CHAPTER 9 - B Flashcards
What should every insurance company with delegated authority have regarding underwriting contracts?
Internal processes and procedures for decision-making, partner choice, setup, management, and monitoring of the account.
What is the role of Lloyd’s in delegated underwriting?
Lloyd’s acts as a partial regulator imposing discipline on syndicates regarding delegated underwriting.
Why might an insurer want to delegate some underwriting authority?
- Manpower limitations
- Access to local business
- Access to business not available in the London market
What term is used for the partner in a delegated underwriting agreement?
Coverholder
What characteristics should a potential coverholder have?
Good professional reputation and expertise in niche products and/or territories.
What percentage of Lloyd’s premium income do coverholders represent?
30–35%
Can a broker be a coverholder?
Yes
What conflict of interest arises for brokers who are also coverholders?
Brokers may favor the insurer they represent over the interests of their insured clients.
What is the best option for a broker to manage conflict of interest when holding delegated authority?
Identify one or two persons within the firm to hold that authority.
What is a Managing General Agent (MGA)?
An entity with authority under a binding authority that has no clients other than insurers.
What must a new coverholder obtain before starting to delegate authority?
Approval from Lloyd’s
What is the process called that managing agents undertake to investigate new coverholders?
Due diligence
What criteria does Lloyd’s consider when reviewing applications from potential coverholders?
- Suitability and experience of individuals
- Systems and controls infrastructure
- Financial status
- Authority to operate in specified territories
What system is used for the electronic application process for becoming a coverholder?
ATLAS
What document must a new coverholder sign after approval?
Coverholder undertaking
What must coverholders indicate when applying to become one?
- Types of work involved
- Areas of operation
What types of countries require separate approval for coverholders to write risks?
- Australia
- Canada
- USA
- United States Virgin Islands
- South Africa
- Switzerland
What are the two main types of coverholders in the Lloyd’s Market?
- Approved coverholder
- Service company
What is the difference between an approved coverholder and a service company?
A service company is set up by a managing agent and operates under a binding authority, while an approved coverholder can operate independently.
What types of authority can be granted to a coverholder?
- Full authority
- Pre-determined rates
- Pre-determined rates with no discretion
- Prior submit
What is used by the Market to capture key information about risks for underwriters?
MRC (Market Reform Contract)
What are the components of the documentation for a binding authority agreement?
- Binding authority schedule
- Binding authority wording
- Non-schedule sections
What ongoing project aims to simplify binding authority documentation?
Binding authority contract builder
