Cargo veteran Nicholas Gooding warns that Lloyd’s claims reform process is backfiring and calls for closer market dialogue, By James Brewer
A senior figure in the Lloyd’s marine market has lambasted Lime Street’s claims reform project, which was introduced with the stated aim of enhancing service to assureds.
Nicholas Gooding criticised the Claims Transformation Programme as an “ill thought-out, pig’s breakfast” and the Electronic Claims File as “the most unbelievably stupid claims management scheme” which had led to a complete loss of focus. In particular he described as “bonkers” the concept of a panel which he said was to choose third party service providers on the basis of discounts offered.
Mr Gooding, who has been in the London market for more than 40 years, was speaking during the inaugural International Cargo Insurance Conference on June 9 2014, with the venue being an Oxfordshire hotel.
He reminded the more than 200 insurance professionals present of the importance of the promise to pay claims recoverable. It was “a simple concept, and our shop window.”
He said that over the years, the three “jewels in the crown” were a central claims bureau “as the second pair of eyes, ” originally in the shape of Lloyd’s Claims Office and later service provider Xchanging; the Salvage Association; and the Lloyd’s Agency network.
The central claims bureau gave the market an independent, highly experienced claims adjusting and recovery service. “No single claims adjuster could ever build up the level of expertise that came from the sheer variety and volume that came across their desks.”
The Salvage Association, which was partially funded by the market, was a vastly experienced survey network which worked with claims adjusters and with the central bureaux to provide a world-class cargo claims service.
Lloyd’s Agency was thankfully still intact although it was nearly sold “when Lloyd’s were selling off the family silver to pay for Renewal and Reconstruction. Fortunately we still have the worldwide agency network and the claims payable abroad scheme which is very important for the market’s ability to pay its claims overseas.”
Today, he said, “I don’t believe that claims and underwriting are as close as I think they should be. I put this down to what I call Claims Inc, which is where I believe that senior claims managers – note not adjusters – have tried to make claims a distinct business away from the underwriting side.”
This could be traced back to when highly qualified talent was recruited into the market from run-off companies to help settle or commute the long tail legacy claims including asbestosis and land pollution clean-up that had been the bain of the market during the 1990s and early 2000s.
“They used ground-breaking techniques to package and commoditise hundreds of individual claims and used advanced actuarial techniques.
“It is not surprising therefore that coming into a market, where the way claims were handled was largely unchanged over many years, they looked to modernise the process. They looked to turn claims handling into a system which I believe has led to de-skilling of handling claims in general and cargo in particular.
“They promoted the use of the Electronic Claims File (ECF) which overnight took away much of the claims adjuster and claims broker interaction, which was a significant mistake.”
Mr Gooding said that with the Electronic Claims File the adjusters lost the ability to intervene immediately and connect with the claim, which was vital in terms of the appointment of surveyors, lawyers and other third parties and raising from the outset any queries on coverage.
“It will undoubtedly hinder the progress of developing the next generation in the requisite technical and communication skills to be able to adjust cargo claims confidentially. Overall it has led to, in my view, a complete loss of focus on the end product.”
He went on to hit out at the “panel concept” under which, he said, third party service providers had to take part in a “beauty parade” to see if their discounted fee rate was acceptable to senior management. “What a bonkers concept. Why if you have a full field of service providers would you narrow that field to only the ones who will offer you a discount on their fee bill?”
Of “the most unbelievably stupid claims management scheme” under the name Claims Transformation Project, Mr Gooding declared: “Transform it has done. For the marine cargo market we have gone from a system of claims adjustment that has served the market wonderfully well over the years to one which destroyed it in the blink of an eye with an untried and ill thought-out replacement.”
In the past, the leading underwriter’s claims adjuster was supported by highly experienced and independent adjusters who were emotionally uninvolved in the claim. “Whilst many claims are straight forward there are others that are highly complicated where there may be coverage or quantum issues. I have seen, first hand, in firms I have worked in, that contentious claims can stir emotions up to a point where people lose all sense of reality. This is where you need advice from people who have the experience, have the independence and are emotionally uninvolved.”
He said: “Several leading market figures were against CTP but the project architects managed to force through this pig’s breakfast.”
Mr Gooding went on to scorn “actuarial creep.” Actuaries were increasing their “unwelcome” influence in the way the underwriting and claims side operated. “Over the last few years there has been explosion of the beggars. There are reserving actuaries, pricing actuaries and even Solvency II actuaries. On the subject of pricing I cannot understand how can you price a product or develop a rating model if you don’t understand the product that is being sold, which is certainly the case in marine cargo.
He said that despite his dislike of the ECF and CTP, “that train has left the station and you have to try and work with it to your best advantage. With regard to ECF I think that this can be achieved by working more closely with claims brokers and service providers. Also take back the responsibility for appointing and paying your service providers. Make sure it is you not the brokers who instruct surveyors otherwise you may be unable to see the reports. As for CTP, the experience that has been lost cannot be easily replaced but I think by training and having regular dialogue between agreement party adjusters some of the ground that has been lost can be made up.
“Claims adjusters and underwriters should be joined at the hip – you are and should be seen as being one team with the same goal, Mr Gooding concluded.
[Lloyd’s has said that the aim of the Claims Transformation Programme is to enhance the experience of the customer, to remain ahead of competitor markets with regard to complex claims service and to be competitive on standard claims. Lloyd’s Franchise Board in February 2008 accepted the recommendations of a Lloyd’s Market Strategic Claims Review which considered brokers’ and customers’ requirements, the opportunities presented by electronic trading, options for shared claims services and the skill sets needed by managing agents to meet the challenges of a changing market. On June 2 2014 Lloyd’s launched its CTP Legacy Paper-to-ECF Scanning Service.]
Mr Gooding has had wide experience in the London market as a senior cargo underwriter, has served on cargo and technical committees, undertaken important roles in the International Union of Marine Insurance, and in 2013 set up his own marine insurance consultancy.