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Archived stories from 2008

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EU replaces follow-the-leader market with pass-the-parcel market

The European market was thrown into chaos yesterday by the sudden scrapping of the subscription market by the European Commission, which has replaced the old system with a more sophisticated model involving insurers going in direct pricing competition for each layer of risk.

Changes flagged by new rules

The new scheme was unveiled by EC competition commissioner Rip van Winkle at a packed press conference in Brussels. Van Winkle said this is the only way the commission could think of to improve competition. "We had a quick look into the follow the leader market this morning and concluded it is anticompetitive. The leader setting the prices and all other insurers blindly following is stifling competition."

The new system involves underwriters sitting in a circle and passing a model of the risk being offered between them, while music is played by brokers. The model consists of multiple layers of paper. When the music, usually a nice Phil Collins number or something by Dire Straits, is stopped by the broker the underwriter holding the risk tears off the top paper and gets to keep that ?layer' of the risk. He then determines the price by spinning a big wheel with lots of numbers on it, similar to the one in The Price Is Right. "It doesn't get much more competitive than that," added Van Winkle, with a wink.

He added that the new system would make insurance more fun and thus attract more college graduates to the industry. But not everyone in the industry approves of the new rules. Lloyd's counters that, while fun, the new system is against its aim of trying to reduce the market's use of paper.

"We suggest insurers could just as easily reach the same outcome through a knock out competition of paper-scissor-stone," said a Lloyd's press bot. "Even conkers would lead to less waste. Or maybe a drinking game. Our underwriters would be good at that. Let's face it, it would probably lead to the same type of results anyway."

STOP PRESS: As RISKbitz was going to press, reports were emerging that some insurers were attempting to influence brokers through so-called music stopping agreements (MSAs). These are informal agreements whereby the brokers stop the music at a pre-arranged time.

Other news from Feb 2008
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