Team1_LMG TOM

London Market Assessment:
What will the London Market Group’s Target Operating Model
initiatives mean to XL Catlin?
Ryan Ezrock Sydney
Charlie Hudson London
Julian Longbottom London
Bobbie Mansfield London
Alicia Verdile Hartford
Sponsor: Andrew Maynard
Mentors: Tim Kershaw and Martyn Scripps
XL CATLIN
Registered Office:
XL House
8 St. Stephen's Green,
Dublin 2, Ireland
Registered Number: 482042

London Market Assessment
Ryan Ezrock, Charlie Hudson, Julian Longbottom, Bobbie Mansfield, Alicia Verdile
Contents
1. The Brief ............................................................................................................................. 3
2. Executive Summary ........................................................................................................... 3
3. Current Industry Environment........................................................................................... 4
4. London Market Target Operating Model........................................................................... 5
4 Key Features of the TOM .................................................................................................... 5
1. Central Service Refresh Programme (CSRP) .............................................................. 5
2. Placing Platform Limited (PPL) .................................................................................... 6
3. Delegated Authority Management................................................................................ 6
4. Claims Core Services .................................................................................................. 6
5. Does TOM Matter?.............................................................................................................. 8
Implications for XL Catlin........................................................................................................ 9
6. Two Alternatives ................................................................................................................ 9
Redesign XLC from Scratch ................................................................................................... 9
B2B .......................................................................................................................................10
7. Challenges Around Modernisation ..................................................................................11
Big Data in the Insurance Market...........................................................................................11
Innovation and Technology....................................................................................................11
Industry Culture.....................................................................................................................12
Service Provision...................................................................................................................13
8. Recommendations ............................................................................................................13
9. Appendix............................................................................................................................14
10. References.........................................................................................................................15
Page 2 of 15

The Brief
Our graduate project is to assess the benefits, costs, challenges and opportunities that the
London Market Target Operating Model (TOM) will generate for London and, more
specifically, to XL Catlin (XLC). Furthermore, our sponsor and mentors encouraged us to
analyse beyond the Target Operating Model for XLC. After researching the TOM and
interviewing senior XLC stakeholders, we have written a considered report on our view of
what the TOM initiatives could do directly for XLC and what XLC could additionally consider,
stemming from the TOM initiatives.
We’d like to thank our sponsor and mentors for their time, support and guidance as well as
the senior stakeholders we interviewed for their influence over our report.
Executive Summary
LMG’s TOM responds to some of the key challenges facing the London Insurance Market.
This report identifies the current market challenges and the opportunities TOM could offer for
XLC. Our assessment concludes that the TOM is unlikely to achieve all its goals and bring
business back to London. However, as a big player in London, XLC cannot avoid investing in
the TOM. Therefore, we recommend XLC should continue to steer the TOM and maintain
focus on key objectives whilst controlling costs. However, as an alternative, we also
recommend XLC should develop B2B channels with key brokers. B2B is a sensible option
because London is only a proportion of our business and the four big brokers represent over
50% of our global business.
The TOM and B2B suffer similar modernisation challenges which XLC must be aware of. We
have identified and explored the four main challenges as outlined below:
Firstly, it is important that we have access and are able to manipulate data to benefit
business operations. The earlier on we can obtain this, the more we are able to control and
mitigate both financial and operational risks to the company. XLC must ensure we maintain
good access to data when developing B2B.
Neither the TOM nor B2B strategies look to revolutionise the way the industry operates. XLC
must ensure that they stay abreast of technological advances but also be mindful that we are
not a technology company and therefore should look to partner with innovators rather than
doing so ourselves.
The third challenge we identified was the industry culture. There is an established tradition
for the way business has been done in the industry. With the increased growth of local hubs
and technological advances, this dynamic is starting to shift and both brokers and carriers
must adapt to this. Encouraging people to acknowledge and adjust to this will be a key
challenge.
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Finally, we recognised that XLC’s strengths lie in its service provision. While currently B2B
relationships are a necessity, as the industry continues to modernise and innovate, there will
be a growing opportunity to take advantage of the B2C channel.
Current Industry Environment
BCG’s “London Matters” report was the kindling required for the London Market (LM) to ignite
a stronger strategic view on market modernisation. The LM is the largest global hub for
commercial and specialty risk, with £30.5bn of direct business coming to London and further
business being influenced or controlled by London brokers2
. Its competitive advantage is
historically due to specialist expertise, pioneering risk transfer, strong capital capacity and
longstanding relationships between clients, brokers and carriers. While these have continued
to develop in strength, they are no longer unique to London, and as a result, there is a
distinct threat that the LM’s market share will continue to remain stagnant.
There has been a change in customer preference to placing risk more locally, and the use of
better data analytics means local markets are increasing their expertise and meeting
customers’ expectations. The figure below highlights London’s decreased market share in
these emerging markets. Brokers continue to remain close to the client, which has led the
broking market to consolidate2
.
The large increase in alternative capital has also affected the market, which continues to
remain soft even with larger losses occurring. Client’s risk management is becoming more
Page 4 of 15

