MONTE CARLO, Monaco—The Bermuda and Lloyd’s of London markets have different ways of doing business, but each can improve by adopting some practices of the other, according to a study released this week during the Rendez-Vous de Septembre reinsurance gathering in Monte Carlo.

“Trading Risk: The Value of Relationships, Models and Face-to-Face Interaction in a Global Reinsurance Market,” a study sponsored by the Insurance Intellectual Capital Initiative, was released Tuesday.

The yearlong 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 characterize the reinsurance marketplace.

“Lloyd’s is characterized by face-to-face communication, which is associated with long-term relationships that enhance expert judgment,” according to 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 characterized by electronic communication and associated with scientifically modeled bases of judgment.”

In the pre-submission phase of a placement, both markets use face-to-face communication between underwriters and brokers, the study found. The major differences between Lloyd’s and Bermuda occur during the quoting and binding phases. While Lloyd’s underwriters typically negotiate with brokers in person, Bermuda market underwriters tend to exchange information via phone or e-mail.

“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 program and cedent are situated and which should be considered in subsequent analysis,” the study found. “The Lloyd’s market is good at evaluating programs in context. This is why Lloyd’s is able to make judgments on unusual or complex programs, even those with lower margins or hard-to-model qualities.”

In Bermuda, however, “underwriters form their initial ‘gut feel’ when they look at the modeled results. If the analysis is not favorable, 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.

To improve efficiency in each market, the study recommends steps including selective use of face-to-face interactions, avoiding duplication of paper and electronic information, developing focused broker intermediation and identifying and minimizing ritualistic use of face time, such as signing coverage slips.

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.

Members of the IICI include Amlin P.L.C.; Aon Benfield Inc., a subsidiary of Aon Corp.; Ariel Re; AXIS Re, a unit of AXIS Capital Ltd.; Brit Insurance Ltd., a unit of Brit Insurance Holdings N.V.; Hiscox P.L.C.; Kiln Group Ltd., Liberty Syndicate Management Ltd., a division of Liberty Mutual Group Inc.; Talbot Underwriting Ltd., a unit of Validus Holdings Ltd.; Tokio Millennium Re Ltd.; and Validus Reinsurance Ltd., also a unit of Validus Holdings.