April it agreed to contribute $1 billion (25 percent) of the $4-billion capital for investment over the next five years, and acquired a 5 percent interest in its general partner.

Topics Trends Excess Surplus Market Lloyd's London