80. Papers, papers everywhere

As if all this were not ambitious enough, Lloyd's has also embarked on a costly effort to modernise the way it handles business. Although Lloyd's is known for proffering coverage speedily, its systems for processing policies are typical of the insurance industry: they are a mess. It has sometimes taken five or six months to finalise a policy on a complicated risk. Worse, negotiations can take place even after coverage has started.

Lloyd's is trying to streamline its own processes and make sure underwriters and brokers know exactly what they are signing up to. For starters, it has ordered the market to use a standard form (called a ‘slip') that states basic information about the underlying policy (the names of the client and broker, how much they are insured for and over what period, etc). Most have complied, albeit grudgingly.

Far more controversial is an ongoing overhaul of Lloyd's IT systems that would change the way brokers and underwriters interact. At the moment, brokers often shop for coverage in the vast underwriting room with hard copies of the risk they are trying to place; later they finalise the policies with the underwriters by e-mail (very old policies, of course, are on paper only).

E-mail has drawbacks. First, it is not secure. Second, it is inefficient, since data are not stored in a standard way. Far better, says Lloyd's, to create a single system that everyone can access from their desks. This would make it faster and more secure to hammer out policies. It would also help companies crunch numbers and thus understand their exposures better. Banks built such systems long ago. A year ago Lloyd's hired Iain Saville, who has run such projects at the Bank of England and elsewhere, to head its IT efforts.

Lloyd's new system, called Kinnect, is not much liked or understood. It has cost £50m, but only a paltry number of transactions go through it. Everyone seems to have a different idea for a better and cheaper system. A few even worry that the technology will supersede the face-to-face exchanges between brokers and underwriters—the very essence of the Lloyd's market—though this seems unlikely, especially for complicated risks.

As Lloyd's pours money into Kinnect and into the salaries of managers who peddle its brand and preach the virtues of market discipline, somebody has to pay for it all. To date, Mr Prettejohn has managed costs well. He has got rid of hundreds of staff jobs and outsourced services such as claims processing. Better technology should bring more savings—eventually.

But Lloyd's is not a cheap place to do business. This is plain in an industry whose margins have fallen in recent decades. Syndicates contribute 0.5% of their premium capacity towards annual operating costs of around £170m. Lloyd's bizarre capital structure creates still more costs. To the annoyance of some syndicate managers, the remaining names are allowed to shift their investments around every year in an auction. This forces syndicates to re-form, and capital to be re-raised, annually. Administrative costs pile up.

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