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LM2 > Chapter 9: Delegated Underwriting > Flashcards

Chapter 9: Delegated Underwriting Flashcards

1
Q

Delegation

A

Asking another person/organisation to perform on your behalf

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2
Q

Who is underwriting authority delegated to?

A
  • Another insurer
  • A broker
  • Another entity
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3
Q

Delegation to another insurer

A

2 main forms:

Consortium
Lineslip

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4
Q

Consortium

A

Group of insurers forming to accept risks together in a set proportion

Usual practice is all risks written are sub-divided among individual members

Usually set up for a year

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5
Q

Consortium leader

A
  • One of the insurers in a consortium who brokers visit
  • insurer accepts or declines risks on behalf of the consortium
  • could handle claims
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6
Q

Benefits of consortium - Broker

A
  • Placing process potentially shorter due to only needing one visit/signature to accept a larger share of a risk
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7
Q

Benefits of consortium - Consortium Leader

A
  • Collection of consortium lead fee/consortium
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8
Q

Benefits of consortium - Followers

A
  • access to business without needing to interact with broker (saves time and effort)
  • Consortia are usually set up in niche specialist arears/insurers.
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9
Q

Benefits of consortium - All parties

A

Administration of smaller risks is easier if they can be placed with a pre-set group of insurers

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10
Q

Lineslip

A

Set of insurers brought together by a broker rather than creating a group like a consortium

broker finds bunch of insurers interested in writing similar business with similar terms

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11
Q

Lineslip advantages - Broker

A

More efficient for placing risks that fall within a set criteria when the security is pre-set

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12
Q

Lineslip advantages - Followers

A
  • Gain access to business without having to agree risks individually
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13
Q

Declaration

A

Individual risk that is written to be attached to lineslip

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14
Q

Bulking Lineslip

A

Xchanging processing involves aggregate premium presentations

Easier to admin for broker but more difficult to determine how much premium relates to which risk for insurer

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15
Q

Non-Bulking

A

Premium for each risk declared presented individually

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16
Q

Facility

A

Another term for lineslip

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17
Q

Binder / Binding authority

A
  • delegation of UW authority to a broker or another entity
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18
Q

Reasons for DUA

A

Manpower - not enough time to underwrite everything directly

Local access - wants access to local business without setting up a new office

Other Access - Insurer wants access to business not written in London Market usually

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19
Q

Coverholder

A

partner chosen for DUA

typically chosen due to its professional reputation and has a strong presence in home market.

Typically has specific expertise in a niche product/territories

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20
Q

Broker as a coverholder

A
  • Brokers client base is not only insured clients but also insurer clients for where it is the coverholder

Can give rise to conflict of interest

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21
Q

Issue with broker as coverholder

A

Supposed to act with the best interest of their insured clients at heart but if they are a coverholder at the same time it may be tempting to favour placing it with the insurer they are coverholding for.

Alternatively might decide to not place business with coverholder which would starve it of business

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22
Q

Managing conflict of interest

A

Best option is to identify one or two people within the first who can hold the authority

Splits the people that deal with the insurer vs insured clients

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23
Q

Managing General Agent

A

Entity with authority under binder who has no other clients than insurers (no potential conflict)

Subset of coverholder

Can be part of a wider corporate group including brokers

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24
Q

Setting up new coverholder - Company Market

A

decision to work with coverholder is driven by internal processes, coverholder needs no external approval

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25
Q

Setting up new coverholder - Lloyds

A
  • CH requires approval from Lloyd’s
  • Lloyd’s responsible for approval process
  • New CHs usually sponsored by a broker and application will be supported by managing agent
  • can alternatively be sponsored by a managing agent without broker involvement
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26
Q

Due Diligence

A

Managing agents should do due diligence before using new coverholder as they should only be delegating to competent, well-run org

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27
Q

Coverholder application considerations

A
  • suitability/experience of individuals working for the applicant
  • System and controls in CH infrastructure
  • Applicants’ financial status
  • What authority the applicant has to operate in specified territories
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28
Q

ATLAS

A

System used to start application for sponsoring.

CHs upload necessary docs so that the application should be considered

All info available centrally for all parties with a relationship with CH.