sophisticated and they are retaining more risk, ultimately increasing the level of competition
in the insurance industry2
.
All of the above have a direct influence on price, which is one of the most important factors in
placement decisions in BCG’s customer survey 2
. London is the key provider for complex
risks and specialised broking, where the requirement of significant capacity and the
subscription process is relevant and necessary; but if the LM cannot be competitive on price,
it will lose out.
The London Market Group (LMG) have launched multiple initiatives to form its TOM; aimed
at bringing business back to the traditional hub. As the largest syndicate at Lloyd’s in terms of
gross written premium the TOM will impact the way XLC conducts over 26% of business7
.
London Market Target Operating Model
The TOM was established in an effort to make the LM more accessible and competitively
priced to customers as the industry expands globally, with a focus on processing
infrastructure.
The prioritised TOM initiatives aim to deliver effective and accessible systems for interacting
and trading across departments, companies, and jurisdictions. These initiatives provide the
opportunity to enhance XLC’s ability to benefit from economies of scale and reduce
inefficiencies. This intends to be achieved by centralising common activities, reducing
operational costs, increasing convenience globally, and combining London’s longstanding
underwriting expertise with advanced analytics.
4 Key Features of the TOM
1. Central Service Refresh Programme (CSRP)
The CSRP takes a critical first step in modernising the shared document services provided
by Xchanging; removing paper-based inputs, and automating insurance claims and
accounting processes. The primary objective of the CSRP feature is to reduce duplication
within London. Currently, there are multiple silos of information whereby each carrier and
intermediary record, and duplicate, their relevant data. This is unnecessary, cumbersome,
and wasteful of resources. Offering a market shared service centre, rather than centres per
company, will yield benefits from larger economies of scale. The TOM addresses
opportunities to synthesise non-competitive activities which will improve the costs, benefits,
and timeliness of doing business; making the LM more globally attractive to clients.
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Alongside this, the CSRP will focus on improving the post bind processes, using ACORD,
ECOT & EBOT messaging to streamline accounting and claims settlements. Therefore,
making this faster, easier and more accurate. Importantly, through sharing systems London
could build a real cost advantage over other regions, and this can only be achieved through
the market coming together.
2. Placing Platform Limited (PPL)
PPL allows brokers and insurers to quote, negotiate, underwrite, and bind business in one
platform. The objective of this feature is to support all business lines and the full end-to-end
risk lifecycle in real-time, with more automated capabilities and storage than has ever been
available before in the LM. Increasing access for intermediaries and carriers will improve
agility to meet customer needs, for example, it should allow brokers from anywhere in the
world to readily access the London market. Formalising protocols and governance should
reduce the efforts made in consolidating broker information and result in a quicker process
with fewer errors3
.
3. Delegated Authority Management
Access is a key goal of the TOM, which delegated authorities could play the largest role in
reaching our clients quickly and effectively. TOM will implement a central management
service to provide efficient Delegated Authorities (DAs) approval and auditing processes.
Simplifying DA contract creation and allowing direct access to DA data will reduce costs and
time challenges carriers face when expanding into other markets. Reducing redundant
processes and streamlining data capture will reduce the risks and barriers while working with
DAs. Offering a simplistic user-experience for coverholders will increase our attractiveness to
them as well. Ultimately, through centralisation it will reduce the number of audits needed,
and through central data/bordereau management it will create a powerful analytics capability.
Considering the trend in localised preferences of customers and that XLC write nearly 30% of
their insurance premium in London through coverholders, these improvements will greatly
benefit XLC.
4. Claims Core Services
The claims service feature of the TOM intends to integrate the current electronic submission
process, thus, reducing multiple inputs of data, increasing data quality, and improving
participating companies’ speed and flexibility to handle and settle claims. Reducing carrier
processes and improving the reporting systems will greatly enhance the customers’
experience, which is a key driver for client retention. As a common lead in multiple business
Page 6 of 15

