Financial services: Lloyd's of London's decision to
scrap its £70m electronic trading platform highlights the
importance of getting end-user buy-in at the start of a
project.
Lloyd's of London's announcement that it is to pull the plug on
the Kinnect electronic trading platform (Computer Weekly, 31
January) surprised few in the City.
Only days earlier, Lloyd's published its three-year strategic
plan aimed at ensuring its survival against increasing competition
overseas.
Among the proposals, which followed a year's work and
consultation by Lloyd's, was a commitment to providing a central
infrastructure only where there is a clear, market business case
for doing so. The proposals also said, "Market-driven solutions, to
meet commonly agreed standards, are the most likely to deliver best
results."
Having been touted only months earlier as the solution to
Lloyd's quest for contract certainty - as demanded by the Financial
Services Authority from 2007 - Kinnect was notably absent from the
report.
The writing was on the wall from September last year, when Iain
Saville's resignation as Kinnect executive chairman was followed on
the same day by Toby Davies' decision to stand down as chief
executive of Kinnect.
The following month Kinnect also lost its remaining key advocate
with Nick Prettejohn's departure as Lloyd's chief executive.
Prettejohn had always been outspoken in his support of using
electronic trading at Lloyd's to improve business transparency and
efficiency and meet the demands of City regulators.
But with £70m invested by Lloyd's over five years, why did
Kinnect prove to be such a lame duck that by the time it closed
only one in 10 of the 200-plus companies at Lloyd's had signed up
to use it - and only a tiny fraction of the market's business was
being conducted through it?
In his letter to Kinnect users confirming the closure, interim
Kinnect chairman Michael Dawson blamed "the changing nature of the
technological landscape" for the limited adoption of the platform.
He suggested that a market-sponsored system was no longer required
at Lloyd's, having been superseded by more appropriate and
versatile technologies available elsewhere.
"The initial development of Kinnect was driven by the need to
modernise the market," Dawson said. "We remain as committed to this
goal today and resolutely believe in the need for electronic data
transfer, however it is achieved."
But others are unconvinced about Lloyd's account of its decision
to walk away from its electronic trading platform. Simon Burtwell,
associate partner and head of the London market and reinsurance
practice at Atos Consulting, said that the timing of Lloyd's
departure was "astonishing" given the pressure being applied by the
Financial Services Authority on the industry to finalise details of
contracts within 30 days.
He put Kinnect's failure down to the flawed nature of the
market's electronic programme.
According to Burtwell, Kinnect was a victim of confused agendas,
and it never got off the ground because of the competing interests
of the participants in the Lloyd's market. "It was a horse designed
by committee - good in places but ultimately it suited no
particular part of the market," he said.
Burtwell said that were Kinnect being designed today it would
look very different. "Everything is web-based now for brokers," he
said.
But he added that technology was not what stood in the way of
developing an effective system.
When Lloyd's was reviewing its options for Kinnect last year,
Indian outsourcing supplier Tata Consulting Services was reported
to have put in an attractively priced bid to take over and
redevelop Kinnect. Burtwell said Lloyd's rejection of that
alternative showed that the problems were more fundamental.
"My impression is that there was no change management. The
programme lacked the core characteristic of getting stakeholder
buy-in at the front end before ensuring you have the business
services to respond to stakeholder needs.
"Transformation like this needs a change in culture, but this
was just a technology solution," he said.
Roger Foord, independent IT consultant to the London insurance
market, said the problem with Kinnect was that it offered
technology for technology's sake, rather than enabling meaningful
efficiencies. He saidLloyd's was not convinced that it needed a
platform that enabled instant decisions, and brokers preferred to
talk face to face with customers about their client's requirements
in a more measured way.
Yet there is argument in some quarters that if electronic
trading is done right, it still could bring real efficiency
savings.
Research by Brit Insurance indicates that Lloyd's and the London
insurance market are lagging behind their rival global insurance
hub, Bermuda, in terms of operational efficiency. According to the
research, processing and administration costs at Lloyd's swallow
26% of the premiums written, against 19% across the London market
as a whole and 17% in Bermuda.
Alex Letts, chief executive of the RI3K electronic trading
platform for reinsurers, said the case for electronic trading at
Lloyd's rested substantially on the need to keep up with the global
competition rather than the need for instant trading decisions.
"An electronic platform that offers workflow processes and
reduces the need for re-keying of information - and the risk of
errors and omissions that comes with that - can certainly improve
efficiency," said Letts.
"But the other driver to embrace electronic trading is that to
achieve more certainty on contracts and avoid the potential for
disputes, you will benefit enormously from a structured and
auditable data and document repository where information can be
exchanged."
The difficulty for Letts and others is that so many of the key
players in the market remain unconvinced. Simon Sperryn, chief
executive of the Lloyd's Market Association, which represents the
underwriters, said the association's members were supportive of the
decision to close down Kinnect. "In the end, Kinnect was not able
to offer an acceptable solution at an acceptable price. The world
has moved on," he said.
Sperryn added, "It is now important to find the best paths to
electronic placing in today's environment." But it is far from
clear whether the market's commitment to modernisation is anything
more than theoretical.
How Kinnect failed to turn good intentions to
advantage
2001 - After market consultation, Lloyd's
commits to developing an "electronic hub"
Early 2002 - Lloyd's sets out its plans for Project Blue
Mountain, the original name of the market's electronic hub
Mid-2002 - Development work begins under chief executive Ashok
Gupta
December 2002 - Ready to launch
April 2003 - The first firms sign up to use the system -
insurance broker Marsh and Willis and London-based insurers Ace
Europe, Amlin, Beazley and Wellington
January 2004 - Gupta stands down as Kinnect chief executive. He
is replaced by Toby Davies
February 2004 - First live transaction is completed as Willis
uses the hub to transfer a US commercial property risk to Amlin
May 2004 to April 2005 - Kinnect processes more than 500 North
American property risks with a total premium value of £450m -
though this still only represents about 5% of the market's
capacity
September 2005 - Iain Saville resigns as executive chairman and
Toby Davies stands down as chief executive, casting doubt on the
future of Kinnect. Michael Dawson of insurer Chaucer takes over as
interim chairman. At the time of the departures, only 21 of the
market's 213 companies were signed up to use the platform
October 2005 - Nick Prettejohn, a key sponsor of electronic
trading in the London market, steps down as chief executive of
Lloyd's
January 2006 - Dawson writes to customers saying there is
insufficient support for Kinnect and it will close. The total cost
of the project to the market is put at £70m over five years.