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Is this the e-commerce revolution?

Electronic trading in the London market has arrived through the back door, bringing new dangers as well as benefits, says Jeff Ward of TriSystems.

I'm all for making predictions; reams of doomladen sooths, preferably unchallenged by irritating facts to the contrary. Thus, a few years back, I suggested that despite the various market initiatives trying to tidy up the sorry muddle that is face-to-face placing in a subscription market, it was more likely that someone from the outside would come along with a commercially viable tool that people would find a way to use and reap the benefits. The e-commerce revolution would probably not spring from a London Market committee.

And, lo and behold, it's gone and happened, thus wrecking my unblemished 100% failure rate in making successful predictions. Some small explanation is required.

Electronic trading platforms in the London market have had a patchy record, to say the least, but this does not mean that things have stood still in the placing arena. Far from it. You would, however, be forgiven for having missed it as there has been a complete absence of fanfare and very little in the way of expenditure.

Consider the placing process. Closing may nearly always happen face-to-face but that, as any underwriter will tell you, is merely the consummation of a longer process. A few years ago this involved meeting after meeting, with hapless heavily-laden brokers treading wearily around the market. But not any more - the technology is there to support the whole negotiation process from just after the first meeting to just before the last. And it's becoming increasingly widely used.

This is not the result of a market initiative and it did not consume vast amounts of money to develop. In fact everyone already had it installed on their computers. And so my Lords, Ladies and Gentlemen, I give you the market's most commonly-used electronic placing negotiation tool…yes, you've guessed it already…it's email.

Anyone with a PC, broadband internet and a scanner can undertake the vast majority of the placing process from a broking or underwriting perspective from the comfort of their office or living room chair.

One chief executive of a London market reinsurer has said that, during the last renewal season, he oversaw several complex deals that involved, typically, sitting down with the broker at the start of the negotiations and to formally sign off at the end. The bit in the middle was done entirely by email and phone. Only a few years ago, that would have entailed a lengthy series of expensive and time-consuming meetings.

The world has changed. Underwriters and brokers are employing a tactical tool to help them negotiate. No major business-practice changes, no lengthy implementation and testing time, no complex training requirements and no major cost.

So, can email take its place at the leading edge of the e-commerce revolution in the London Insurance Market? No. Not until we've resolved two key issues first.

The first problem is a technical one: email is one of the least secure communication mechanisms known to mankind. It is scientifically proven to be less secure than standing on a street-corner with a sandwich board and a megaphone. And, here we are, negotiating multi-million pound contracts, firing off messages loaded with sensitive data and attachments on the same email systems that play host to the massed legions of hackers, spammers, virus writers and porn merchants whose demonic mission to spread chaos around the globe threatens daily to bring the whole thing to a grinding halt.

Thinking email is like recorded delivery is a dangerous delusion - email is no smart bomb - it's a "fire and forget" system and the sender is often unaware when messages fail to reach their destination. We've all experienced what happens when email stops working; uncertainty sets in very fast indeed. Did they get my last message? Why haven't I had a response yet? Are they talking to someone else?

Normal email is also un-encrypted so it’s very visible. Whereas telephone conversations can only be tapped by authorities licensed by the courts, email is open to any socially-challenged teenager with time on their hands just waiting to wreak havoc with your data for free, to say nothing of those others with commercial motivations.

Then there are myriad viruses that plague the e-community, most of which are spread through email. The old "don't open attachments" mantra chanted by IT departments is all well and good but when the attachments are the interesting bit, users are left with a sizeable dilemma.

Then there is the matter of archiving and audit trails. What will you do when the plaintiff's lawyers want to see the whole email thread on a particular negotiation? No, not just the messages you remembered to move to a personal folder - all of them please.

As you might suspect, there are many systems in widespread use that help combat these issues for those prepared to spend a few extra pounds - take a look at the services offered by Xchanging for example. It needs the agreement of all of the players in the market, however, to use the same or at least compatible systems to work effectively and this brings us back to market committees and the like.

The second problem is a business one. One very senior Property Treaty underwriter puts it this way, "Yes, email is a very useful tool during the negotiation process but it should not be used for the initial contact. I often get emails with upwards of 20 attachments offering me business and I have to spend a lot of time reading each one only to find that the broker hasn't researched properly and we don't write half of the classes he's trying to place, or I simply can't understand something and he's not sitting there in front of me to explain it.

“There's more and more dross coming in this way and it costs us extra effort to deal with it…it's getting out of hand. Brokers should not use this scatter-gun approach to placing risks. What value is he adding? If a broker takes care to research and prepare properly and comes to us with a package that he can take us through and explain clearly, then we can both take each other seriously. Neither of us can do that if he's simply fired off a huge pack of unfathomable attachments to everyone in the market".

There's going to have to be some discussion in the market to agree what is allowed and what is not as the Geneva Convention doesn't cover this sort of thing. Now, the LMP has some very instructive publications on email usage and policy but they are "guidelines" and they really ought to be "law".

So, knowing what we do now, how we should be planning to extend and formalise the use of email? And how might we be looking to refurbish some of the market's more archaic and arcane business and electronic practices by using cheap and cheerful tactical solutions, like email, to help?

One words springs to mind: caveat.

Business users are highly adept at finding tools to help them work. They naturally alight upon the simple, cost-effective, tactical solutions, rather than the big strategic ones as they can get some tangible benefit straight out of the box. If you doubt this, ask yourself why Microsoft's Excel is probably still the most widely-used package in the financial sector. The challenge facing the market is how to monitor and marshal this and to channel it into something that works for everybody, and keeping it secure without making it so difficult to operate that the users are forced to go out and find something else.

Jeff Ward is a Director at TriSystems.

-  Insurance Day