lines in the LM, it is important for XLC to provide excellent customer service and support all
improvements in Claims management. The new metrics that the new system will provide will
also improve our own governance structures and increase our agility when dealing with
claims.
ACORD as the enabler
In order for the TOM to be successful, it has to enforce global standards to allow these
benefits to materialise. ACORD has provided standard forms and created common electronic
standards in the insurance industry since the 1970s. The TOM aims to capture and use
optimal quality data by adhering to the global standards ACORD offers. Evidence of this
benefit can be seen in the banking industry’s use of SWIFT4
, also founded in the 1970s
which now conducts messaging services for banks across the globe. The insurance industry
has been significantly slower to adopt this, which is why it is important in order to enable
other improvements.
At What Cost?
Taking into account existing initiatives which were already established to upgrade the LM
processes; the total cost of implementing the central services of TOM are estimated at
£250m, with carriers and managing agents taking £249m, and brokers £1m as shown below.
XLC being a large player in London will be expected to invest a considerable proportion of
this.
Page 7 of 15

The total net benefits by the fifth year after implementation are estimated to reach £350m as
the figure below illustrates This estimate, by the LMG, is based on savings of processing
costs alone, not including the benefits that are expected to accrue due to better risk
management, new business, and improved client and intermediary relationships. These
benefits are however, expected to be split more equally than the costs being contributed up
front.
3
Does TOM Matter?
As illustrated, it is clear that should the TOM succeed, there are numerous key benefits to be
had, not only in terms of cost savings. Through making the placing of risk more efficient and
easier it should entice brokers to bring risks to London where otherwise they might have
gone elsewhere. This idea of creating a platform to bring in more business is one of the most
important targets of the TOM. XLC being amongst the largest players in London would have
a real benefit not only within London but to take what is learnt here and develop it elsewhere
around the globe.
However, it is necessary to question the likelihood of both the TOM being successfully
implemented and of it bringing the stated benefits. Foremost, one must question how likely it
is to entice more business to London. London Matters declared that “customers have a
preference for buying insurance in their local market”2
, while London has a small and
declining share of emerging markets, and a falling share in reinsurance. Is it reasonable to
suggest that making the placing of risk more efficient will completely reverse this trend? This
appears unlikely. It may help to stem the flow of business away from London but it would be
a hard task to completely reverse it. Furthermore, even if through greater efficiency the TOM
was to entice business into London, what reaction could be expected from other markets? It
is improbable that they will stand idly by and watch the business flow away from them. They
will look to emulate what the TOM has achieved, and therefore will limit any relative efficiency
gains seen in London. Ultimately, it feels doubtful, that the success of the TOM will lead to a
permanent change in the trend for risks to be placed locally as well as in emerging markets.
Page 8 of 15

