How can the London Market tackle inconsistent policy language?

March 9, 2020 / 5 min read

Creating and updating policy language in the London Insurance Market can be challenging. London insurers write such a diverse range of insurance and reinsurance policies across many different lines of business and geographies that it can be difficult to ensure policy language is up to date and consistent.

Many insurers use a large number of proprietary and standardised forms to develop policy language, with forms and endorsements stored in multiple systems. However, the technologies and processes to develop new policies are unnecessarily antiquated, often relying on shared drives, e-mail, and paper copies to develop forms, resulting in significant challenges with version tracking and long wait times[1].

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Over the last few years, the London Market has been reviewing the operations of its members and exploring ways it can conduct business more efficiently. Examples of this can be seen at Lloyd’s with the Blueprint One report, part of its overarching Future at Lloyd’s strategy, whereby the 334-year-old insurance market seeks to reduce costs and improve efficiency through the use of innovative technologies[2].

One of the ways the London Market can improve how it operates is by reducing the time spent developing and managing policy language and mitigating some of the risk associated with these processes. Outdated and inconsistent policy language spread across multiple versions of forms filed in different systems can be frustrating to manage and can potentially lead to unexpected claims, premium leakage, and significant exposure to errors and omissions (E&O)[3].

The technologies used for updating policy language have been lagging behind for many years, and the need for innovation is clear. Verisk has endeavoured to address these challenges through Mozart Form Composer, an InsurTech solution that combines artificial intelligence, natural language processing, and cloud computing to simplify forms creation and management through a centralised policy language storage database[4].

Through Mozart Form Composer, users can perform wording audits to find and eliminate outdated policy language, compare documents to highlight variations between clauses and wordings, and score documents to identify how similar they are to other policy wordings content.

Lloyd’s and the U.S. market

Lloyd’s of London has always played a significant role in the U.S. insurance market, with around 40 per cent of its global premiums derived from U.S. domiciled risk [5].

Lloyd’s is also the largest provider of excess and surplus (E&S) lines insurance to the United States, insuring many of the higher-exposure, challenging, or unique risks that the standard domestic market won’t or can’t cover. Through its members, Lloyd’s takes on the role of a non-admitted insurer, meaning it does not operate under state insurance law. This generally gives the Lloyd’s market much more flexibility than other market segments, with lower regulatory requirements for rating and the filing of policy terms and conditions.

As an E&S market, Lloyd’s is often heavily reliant on the use of managing general agents (MGAs) and other outsourcers for writing and binding policies.

Insurance policies sold by insurers and brokers in the U.S. often use standardised language on pre-printed forms. When cover needs to be obtained from Lloyd’s, a separate policy document is issued to detail the terms of its participation in providing coverage[6]. These documents can often be manuscript policies, those specifically tailored for the insured, and feature a variety of standard and nonstandard policy language derived from different sources.

Developing manuscript policies can be difficult because technologies have not kept up with the growth and diversity of forms.

For example, the state-based regulatory system in the U.S., whereby insurance is regulated almost exclusively at the individual state government level, means that the legislation often changes very quickly, and E&S insurers often need to make global revisions to all forms. Keeping track of all relevant state insurance law and updating forms manually can logistically be very time-consuming and challenging.

Mozart Form Composer features match-wording functionality, which allows users to highlight text they’re planning to edit and then receive a listing of all the policy content in their library that contains that wording. In the case of new insurance law issued by a jurisdiction, users of Mozart can bulk-update that language (for example, any mandatory common clauses) across their entire library of policy language.

The tool also allows users to quickly analyse any existing policy content they may have been given by a broker or MGA and evaluate the terms and conditions quickly. Advanced analytics within the software allow users to rationalise their forms portfolio by demonstrating how many similar forms they have and their degree of similarity.

Verisk has more than 40 years of experience developing industry-standard wordings and forms to assist insurers in covering all kinds of property and liability risks and in meeting state regulatory requirements. Mozart Form Composer helps bring innovation to the development and maintenance of policy language and enables users to create precise insurance products quickly and efficiently.

[1] Novarica Research Partners Program Report, Product Development: Using Forms Management Technology to Improve Product Speed to Market

[2] Lloyd’s, The Future at Lloyd’s, https://cdn.foleon.com/upload/31276/future_at_lloyds_blueprint_one_final_web.f38480c1cf92.pdf

[3] Verisk White Paper, Bringing Innovation to E&S Forms Development

[4] Verisk Mozart Form Composer

[5] Lloyd’s, About Lloyd’s of London in the U.S.

[6] Insurance Coverage Dispute (Litigation) by John H. Mathias, John D. Shugrue, et al.

How can the London Market tackle outdated and inconsistent policy language?

Lloyd’s and the U.S. market