The Bermuda and Lloyd's of London markets can improve their ways of doing business by learning from each other, according to a report released during the Rendez-Vous de Septembre reinsurance gathering in Monte Carlo this week.

The study entitled 'Trading Risk: The Value of Relationships, Models and Face-to-Face Interaction in a Global Reinsurance Market', which was sponsored by the Insurance Intellectual Capital Initiative (IICI) and made public on Tuesday, found that the major differences between the two markets was the negotiation process - with Lloyds brokers meeting with brokers in person and their Bermuda counterparts using phone or email during the quoting and binding phases.

To improve efficiency in both markets, the study recommended a number of steps including selective use of face-to-face interactions, avoiding duplication of paper and electronic information, developing focused broker intermediation and identifying and minimising ritualistic use of face time, such as signing coverage slips.

The year-long ethnographic study of the Lloyd's and Bermuda reinsurance markets was conducted by Paula Jarzabkowski, professor of strategic management at the Aston Business School in Birmingham, England; and Michael Smets and Paul Spee, lecturers in strategic management at Aston. The researchers examined risk pricing and decision-making and the relationships that characterise the reinsurance marketplace.

"Lloyd's is characterized by face-to-face communication, which is associated with long-term relationships that enhance expert judgment," read the report. "Because Bermuda is an isolated market, operating between time zones, trading has more typically been conducted through electronic communications. Bermuda is therefore a market characterised by electronic communication and associated with scientifically modelled bases of judgment."

The report continued: "In Lloyd's, the initial 'gut feel' or intuitive impression comes from the face-to-face submission, during which the broker explains the firm-specific, regional or historical context in which this programme and cedent are situated and which should be considered in subsequent analysis.

"The Lloyd's market is good at evaluating programmes in context. This is why Lloyd's is able to make judgments on unusual or complex programmes, even those with lower margins or hard-to-model qualities."

In Bermuda, however, "underwriters form their initial 'gut feel' when they look at the modelled results. If the analysis is not favourable, the underwriter calls the broker for more information" and asks a risk analyst "to remodel in light of that information". That process is a reason that Bermuda underwriters "have traditionally struggled to write information-scarce, hard-to-quantify risks," the study found.

Data for the study included audio and video recordings of more than 800 reinsurance transactions in both markets.

The IICI is a consortium of insurance industry companies associated with Lloyd's to support research on the insurance market and its members include Amlin plc., Aon Benfield Inc., Ariel Re, Axis Re, Hiscox plc., Talbot Underwriting Ltd., Tokio Millennium Re Ltd. and Validus Reinsurance Ltd.