Additionally, the TOM suffers from trying to achieve something for an entire market. This
creates political interest and bureaucracy that would be less likely when trying to achieve
something as a single carrier. This presents a real threat that the project will not make
progress. An example being that ACORD have developed a processing system that they say
is suitable and ready to look after delegated authority, however, the TOM has so far been
unable to make decisions which have allowed this to be trialled and tested. Consequently it
might be easier for an individual carrier such as XLC to benefit from being nimble and look to
make improvements on their own.
Implications for XL Catlin
When we consider the restraints that appear to be placed on the TOM it would suggest that
XLC choose not to be involved/contribute towards it. However, being the largest syndicate in
Lloyd’s and a big player in London generally, we are to some extent obligated to take part.
Therefore, if we are required to contribute financially, it would be a wasted opportunity not to
be involved in the planning and decision making. We should use our position to help steer
the TOM in a direction that we see fit, and towards areas where we believe there is most
benefit. It is an opportunity for XLC to assume a key role in driving the initiative forward, not
only because we are obliged to, but because if we can help to push it towards success then it
will have been a good investment.
However, the issues surrounding the TOM should not be ignored, and whilst it is unrealistic
to believe we can avoid our involvement, we can look to hedge our success by looking at
alternatives. Discussions with key XLC senior stakeholders have shown two alternatives.
Two Alternatives
Redesign XLC from Scratch
Although called a “Target Operating Model,” no initiative listed by the LMG appears to
explicitly set out either what the end-to-end targeted process should look like or what profit it
should yield. It does little to attempt to revolutionise the way carriers do business in the LM,
let alone in the global market. The program basically considers what business has historically
been done and attempts to do it faster – not necessarily better. XLC needs to ask: How
would the industry look if we could design it from scratch? Would we design processes the
same way but faster or would we revolutionise workflows completely?
Ideally, if the company were starting from scratch, we would create one global system with
the functionality to do everything from binding risks, to issuing policies, to accommodating
claims. For XLC, in its current established market position, this is an unrealistic goal. The
Page 9 of 15

cost, both monetary, operationally and culturally, to revolutionarily refocus and attempt to role
a total redesigned workflow out would be an inefficient allocation of resources. Instead, XLC
needs to focus on its core of key systems, reducing the number currently in use, ensuring
they are developed in a way that provides the functionality required going forward, and are
used consistently throughout XLC’s global network.
Given the impracticalities of redesigning, we recommend developing B2B as the best
alternative.
B2B
This would involve XLC working directly with the big brokers to produce something more
individually tailored to ours and their needs. This is a sensible alternative for a number of
reasons in addition to using it as a hedge against the TOM.
Firstly, XLC is a global company with business being
done all over the world. Whilst a significant proportion
of business is done in Lloyd’s it is still only 26%7
of our
gross written premium. Therefore, even if we were to
fully benefit from the TOM we would need to look to the
future and develop processes and systems to benefit
the rest of the globe.
Furthermore, we already conduct over 50% of our
business with the four big brokers and as the insurance
market is consolidating, it appears likely that business
will become ever more concentrated. This presents a
greater opportunity to partner with the big brokers to
benefit mutually from improved processing and
economies of scale.
Therefore, we should be pursuing B2B, both as a hedge against the TOM’s deficiencies, but
particularly because XLC has a global presence, requiring modernising the way business is
done outside of London as well. Ultimately, we should be seeking a solution alongside the
brokers whereby business originating anywhere around the globe could be electronically sent
through XLC to the relevant hub to underwrite.
Page 10 of 15

Challenges Around Modernisation
To recap, our recommendation suggests it is necessary to support the TOM, but we should
be looking to B2B as an alternative. Both of these initiatives in modernisation present general
challenges to XLC. Below we discuss 4 key challenges and how XLC could mitigate these.
Big Data in the Insurance Market
Understanding and investing in ‘Big Data’ is a major modernisation opportunity. The benefits
of a system that is able to extract data from all broker submissions, alongside feeding in data
pooled from the LM (as idealised for LM insurers by the TOM), is substantial for both brokers
and carriers. Advantages for carriers are clear as better real-time data provides underwriters
with a wealth of information to assist: understanding, writing and rating risks. Data can
provide a better analysis of trends in business written, claims received and also our company
strategy and market positioning. Big Data can provide insight and advice to companies when
entering into delegated authority arrangements, improving their risk management, which
would be directly beneficial to XLC. XLC should start with developing data virtualisation in
our current systems (being able to automatically move and manage data across systems).
This is enabled by the idea of the global standards implementation highlighted earlier.
These carrier advantages rely on data being available and owned by us. We see this as a
major challenge. There is a clear conflict of interest in the broker-insurer relationship in the
current industry, as brokers look to claim possession of this data. Having direct contact with
the client gives them a competitive edge in data ownership. XLC should therefore make sure
that when negotiating any B2B deals, that access to data is agreed upon up front. This will
help mitigate the risk of sole broker ownership of the data.
Innovation and Technology
Neither the TOM nor B2B channels attempt to revolutionise insurance, instead both focusing
on the process. Neither appreciate that there are new methods of doing business. There
needs to be a continuing awareness from XLC in relation to the rapid rate of innovation in
today’s world and the ways in which this is influencing the industry. Increasingly customers
are expecting personalised insurance solutions as advances in technology continue and the
possibilities provided by its manipulation increase. Start-ups are continuously pushing the
boundaries in the industry and trying to address this changing consumer demand. The rapid
increase in both number of companies and funding they have procured can be highlighted in
Figure 1 in the appendix.
Page 11 of 15

