Why Lloyd's walked away from Kinnect

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.

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 He suggested that a market-sponsored system was no longer required at Lloyd's, having been superseded by more appropriate and versatile technologies available elsewhere.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.

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