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Choose your partners, one, two, three

Attempts to reform the London market by consensus are rapidly being overtaken by the muscle of the big commercial outsourcing players - it's high time to start thinking about who you want as your outsourcing partner, says Jeff Ward of TriSystems.

A few months back, in these very pages, I suggested that the gathering momentum of outsourcing in the London insurance market would eventually bring about major change, leading ultimately to the holy grail of an efficient, low-cost subscription market. Change would not be driven by the consensus approach of establishing yet more market committees and initiatives and employing management consultants to herd cats.

“What will really make the difference,” the article predicted, “is when someone, possibly from outside the market, comes in with a purely commercial proposition, pre-canned, ready to run, that people see a direct benefit in buying and using … While the market implements [the] LMP [market reform programme] with all the speed of plate tectonics, some of these folk are quietly putting in place everything that is necessary to take over the whole market infrastructure and run it efficiently.”

The article left it to the reader to decide whether this prospect was cause to rejoice or despair. Judging by the size and strength of the response, the subject certainly struck a nerve, with opinions divided into two opposing parties and a third group fully signed up to the “thanks for telling me, but there’s not a lot I can do about it” party.

I promised to come back to this subject later to review progress but, since then, something rather decisive has occurred, which should serve as a wake-up call to anybody who remains in doubt that the world is changing rather quicker than was foreseen. If they do not pay attention, then their freedom of choice may become somewhat limited within a few short years.

So, what's happened then?

Well, you may have noticed that the market's monopoly supplier of information services, data provision and central settlement systems, Xchanging Ins-Sure Services, has merged with the largest supplier of information technology and related services, Rebus IS. Although this was big news at the time, at least to those like me who work in the IT sector, I rather suspect it does not loom very large in the thought processes of most ordinary people. Which is a pity, because something of huge significance to the market is taking place.

It was always clear that Xchanging wanted to play a much larger role in the market than merely running the old company market and Lloyd’s processing bureaux, LPC and LPSO. And Rebus IS, like any other service company with designs on growth, always strived to extend its grip beyond merely providing systems and facilities management services to those players that it could acquire through conventional commercial means.

So here we are now, with these two players uniting and able to provide a vast array of outsourced services, IT, back-office, etc. This is just the kind of development predicted in the original article in this publication last September, and the speed of change has taken even us a little by surprise.

We are not just looking at the conventional bureaux and conventional IT here - we are talking about virtually everything outside the areas of underwriting, marketing and strategic management. The London market is an outsourcing company’s dream - everybody does exactly the same thing with the same data - and the possible savings for clients are as huge as the possible profits for the outsourcers.

The Xchanging/Rebus entity can do this to the absolute exclusion of any independent data-, services- or IT-providers. In very little time, the combined group will be able to offer an entire outsourced back office to a huge proportion of the existing market, active or run-off, and to all its new entrants who already have to go through Xchanging's doors anyhow to get up and running.

So, in allowing this position to develop, wittingly or otherwise, the IUA and Lloyds have potentially enabled the creation of an FM services super-provider for their entire membership, both current and prospective.

Am I saying that there will be no other choice of FM services provider and, ultimately, no choice of IT services provider? Not quite.

Firstly, there will always be a small group of suppliers that provide services and products so specialist or of such high quality that they will continue to exist and, in some cases, to be very profitable. And a good thing too. There is no better truth in services than "Competition Breeds Excellence".

Secondly, there will be those underwriting entities that instinctively mistrust anything smacking of monopoly status or who, because their horizons are much wider than the London market, will prefer to do things their own way. It is a rule of any business that, where there is one dominant provider, buyers ultimately lose some measure of control over how they do things. This is especially true in the London market given the very necessary demands of LMP and the desire to standardise processes in order to create efficiencies and achieve economies. Some players will prefer to retain their independence, even if doing so is the more expensive option.

Wind the clock forward, however, from now to one possible future outcome: if an independent outsourcing company wants to offer its back-office, claims management or IT services to a London Market insurer on a commercially stable footing, that insurer may well have to be operating outside of the IUA or Lloyds. That, I believe, could ultimately open up another sub-market within London, consisting of insurers who have seen the light and wish to outsource their operations to a third party but cannot, or do not want to use the Xchanging/Rebus vehicle.

The previous article predicted a London market with backroom and outsourcing services dominated by a single player. “Whether this is your vision of heaven or hell,” it said, “you have only a short time to influence the outcome.”

That time has now come.

Jeff Ward is a Director at TriSystems, the specialist supplier of IT systems and services.

-  Insurance Day