6
An example in the personal lines motor insurance space is Metromile who offer a customer
centric value proposition whereby a low base rate is offered and then a charge is applied for
each mile driven. They also offer an application which provides personalised driving and
navigation and diagnostic tips. Metromile has recently partnered with Uber, allowing drivers
to switch from personal to Uber insurance when on/off hours8
. The advances in technology
and its application not only advance the range of products insurers can offer but also address
and provide a solution for increasing customer expectations with new service concepts. A
forward thinking example is the idea of self-directed robo advisers which would be available
24/7 and have the ability to empower consumer decisions. XLC must ensure they stay up to
date with these advancements and their potential application in the insurance industry. XLC
need to recognise that our strengths lie in our role as an insurer and not as a technology
innovator and we need to stick to this role, looking to partner with tech-firms rather than get
stuck down in trying to create and innovate ourselves.
Industry Culture
The need for broker and underwriter interaction is an established tradition, yet redefining this
relationship is a necessity and will require commitment from both parties. Leveraging the
ability of modern day technology and updated business methods, such as the electronic
placing of risks, will mean the reduction of face to face interaction between brokers and
underwriters. This requires a strong realignment of culture, particularly in the London market
which is impacted by the traditional Lloyd’s way of conducting business.
With potential B2B relationships the position of the London broker is under threat. Indeed the
global brokers such as Aon, Marsh and Willis are likely to be very receptive to cutting out
their branches in London which represent an expensive and, yet currently necessary
additional chain in risk placement. Additionally, we believe that more complex risks will
continue to be placed in London whilst transactional business reduces. When threatened by
change it is understandable for people to be resistant. Therefore, it will be important to
Page 12 of 15

thoroughly explain and encourage the benefits of modernisation. In order to get buy-in from
brokers and underwriters XLC will need to develop formal understandings and incentives to
ensure common alignment.
Service Provision
One of XLC’s competitive advantages in insurance is its technical ability and service
provision. However at present we have very little interaction with the end client, often being
limited to every 12 months at renewal or in the odd occasion of a claim. Currently, it is the
brokers that sell our value/service proposition rather than us. As highlighted earlier, due to
the inherent defects in the way the market has developed around brokers they continue to be
a necessity, controlling business flows and often attempting to ring-fence their clients.
Presently, the brokers have a lot of the power thanks to controlling the relationship with the
client.
When recommending the pursuit of a B2B strategy we must be mindful of not becoming over
reliant on the brokers. It is imperative that when entering B2B relationships XLC push for
greater exposure to clients. With this exposure continuing to provide market leading service
for example through claims will allow us to differentiate. Understandably, the current
industry’s structure is likely to prohibit this from happening soon. However, we still believe
that it should be a continuing long term goal for XLC, and could help develop B2C
relationships. The innovations in technology, improvements in client awareness and risk
management as well as the increasing relevance of data present opportunities to facilitate
this over the long term.
Recommendations
• Due to our market position we have to invest in the TOM, but should look to steer the
TOM, ensuring it remains focused and cost effective.
• We should look to develop and leverage B2B relationships as part of our strategy and
as a contingency to the TOM.
• Data will become increasingly valuable, maintaining access and ownership is vital
going forwards.
• Neither TOM nor B2B are revolutionary. Technology will continue to advance and
XLC need to ensure they stay up to date and partner with technology companies.
• Realignment of industry culture presents a challenge. XLC must foster a culture of
change ensuring buy in from both brokers and underwriters.
• Brokers currently monopolise client relationships, if we wish to differentiate based on
service XLC need to recognise, gain access to and develop potential B2C
opportunities.
Page 13 of 15

