Chapter 8B Flashcards
What are proposal forms?
Not used much apart from some LOBs like yacht and professional indemnity so the insurer has to ask the questions as deemed by the regulator
Who completes the proposal form
The proposal form is completed by the insured or jointly by the insured and the broker and is
used, in conjunction with the MRC/slip in many cases, to present the risk to the insurer both
for a quotation and a formal agreement to accept the risk.
As the proposal form is created by the insurer or sometimes the broker then it allows them
to include questions about those matters which they consider to be material and it serves
to reduce (although it does not completely eradicate) the risk of matters not being disclosed
during the placing process.
What are some questions on a proposal form?
name, address, nature of business;
* information about past insurance history, including previous losses and claims;
* turnover and other information relating to the size of the exposure (for example, the
number of fee-earners for a professional liability risk);
* geographical spread of the risk; and
* the amount of insurance being requested.
Who has to make sure the form is filled in correctly
The insurer if the form is accpeted without follow up - hard to argue non-disclosure
What are other ways to present the clients risk to the underwriter
Both the brokers and the clients
themselves can invite underwriters to actual/virtual presentations in which they can give
more information about who they are and what they do, or they can provide information in
the form of electronic/paper documents.
While face to face presentations and meetings have historically formed a large part of the
working practices in the London market, even before the impact of COVID-19 there were
many underwriters who handled far more business over email and telephone than face to
face, or even actual electronic placing systems such as PPL or Whitespace.
What are the roles of an MRC
The MRC has several distinct roles:
* It is a document which the broker puts together that summarises their client’s risk into a
standardised format for presentation to the underwriters.
* It is also the document on which the underwriters can formally indicate their written lines
in a non-electronic placement.
* It can be the document which is sent to the client as their copy of the insurance contract
Historical slips
Historically in the market, there was no standardisation in the structure of brokers’ slips so
as long ago as the late 1990s significant work was undertaken to try to standardise the
document. The culmination of that work is the MRC which is a structured document that
captures all the basic information about the risk
Benefits of MRC
There are some clear benefits to this work, i.e. it is easier:
* for insurers to find information in a standardised document;
* to perform other processes, such as the creation of contract documentation;
* to comply with contract certainty requirements – more about this later in this chapter;
* to work towards electronic submission of information if it is already in a standard form
Open Market MRC
Where the broker places each risk individually one by one, and visits
each underwriter separately.
Lineslip Mrc
A preset group of underwriters arranged by the broker, with an in-built
agreement that as long as the nominated one or two of them agree to the attachment of a
particular individual risk to that contract, the remainder will be bound to the risk as well. It
is also possible to have lineslips where there is a group of insurers brought together by a
broker, but with each insurer agreeing to their own share of any risks being attached.
Binder MRC
Where underwriters have given delegated underwriting authority to an
external third party that operates within strict parameters. The third party operates within
a preset limit of authority and reports back the risks that they have written each month.
What are the 6 sections in an MRC
The document is split into six sections:
* Risk details.
* Information.
* Security details.
* Subscription agreement.
* Fiscal and regulatory.
* Broker remuneration and deductions
Endorsement
The ‘endorsement’ is the document on which the broker presents the changes to the underwriters
and it can also be used to send to the client as evidence of those changes
General Underwriters’ Agreement - Purpose
- create an agreement between all the underwriters on a particular MRC as to who will deal
with any contract changes (effectively a mini contract of delegation); - clarify the extent of the authority given to the leaders and any other identified underwriters
to agree the changes; - enable flexibility for each class of business to refine the rules to suit their own
requirements; and - ensure that all underwriters are advised of the changes even if they are not involved in
the agreement process themselves.
What combo of insurers can agree changes
These schedules are divided into three parts, each indicating what type of changes can be
agreed by a certain combination of the insurers on the risk, as follows:
* Part 1 – slip leader only (note this is not bureau leaders).
* Part 2 – slip leader plus agreement parties.
* Part 3 – all underwriters
Slip Leader - endorsement
A slip leader can be in any part of the London Market, so, for example, a Part 1 change
could be agreed by an insurance company as slip leader and this would bind the whole
Lloyd’s Market on that slip and vice versa.
Agreement Parties - endorsement
Agreement parties are those insurers set out in the MRC as being responsible for agreeing
changes to the contract on behalf of all of the other insurers. Note that the GUA refers to the
MRC by the traditional term of slip but it means the same thing.
What happens when the endorsement is presented to the slip leader
they should attach what is known
as the GUA stamp to the endorsement and indicate which combination of underwriters is
required to agree, by signing in the appropriate box.
Market Reform Contract Endorsement (MRCE) sections
- Risk and endorsement identification.
- Contract changes.
- Information (if required).
- Agreement.
- Contract administration and advisory (if required)
Risk and endorsement
identification section MRCE
Clear reference to the UMR of the contract being changed and sequential numbering
of the endorsements. This means that it can be easily seen whether, on review of the
contract at a later date, one is missing.
Contract Changes - MRCE section
This is not a complete restatement of the whole MRC, but using the headings of that
contract (i.e. the insured’s name or address) it indicates which elements are being
changed and from what point the changes will take effect.
Information - MRCE section
As with the MRC, supporting information can be provided for the changes, or may not
be required.
Agreement - MRCE section
This section captures details of the parties who have to agree to the change and
also evidences their agreement. As we saw in the previous section, there are various
market rules as to which parties have to agree to changes
Contract administration
or advisory - MRCE section
Any changes to the sections of the MRC such as ‘subscription agreement’, ‘fiscal and
regulatory’ and ‘broker remuneration’ are shown here.
How can the MRCE be evidenced to the insured?
- a copy of the MRCE;
- a copy of the MRCE with the contract administration and advisory section removed;
- a formal policy endorsement; or
- a broker insurance document (BID)
Electronic presentations
There are a number of potential benefits to brokers, clients and insurers from the use of
this technology, such as not having to operate within the city, speed of turnaround and a
reduction in the volume of paper being moved around
Premium processing doc - client
A document for the client showing how much premium they will be paying, together with
any tax that they might also have to pay such as Insurance Premium Tax (IPT). This will
typically take the form of a debit note from the broker to the client and the client will then
pay funds to the broker.
Premium processing doc - insurer
Documents for any insurers who are not using the London Market central settlement
systems to show them how much premium they will receive and any deductions such
as brokerage that will be made. Any overseas insurers will require this to be done, but
there are some companies operating within the London Market who are also outside
central settlement.
Premium processing - LPAN
A London Premium Advice Note (LPAN) for those insurers who are using central
settlement. Typically one will be created for the Lloyd’s market and one for the company
market, but more might be required if there are complex tax or other regulatory coding
splits needed.
What happens when LPANS are created
the broker will use the Accounting and Settlement
(A & S) system to submit the slip, the LPANs and any other relevant documents such as
tax schedules to Xchanging/DXC. Once received they will be checked by Xchanging and
if there are no queries, the risk data will be captured on the risk databases for both the
Lloyd’s (LIDS) and company markets (POSH), together with premium information, including
amounts, deductions and timing of payments.
Once the data is captured, a signing number and date will be created or every premium
payment due, and overnight messaging will update the insurers systems. Additionally,
at the appropriate time the premium will be moved from the brokers’ accounts into the
insurers’ accounts.
This process will have to be repeated for any additional/return premiums during the life of
the contract
