Contract certainty
A market discipline requiring a contract to be complete and agreed before inception, not after.
Contract certainty is the rule that all terms of a placement must be agreed before inception, with the contract document issued promptly afterward. It breaks with the old practice of the subscription market, where a line was written on a slip and the full wording followed months later, sometimes after a loss. When the wording is drafted with the loss already known, each side pulls the words its own way, and a disagreement that would have taken an hour to settle up front takes years of litigation. The discipline was imposed on the London market from 2005, with numerical targets and monthly measurement of the compliance rate. It has since spread across international underwriting. It is one of the rare cases where an entrenched practice was reformed without legislation, simply by publicly and repeatedly measuring an indicator that each participant saw set against its competitors' figures.
In 2004, the London market measured about 30 percent of contracts complete at inception. The target set for the end of 2006 was 85 percent, and the market beat it, running above 90 percent in the years that followed. The reform's cost was mostly administrative: monthly measurement, published syndicate by syndicate, did more than the previous ten years of statements of principle.
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