Blueprint 2 for beginners

^{Facilitating a better future}

Rob Myers, Ray Koh, Alex Koukoudis

May 2024

What is the back office?

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1. Central settlement - moves premium and claims money between brokers and carriers��
2. Checks and signs re/insurance policies��
3. Centrally records tax and regulatory details of all Lloyd’s (and some company market) policies and claims��
4. Issues messages (USMs, BSMs, SCMs etc), which feed into the financial recording systems of brokers and carriers relied upon by auditors

(Underwriter Signing Message / Broker Signing Message / Syndicate Claims Message)

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Why does the back office need to change?

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• For market digitisation to work, the back office needs to be capable of accepting digital submissions
• Some of the back office’s current systems are 30+ years old
• The complexity of subscription market submissions needs complex systems to be built in response

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What’s happening?

• Frictionless Processing enabled by Reliance Data from Trusted Sources

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• Rebuild of ‘Central Services’ for processing premiums, policies and claims in order to enable digital processing. Historically there have been different systems for Lloyd’s and company markets within Velonetic – these will converge into one

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• Reliance on cloud

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• Biggest concurrent technology refresh (ever?)�
• Phase 1 – target: October 2024 - much the same as today, but some improvements in capability�
• Phase 2 – target: April 2025 - route to ‘digital’: Core Data Records (CDR), ACORD standard data exchange

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The Big Questions – Phase 1

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What is readiness?

• Testing
• What is the “Vanguard”?
• LIMOSS coordinated testing
• 95% thresholds
• Market readiness questionnaire
• Who decides if the market is ready?
• TTA
• Cutover committee
• Cutover
• What is the blackout?
• Controlled launch

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Back office history

Lloyds’ Market:

• 1916 *Lloyd’s Policy Signing Office (LPSO) formed, mandated use in 1924
• 1992 *Lloyd’s Claims Office (LCO) formed from merger of LUCRO (M), LUNCO (NM) and LACC (AVN)

Company Market:

• 19xx ILU (MAT); 1976 PSAC (NM) + others = 1991 LIRMA
• 1993 *London Processing Centre (ILU+LIRMA) – IUA owned 1998-2001 (IUA = ILU + LIRMA associations)

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Terms used:

LPSO / LCO / LPC / Bureau / *XIS / *XCS / JV / DXC / CSC / Velonetic / back office …….

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What is Velonetic?

Policies and premiums

Claims processing

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DPSA Overview

Common MSA for all customers: London Market & Global; variations within Contract Schedules

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• Changes
• Data Protection
• Withdrawal / material / adverse change of any services
• Changes to sub-contractors
• Changes to service levels
• Market wide performance
• Risks, issues that may impact the DPS
• Operational Resilience
• Security Management

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Governance schedule: Management Committee

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Governance schedule: Management Committee

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• Permanent members
• Velonetic
• Lloyd’s
• LMA
• IUA
• Standing Attendees
• LIIBA
• 2 LMA market reps
• 2 IUA market reps

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Regulatory Notification

• PRA: ss2/21 Outsourcing and Third Party Risk Management
• Material Outsourcing
• Lloyd’s to make notification on own behalf and on behalf of Managing Agencies
• Has to be done prior to signature of the DPSA

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The TSB issue and Clifford Chance

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• Clifford Chance recommendations
• Board needs to satisfy itself that it is appropriate to migrate to the DPS
• BCP
• May take into account assurances received from third parties but must understand and be able to challenge the underlying basis for those assurances

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Readiness White Paper: Executive summary

Executive summary

Purpose

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• A document for senior executives at market participants to understand the change proposed in the adoption and cutover to the new Velonetic Digital Processing Platform
• The White Paper’s intent is the following:
• Set out the context and timeline of the changes
• support risk assessment through content and references to information to assist decision-making
• Provide an overview of the assurance to ensure that the solution will be fit for purpose, resilient and secure
• Provide an overview of the cutover plan & regulatory considerations

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White paper Section 1

Velonetic organisational readiness

Market readiness and testing

Lloyd’s readiness

White Paper Section 2

Technical readiness

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Appendix: Data Room

• Functional & non-functional requirements
• Technical readiness
• Technical cutover readiness & rollback planning (including contingency planning)
• Digital processing services/Technology and Transformation Advisory committee Data migration strategy
• Build readiness

• Operational & technical services transformation (hypercare, ServiceNow, customer help portals)
• Velonetic communications planning
• Operational resilience testing
• Operational cutover planning
• SOC 2 type 1 reporting

• Vanguard testing
• Customer testing
• Onboarding tracking
• Cutover readiness
• Regulatory notification
• Adoption readiness
• External education tracking
• Dress rehearsals

• Lloyd’s test strategy
• Lloyd’s end-to-end testing
• Lloyd’s operational readiness
• Regulatory completion
• Business continuity planning
• Third party assurance

• Miscellaneous progress reporting
• Operational roles & responsibilities
• Lloyd’s self-assessment
• Lloyd’s cutover plans & preparation

Velonetic technical readiness

Velonetic operational readiness

Market readiness & testing

Lloyd’s Corporation readiness

Information to be delivered

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Governance arrangements: What do I need to consider?

