Some underwriters at Lloyd’s of London have welcomed the market’s decision to close Kinnect, the electronic trading platform designed to improve efficiency at Lloyd’s.
Michael Dawson, Kinnect’s interim chairman, wrote a letter to Kinnect customers on Jan. 24 explaining that, following a recommendation from Kinnect’s board, the Lloyd’s Franchise Board had decided to pull Kinnect’s funding.
The platform, which began life as Project Blue Mountain, had been running for five years and cost Lloyd’s about £70 million ($125 million) during that time. The closure will be done gradually throughout the first quarter of the year to allow customers to complete transactions and extract data from the platform.
“I completely support the decision to cease funding the Kinnect system,” says Martin Reith, chief executive officer of Lloyd’s managing agency Ascot – a former customer of Kinnect. “We decided some time ago that the project was doomed, and to limit our controllable expenditure we gave it notice of our intention to cease using the system last year.”
Reith is frustrated at the amount of money Lloyd’s has spent on Kinnect and other electronic trading ventures such as the ill-fated Electronic Placing Support system and the Claims Agreement Support System. “Kinnect has turned out to be one of the biggest IT white elephants ever witnessed,” he says. “Lloyd’s has wasted at least £70 million of our money on this project. Time and time again Lloyd’s has, without any reference to its stakeholders, frittered large amounts of money on consultants and systems – EPS and Cass to mention two.”
He believes Kinnect may have had more success had it been compulsory to use. “Why didn’t the previous chief executive mandate the use of electronic trading in the Lloyd’s market?” asks Reith. “If he had, I am sure the market would have been more encouraged to embrace Kinnect and its fundamental philosophy. Where EPS failed, Kinnect could have won.”
Others have greeted the closure of Kinnect more with grudging acceptance than relief. Markel International, the London division of U.S. insurance group Markel, was also a Kinnect customer.
“Markel had been actively supporting Kinnect by using it and providing assistance and cooperation,” says Jeremy Brazil, Markel International’s director of London underwriting. “We are disappointed with what has come to pass in light of all the time and effort invested. However, there are now a number of other electronic platforms around which may provide different or similar options and solutions.” He adds: “It is a bit disappointing that as a market we do not have an electronic trading platform that everyone can deal with and interface across the marketplace.”
However, Brazil does not believe that Kinnect’s closure will cause his firm any great disruption. He says that although Kinnect was planning to introduce more risk classes that would have interested his firm, Markel only actively used it for one – large open-market North American property risks.
“Markel writes 40 lines of business and this was only dealing with a few of them,” says Brazil. “Though Kinnect helped with the transmission of data it did not help with inputting information into our core systems.”
Lloyd’s says it made the decision to pull Kinnect’s funding for two reasons. One was that numerous other electronic trading systems have been developed, and attention has shifted towards them. The other is that under its new three-year plan, released on Jan. 16, Lloyd’s believes its role should be setting standards rather than creating infrastructure.
Lloyd’s is keen to point out, however, that despite its decision, it still supports electronic trading and it will continue to work with the market to help it do business electronically.
Using technology such as electronic trading platforms is seen as a good way of ensuring contract certainty – that insurance and reinsurance policies are agreed and correctly worded before coverage starts. But Lloyd’s does not believe the demise of Kinnect will hamper its ability to achieve its contract certainty goals and meet the U.K. Financial Services Authority’s deadline for contract certainty.
“Kinnect was never seen as being central to achieving contract certainty,” says Lloyd’s spokesman Steve Farrance. “Nick Prettejohn [former chief executive of Lloyd’s] said in speeches that no piece of technology should be seen as a panacea and that contract certainty is about changing behaviour and attitudes.”