9. Delegated underwriting

Question 1

Who can an Insurer choose to delegate underwriting authority to?

Answer 1

• another insurer (or set of insurers);
• a broker; or
• another entity altogether.

Question 2

Who can an Insurer choose to delegate underwriting authority to?

Answer 2

• another insurer (or set of insurers);
• a broker; or
• another entity altogether.

Question 3

What are the two types of contract that allow an insurer to delegate its underwriting authority to another insurer or set of insurers?

Answer 3

• Consortium
• Lineslip

Question 4

How does a consortium effect underwriting authority?

Answer 4

One of the insurers is designated the consortium leader/manager; the broker visits this insurer as consortium leader and the insurer accepts or declines the risks on behalf of the consortium.

Question 5

What are the benefits of a consortium underwriting authority?

Answer 5

• Broker. The placing process is potentially shorter as a consortium can usually accept a larger share of a risk with one visit and one signature, than any single insurer acting on its own.
• Consortium leader. Most consortium agreements provide for a commission and sometimes fees to the consortium leader in respect of their responsibilities.
• Followers. The other consortium members have access to business without needing to see a broker, thus saving time and effort. In many cases, consortia are set up by specialist insurers in niche areas, such as satellite insurance, which lets other insurers share in their business.
• All parties. There may also be some benefits for both the broker and the insurers in relation to the administration of smaller risks if they can be placed with a pre-set group of insurers.

Question 6

What is a lineslip underwriting authority?

Answer 6

• The concept of the lineslip is very similar to that of the consortium; the key difference is that the lineslip consists of a set of insurers that have been brought together by a broker.

Question 7

What, if anything, is the key difference between a lineslip and a consortium?

a. A consortium can involve only Lloyd’s syndicates whereas lineslip can involve Lloyd’s and companies.

b. A consortium is set up by a broker whereas a lineslip is set up by the insurers themselves.

c. There is no difference between them.

d. A lineslip is set up by a broker whereas a consortium is set up by the insurers themselves.

Answer 7

d. A lineslip is set up by a broker whereas a consortium is set up by the insurers themselves.

Question 8

What is meant by ‘Declaration’?

Answer 8

The individual risk that is being presented for agreement by the broker so it can be attached to the lineslip.

Question 9

What is the name of the process which attaches a risk to a lineslip?

a. Declaration.

b. Statement.

c. Endorsement.

d. Binding.

Answer 9

a. Declaration.

Question 10

What is the term for a partner in a delegated underwriting authority?

Answer 10

Coverholder

Question 11

How many days does it take to for a new coverholder to be considered?

Answer 11

25 Days

Question 12

What system is used for placing coverholders?

Answer 12

ATLAS

Question 13

Which of these situations best describes a conflict of interest?

a. A broker that usually acts for insured clients only, now holds a binding authority
from an insurer.

b. An insurer takes on a second coverholder.

c. A coverholder is approached by two brokers to place different risks for the
same insured.

d. A broker approaches two coverholders to place proportions of the same risk.

Answer 13

a. A broker that usually acts for insured clients only, now holds a binding authority
from an insurer.

Question 14

What are the two types of coverholder?

Answer 14

• Approved Cover holder
• Service Company

Question 15

What are the types of authority given to a coverholder?

Answer 15

• Full authority - full control given to coverholder
• Pre-determined rates - where possible price matching or discretion are allowed
• Pre determined rates with no discretion
• Prior submit - all risks submitted to UW’s

Question 16

What controls are in place for delegated underwriting?

Answer 16

• Underwriting profitability
• Claims management
• Customer outcomes
• Regulatory and financial crime

Question 17

Explain what is meant by ‘delegating’ a task.

a. Specifically asking someone else to do something for you.

b. Being forced to do a task.

c. Creating a new task.

d. Hoping that someone will pick up a task you have not done.

Answer 17

a. Specifically asking someone else to do something for you.

Question 18

To whom might an insurer delegate tasks such as underwriting?

a. Brokers, other insurers or separate third party organisations.

b. Just other insurers.

c. Brokers and separate third party organisations.

d. Only third party organisations.

Answer 18

a. Brokers, other insurers or separate third party organisations.

Question 19

Explain the difference between a consortium and a lineslip.

a. A consortium involves insurers grouping together to write risks as one unit, but a lineslip is a group of insurers brought together by a broker.

b. A consortium is when insurers delegate to a third party and a lineslip is when they
group together themselves.

c. A lineslip involves insurers grouping together to write risks as one unit, but a
consortium is a group of insurers brought together by a broker.

d. They are the same thing, but different terms are used in different markets.

Answer 19

a. A consortium involves insurers grouping together to write risks as one unit, but a lineslip is a group of insurers brought together by a broker.

Question 20

What is the main benefit of participating, to an insurer which is not a consortium or
lineslip leader?

a. Larger premium income.

b. Less brokerage to be paid.

c. Participating in risks they might not otherwise see.

d. Less regulatory oversight.

Answer 20

c. Participating in risks they might not otherwise see.

Question 21

What is meant by a ‘declaration onto a lineslip’?

a. New insurers joining the group.

b. Insurers leaving the group.

c. Individual risk being presented for acceptance by the group.

d. Claims being made.

Answer 21

c. Individual risk being presented for acceptance by the group.

Question 22

If delegated underwriting authority is given to a broker what is their most important consideration in terms of internal business practice?

a. How to calculate the commissions.

b. How to ensure conflicts of interest are managed.

c. How to ensure the right people are involved.

d. Where to source the business from.

Answer 22

b. How to ensure conflicts of interest are managed.

Question 23

If a new coverholder is being presented to Lloyd’s for approval, which party or parties have to support the application?

a. Broker and MA.

b. Just MA.

c. Just broker.

d. Broker, MA and the regulators.

Answer 23

a. Broker and MA.

Question 24

What relationship does a service company usually have with the insurer?

a. Sister company in the same corporate group.

b. Branch office.

c. Subsidiary company of the capital provider.

d. They will not be related at all.

Answer 24

a. Sister company in the same corporate group.

Question 25

Which of these is NOT one of the four key points within the Minimum Standards that
relate to delegated authority?

a. Having a clear strategy for writing and managing delegated underwriting.

b. Engaging in due diligence.

c. Ensuring good return on investment.

d. Proactive management.

Answer 25

c. Ensuring good return on investment.

Question 26

Which areas should be covered in a coverholder audit?
a. Review of due diligence items, compliance with contract and file review.

b. Just a review of due diligence items.

c. Just compliance with the contract, file review and financial checks.

d. Review of due diligence items, compliance with contract , financial checks and file review.

Answer 26

d. Review of due diligence items, compliance with contract , financial checks and file review.