• Managing Agents should ensure that an established internal governance structure is in place, which allows for:

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• an effective management of all risks related to the migration, i.e., effective risk management strategy to deal with outsourced service providers;
• clear and timely reporting of material risks and associated risk mitigation to the Board; and
• Adequate Board oversight of key timelines, tasks / actions and dependencies.

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• Managing Agents should ensure that all key stakeholders have been identified internally and externally and there is appropriate flow of information through the various committees and reporting lines.

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• As part of establishing and adapting their governance arrangements, MAs should have established clear roles and responsibilities for the key functions involved and their respective senior managers, e.g. Senior Managers responsible for Operations, Risk, etc.

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• To help with establishing appropriate oversight and reporting arrangements, MAs should align their governance arrangements with the key milestones (which will be set by Velonetic / Lloyd’s) that must be hit to achieve for the Phase 1 cutover, and ensure appropriate time is factored for the Board ‘go / no-go’ decision meeting and for any other independent assurance conducted by the first, second and third line.

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See below for a non-exhaustive example of a recommended governance structure and a list of questions which can be considered by MAs and Senior Executives and tailored appropriately to suit their governance arrangements.

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An example of an MA’s governance arrangements

Overall Accountability

Managing Agency Board

(or equivalent approval body)

Executive committees

Executive Governance / Oversight

BP2 Steering Committee

Delivery sub-committees

• Overall Accountability for programme delivery and ensuring sufficient assurance is achieved wrt BP2 implementation.
• An overview of the Managing Agent’s operational readiness should be presented and reviewed by the Board.
• Board meeting should be booked with enough lead time for the Board to review relevant information.

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Individual Workstreams driving end – end delivery.

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Risk Assessments will likely need to include:

• Oversight and challenge of external assurance provided by PwC and Alix Partners.
• Regulatory & Operational resilience risk.
• Tech risks, business continuity risks and scenario testing.
• Data and internal process risks.
• External stakeholder impacts (e.g. customers).
• External counterparty impacts (e.g. are all brokers able to use the new platforms etc.)

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Business continuity & Disaster recovery

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Risk & Legal and/or Compliance Committees

Testing & Onboarding

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Training

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Project & Change Management including adoption checklist – technology & process

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Regulatory Approvals & DPSA contract

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BP2 Steering:

• Responsible for monitoring progress against adoption checklist; and
• Resolve programme roadblocks.

Executive committees:

• Approve key decisions including DPSA, assurance, risk assessment

Risk / Compliance / Legal:

• DPSA contract
• Material outsourcing
• Assurance on Velonetic’s technical & operational readiness
• Managing Agency Systems – MA own assurance

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Will this impact flow of data into, through and out of my organisation?

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Do I need to change the organisation data model?

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When will I align to ACORD standards?

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Are we ready?

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Do we have operational resilience for IBS if central services fail?

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Can we be confident we have exercised oversight of a material outsource service provider?

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(How) are assurance processes impacted?

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What does ongoing governance look like?

How does this positively impact my customers?

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Are we ready?

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Are my brokers ready?

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What do underwriters need to do differently?

How does my internal IT need to change and when?

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Are my software vendor partners ready?

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Can my Operations teams function effectively and efficiently?

What impact does this have on my financial controls?

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(How) does this impact my 2024 HY and FY accounting processes and/or timetable?

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What’s the cost of being ready for these changes?

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What needs to be true to realise price reductions?

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What will external auditors need to be satisfied on controls?

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If cutover fails, how is my HY24 reporting timetable & o/s debt affected?

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Are any roles in my organisation materially changing?

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What skills are needed for key roles: portal admin, test lead, training lead?

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Training: when, how, how long, cost, effectiveness.

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Are new contracts acceptable?

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Is it OK to terminate existing contracts?

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(How) are my processes / internal operations impacted?

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(How) are my people impacted / require training?

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(How) are my 3^rd party BPO partners and coverholders impacted?

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When do we get to test DPS? Are new DPS ‘fit for purpose’?

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Are we ready?

How does this positively impact my customers?

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What do my claims adjusters need to do differently?

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(How) does it impact coverholder, DCAs and Experts?

Key Questions for C-Suite in market organisations

What is my organisation’s risk appetite?

What view do our Regulators have of this programme?

Does it work?

Are we ready?

What could go wrong and what contingency arrangements or mitigations do we have?

Are customers at risk?

What are the benefits?

How are my end point connections changing?

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How are they being secured?

Timelines

MAs conduct assurance activities & testing, review artefacts in the data room & agree what information is needed to make their Bds comfortable.

Important points to note:

• Consider your governance to review required information to be submitted to Lloyd’s as part of the market-wide single notification.
• PRA would need at least 4 weeks to review the regulatory notification.
• Timing of board meetings in the lead up to signing the Termination letter.