Appendix
Interviewing Senior XLC Stakeholders
In order to gain a more comprehensive view on how the LMG’s TOM was perceived within
XLC, we reached out to the following stakeholders for their opinions on the TOM, what
implications it has for XLC and the London Market As well, what they think ought to be done
to modernise XLC and the market. Below is the collated and summarised version of their
interviews.
Interviewees:
Paul Jardine, Chief Experience Officer
Helene Stanway, Head of Business Services
Myron Hendry, Chief Platform Officer
Martin Henley, Enterprise Chief Information Officer
Adrian Spieler, Chief Enterprise Operations Officer & Co-Leader Integration
Chris Reay, UK Operations Manager, Claims
• Historically the Insurance market has operated on relationship based transactions. XLC
and the broader industry’s inertia to change has seen a failure in harnessing the power
of technology in comparison to other industries. These technological inefficiencies at
present are benefiting brokers and creating their value propositions.
• Despite the obvious benefits of technological innovation, we need to stick to our role as
an insurer, we should look to partner with tech-firms rather than recreate. Since the
merger we are looking to further create efficiencies as opposed to exploration of new
projects. This belief is exacerbated on an economical front as the returns in investments
within current system processes are still to be realized. However there is an argument
made that this is attributed to the merger rather than their ineffectiveness.
• We noticed an internal conflict in stakeholders interviewed, while there is an idealist
approach, emphasising the need to completely revamp the market internally: “If the
insurance market was rebuilt today it would be completely different”, there is an
acknowledgement that the better solution would be to partner with tech firms rather than
recreate on our own procedure.
• There is a common belief to cut out intermediaries (wholesale brokers); this may come in
the form of start-up disruptors and the implementation of the TOM. Brokers will
essentially need to reaffirm their current roles as we move towards the creation of a
transaction based market. There is some conflict in the belief that carriers will need to be
mindful of such disruptions as it is clearly political, whilst some believe it is up to the
brokers to shape their relevance within the market.
Page 14 of 15

• The benefits of big data are hard to realise given XLC current modus operandi. At
present we have very little interaction with clients (every 12 months at renewal or in the
odd-occasion of a claim) therefore it is up to brokers to sell our value/service proposition.
XLC competitive advantage in insurance is its technical ability, relationships and service
rather than processing. Therefore, in order to economically develop data we will need to
have greater interaction with clientele. (Some debate can be made again of the need to
cut out brokerage).
• The TOM in its current form is extremely vague, as it doesn’t suggest what an efficient
model might actually look like. This is particularly due to the conflicting
demands/interests of various parties funding the project “Too many Chefs in the Kitchen”.
XLC will need to utilise its scale and monetary influence to scrutinize and develop a
model that will be beneficial to its needs in the future.
• At present questions are arising over underwriters/carriers bearing the brunt of the
expense associated with the development of the TOM whilst brokers will experience
significant benefits of administration efficiencies created.
• The London Market is unlikely to be the marketplace to place all business forever,
specifically for small to medium enterprise. However, on more complex risks the capacity
and historical ability to handle such risks will remain. In addition, the TOM will hold no
effect on these larger risks due to the high premium allocation.
• There is concern amongst the lack of emphasis addressed in the claims service
benefits/consequences as the model primarily focuses on revenue creation; this
untested method inherently has the potential to cause service issues.
References
1. “London Market Target Operating Model (TOM), CEO/COO playbook”, LMG, August
2015
2. “London Matters, the competitive position of the London Insurance Market” Boston
Consulting Group, November 2014
3. “LMA, Guide to London Market Processing, Current market processes and related
modernisation activity”, LMA, March 2016
4. “The global provider of secure financial messaging services”, www.SWIFT.com, May
2016
5. “Initiative Overview, Local Shared Service Centre”, LMG, U35 Market Stall slides.
6. “2016 Top Issues”, PWC annual report.
7. “Coming together” presentation, XL Catlin, 2015
8. “Metromile”, www.metromile.com. May 2016
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