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29
Q

ATLAS requirements

A

PI certifcate
Financials

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30
Q

Coverholder undertaking

A

Signed by new coverholder once approved by lloyds

  • Lloyds standards document
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31
Q

Coverholder application proposition

A
  • Types of work in which the CH is applying to be involved
  • Areas of the world where they operation and where they’ll be accepting the risks
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32
Q

Coverholder territories

A
  • Authorised in their own domicile, but need specific authorisation to write risks out of other countries

EEA countries can be approved in one group

33
Q

Countries which require separate approval

A
  • Australia
  • Canada
  • USA
  • USVI
  • South Africa
  • Switzerland
34
Q

Types of coverholders

A
  • Approved coverholder
  • Service Company
35
Q

Service company

A
  • set up by managing agent as a separate company
  • Obtains authority to underwrite business as a binding authority from the syndicate
  • Gains a lloyd’s insurer access to more business overseas and have presence in other countries if required.
  • same rules still apply even though theyre from the same corporate group
36
Q

EEA coverholders

A

Lloyds coverholders need additional approvals from Lloyd’s Brussels for EEA work

36
Q

Service companies and personal lines insurance

A
  • Service companies are used by syndicates to write personal lines (i.e. motor) as theyre not efficient to write traditionally
37
Q

Types of authority

A

Full authority
Pre-determined rates
Pre-determined rates with no discretion
Prior Submit

38
Q

Full Authority

A

Complete control given to coverholder

39
Q

Pre-Determined rates

A

Rating matrix where possible pricematching or discretion are allowed for renewal business

40
Q

Pre-determined rates with no discretion

A

No changes made from rating matrix

41
Q

Prior Submit

A

All risks referred to UW prior to binding

42
Q

MRC

A

Market reform contract

captures key information about the risk to present to underwriters`

43
Q

DUA contract documentation

A

Binding authority schedule
Binding authority wording
Non-schedule sections (mirror elements of MRC)

44
Q

Agreement number

A

Number for contract given by broker/insurer

no default format

45
Q

UMR

A

generated by broker and used for all lloyds risks

B/4digit broker code/policy ref

46
Q

Coverholder

A

Name of org receiving delegation

47
Q

Section 2 of MRC

A

Period - how long policy will last

48
Q

Section 3.1 of MRC

A

Overall operation and control

  • Individual employed by coverholder
49
Q

Section 3.2 of MRC

A

Authorised to Bind

50
Q

Section 3.3 of MRC

A

Issuance of documents

  • role is to administer documentation not to agree any insurances
51
Q

Section 3.4 of MRC

A

Authorised to exercise any claims authority

52
Q

Section 6.1 of MRC

A

Other conditions relating to the operation of the agreement

  • other terms relevant to the agreement but not a concern for risks bound
53
Q

Section 7.1 of MRC

A

Classes of business

54
Q

Section 8.1.5 of MRC

A

Excluded Classes of business

55
Q

Section 9.1 of MRC

A

Risks located in

56
Q

Section 9.2 of MRC

A

Insured domicile

57
Q

Section 9.3 of MRC

A

Territorial limits

58
Q

Section 10.1 of MRC

A

Max limits of sum insured

limit apply to the size of policy a coverholder can write

59
Q

Section 11.1 of MRC

A

Calculation of gross premium

60
Q

Section 11.2 of MRC

A

Deductibles and/or excess

61
Q

Section 12.1 of MRC

A

GPIL

62
Q

Section 12.2 of MRC

A

Notifiable % of the limit not to exceed

63
Q

Section 13.1 of MRC

A

Period of insurance bound

64
Q

Principles for doing business at Lloyd’s

A
  1. Underwriting Profitability
  2. Claims management
  3. Customer Outcomes
  4. Regulatory and financial crime
65
Q

Principle 1: Underwriting Profitability

A
  • Processes and controls in place for approval
  • delegated written business aligns with the main business plan
  • visibility of costs
  • pricing aligns with syndicates
  • ESG is considered
66
Q

Principle 4: Claims management

A
  • Clear appetite for outsourcing claims
  • Clear oversight and reporting of outsourced claims
67
Q

Principle 5: Customer outcomes

A
  • Conduct culture promotes good customer outcomes
  • 3rd party service providers are engaged/overseen properly
68
Q

Principle 11: Regulatory and financial crime

A
  • CH systems to deliver activities are appropriate and training (financial crime) is completed
69
Q

Agreement setting out level of authority

A

MRCs are mandatory for binders and lineslips in london market.

70
Q

Risk reporting

A

Responsibility of the insurer to make sure the coverholder is providing information in the bordereaux thats required to be reported

71
Q

Auditing coverholders

A

Regular physical audits should be performed by insurer

72
Q

Audit policy

A

Frequency of audits
Scope for reviewing in audit
Details of the auditors

73
Q

Subsciption binders audits

A

Slip lead is repsonsible for organising the audit, although costs can be shared

74
Q

Audit examination areas

A

Underwriting
Accounting
Financial Reporting
Credit Control
IT systems
Documentation controls
Compliance with regulations

75
Q

Claims function within consortia

A
  • Handled by consortium leader
76
Q

Claims function within Lineslip

A

Claims handling done according with the market claims handling rules for Open market business

77
Q

Claims function with Binding authority

A

Some given to coverholder (usually up to a financial limit)

Insurer can delegate handling to separate entity (i.e. loss adjuster) or 3rd party administrator/delegate claims administrator

LM2 (10 decks)

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