Issue: Bringing Lloyds of London Into the 21st Century

Until recently, Lloyd's of London was still processing claims the way it had for 320 yearson paper, paper, and more paper

Richard Ward will never forget his first day as CEO of Lloyd's of London, the venerable specialty insurance market that brings together underwriters and brokers to insure everything from investment banks to the World Trade Center to the teeth used by actress America Ferrera in the TV show Ugly Betty. After getting in the elevator, or lift, as the 51-year-old Brit calls it, a woman entered toting a rolling suitcase. "Have you had a nice trip?" he asked. "No," she replied. "This is a claims file."

The experience underscored an issue Ward knew he would have to confront as CEO of Lloyd's. The centuries-old organization had a great reputation and track record for insuring and paying out for some of the world's most extraordinary risks. But its claims processing was still stuck, in a sense, in the 17th century. "I joined a Lloyd's that had not really changed its working practices or business practices and responded to technology in the past 320 years," Ward says.

Processing claims was still a mostly hands-on, shoe-leather procedure. A broker would walk into Lloyd's underwriting room in London—some 5,000 people go in and out of this room every day—and present documentation to one of Lloyd's underwriters, also known as members. The underwriter would then make comments on the documents, give it back to the broker, and the broker would then physically take it to a loss adjuster and a lawyer. "You had this paper file that continually moved around the marketplace," Ward says.

Because of the complexity of what Lloyd's members insure, the documentation could be massive, made up of, for example, years of maintenance and engineering reports on a multimillion dollar oil rig. Its claims procedures produced so much paper that until recently, Lloyd's was transporting about four tons of paper every day from London to Kent, some 50 miles away, to be stored store in its back-office processing center.

Ward knew an efficient electronic claims-processing procedure, which he began implementing in early 2007, was long overdue. But getting members to change their long-entrenched ways wasn't going to be easy. The system worked well—it just didn't process claims as quickly as it might have. Many members, Ward recalls, didn't "want to change their very traditional business practices."

To get started, Ward sought out those members who were dissatisfied with the status quo. Together they worked out a system that would allow the electronic processing of claims that were held in a central repository. There lawyers, loss adjusters, and even claimants could check on the documentation and the claims. The group set stretch targets for getting the new system adopted: By the end of 2007 they hoped Lloyd's would be processing 90% of its claims electronically.

By getting internal movers and shakers on board early, Ward was able to get about 30% of claims processed electronically by early 2007. After that, though, the adoption rate stalled. "We started to plateau," Ward says. "That's not unusual in a change program." So he switched gears, developing a "naming and praising" exercise in which he made a list of the top 10 performers in terms of using the new system. It worked: The day he released the first list, he got about 45 complaints from people who weren't on it. "The numbers improved 15% literally overnight," Ward recalls. "It had quite a dramatic impact."

In addition to carrots, Ward used sticks, too. Those who were slow to use the high-tech system were asked to invest more capital to cover their underwriting risks. He describes this punitive lever with characteristic politesse: "If you don't process claims electronically," he remembers telling members, "I'm afraid we're going to ask you to keep more capital in the market because of your own inefficiencies."

Finally, he launched a communication campaign that had him visiting the CEOs of all the member companies. He knew that becoming personally involved and explaining the benefits to hesitant member-company leaders would help him meet his goals. They had to know it would "assist them in their business…rather than be a threat to them," Ward says. "It required a lot of legwork on my part. It required a lot of speeches, a lot of high-profile visits."

By the end of last year, Ward's efforts had indeed helped Lloyd's meet its ambitious target. The result: Customer claim-processing time in some classes of business was reduced by more than half, meaning customers were getting their money 50% faster than they were under the traditional manual process. "Our business is all around our promise to pay," Ward says.

Nice job, CEO Ward: You navigated the potholes of change management well

I've been studying change for 20 years now, and I'm convinced that the rate of change is going up, and not just in a linear sense. That has huge implications for corporations. They have to be able to handle these large changes. And increasingly they have to be able to handle continuous change, not just episodic change.

Nearly 70% of cases where companies need to change something significant, they either don't launch it or they do, but the efforts are over cost, way late, and there's a lot of pain involved. Only about 10% of change programs seem to work well. We've found that there's a very clear pattern in those 10%, and we've studied the eight steps they follow.

The first is getting the sense of urgency high enough to launch the process well. A sense of urgency is a mindset that recognizes that there are great opportunities and great hazards out there and that this project has to be moved on. Even more importantly, it's emotional. It's a gut-level sense that says: "I am determined to take advantage of these things. I'm going to win, and I'm going to do it now."

The behavior that's associated with urgency is an almost a hyper-alertness, a mindset that says: "I'm going to get up every single day and make some progress on this issue that's so important. It may be just 15 minutes, but there's no 'we'll get around to it this week or this month.' " If the important project starts taking up additional time, leaders with a sense of urgency know to get low-priority stuff off their calendars.

False Urgency

It's the opposite of complacency, where people basically think things are O.K., often because of past success. It's also different from what I call false urgency. That can look like real urgency because you've got lots of action going on. But this sort of frantic activity is basically driven by anxiety, anger, and frustration, and it's not productivity.

Now let me back up to Lloyd's and Mr. Ward's attempt to get his insurance "syndicates" to use the new high-tech claims-processing system. Obviously, at the beginning, he understood that the level of urgency inside the company was not what it needed to be and that without information technology he wasn't serving customers the way he needed to.

But he recognized that inside, people didn't feel that way. People were saying: "We've been successful for years, we know how to do it." So Ward went out and looked for people—and there are always some—who knew there was a real problem that had to be dealt with. He worked initially with them. That's a big plus, but he still didn't use them enough to create urgency among a broader group of people.

Get Creative

Next, he goes on to do what everybody's been taught to do in a change-management program, which is to get his team to come up with a plan and then execute on it. He suffered from what we see all the time: the change program goes well for a while and then it stalls. To Ward's credit, instead of just getting frustrated and yelling at people, he immediately tried to get creative and come up with a way to get the program out of the stall. He came up with the "name and praise" exercise and the vast communication campaign.

After initial successes, urgency tends to drop even among the people who feel it at the beginning. Communication efforts can keep pumping that up. Ward was able to use his communication campaign to push his adoption rate even higher, and eventually to beyond 90% of claims processed using the new high-tech system. That's really quite extraordinary.

The kind of problem Ward faced is going to become more and more common. The vast majority of leaders don't handle this well. The beginning of the change process always has to do with getting a sense of urgency up high, and managers screw that up constantly, even smart and sophisticated executives. These leaders don't see the complacency, either because it's just around the door and people don't tell them about it or because they see a lot of frantic activity.

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