Chapter 9: Delegated Underwriting Flashcards
Delegation
Asking another person/organisation to perform on your behalf
Who is underwriting authority delegated to?
- Another insurer
- A broker
- Another entity
Delegation to another insurer
2 main forms:
Consortium
Lineslip
Consortium
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
Consortium leader
- One of the insurers in a consortium who brokers visit
- insurer accepts or declines risks on behalf of the consortium
- could handle claims
Benefits of consortium - Broker
- Placing process potentially shorter due to only needing one visit/signature to accept a larger share of a risk
Benefits of consortium - Consortium Leader
- Collection of consortium lead fee/consortium
Benefits of consortium - Followers
- access to business without needing to interact with broker (saves time and effort)
- Consortia are usually set up in niche specialist arears/insurers.
Benefits of consortium - All parties
Administration of smaller risks is easier if they can be placed with a pre-set group of insurers
Lineslip
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
Lineslip advantages - Broker
More efficient for placing risks that fall within a set criteria when the security is pre-set
Lineslip advantages - Followers
- Gain access to business without having to agree risks individually
Declaration
Individual risk that is written to be attached to lineslip
Bulking Lineslip
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
Non-Bulking
Premium for each risk declared presented individually
Facility
Another term for lineslip
Binder / Binding authority
- delegation of UW authority to a broker or another entity
Reasons for DUA
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
Coverholder
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
Broker as a coverholder
- 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
Issue with broker as coverholder
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
Managing conflict of interest
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
Managing General Agent
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
Setting up new coverholder - Company Market
decision to work with coverholder is driven by internal processes, coverholder needs no external approval
Setting up new coverholder - Lloyds
- 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
Due Diligence
Managing agents should do due diligence before using new coverholder as they should only be delegating to competent, well-run org
Coverholder application considerations
- 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
ATLAS
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.
ATLAS requirements
PI certifcate
Financials
Coverholder undertaking
Signed by new coverholder once approved by lloyds
- Lloyds standards document
Coverholder application proposition
- 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
Coverholder territories
- Authorised in their own domicile, but need specific authorisation to write risks out of other countries
EEA countries can be approved in one group
Countries which require separate approval
- Australia
- Canada
- USA
- USVI
- South Africa
- Switzerland
Types of coverholders
- Approved coverholder
- Service Company
Service company
- 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
EEA coverholders
Lloyds coverholders need additional approvals from Lloyd’s Brussels for EEA work
Service companies and personal lines insurance
- Service companies are used by syndicates to write personal lines (i.e. motor) as theyre not efficient to write traditionally
Types of authority
Full authority
Pre-determined rates
Pre-determined rates with no discretion
Prior Submit
Full Authority
Complete control given to coverholder
Pre-Determined rates
Rating matrix where possible pricematching or discretion are allowed for renewal business
Pre-determined rates with no discretion
No changes made from rating matrix
Prior Submit
All risks referred to UW prior to binding
MRC
Market reform contract
captures key information about the risk to present to underwriters`
DUA contract documentation
Binding authority schedule
Binding authority wording
Non-schedule sections (mirror elements of MRC)
Agreement number
Number for contract given by broker/insurer
no default format
UMR
generated by broker and used for all lloyds risks
B/4digit broker code/policy ref
Coverholder
Name of org receiving delegation
Section 2 of MRC
Period - how long policy will last
Section 3.1 of MRC
Overall operation and control
- Individual employed by coverholder
Section 3.2 of MRC
Authorised to Bind
Section 3.3 of MRC
Issuance of documents
- role is to administer documentation not to agree any insurances
Section 3.4 of MRC
Authorised to exercise any claims authority
Section 6.1 of MRC
Other conditions relating to the operation of the agreement
- other terms relevant to the agreement but not a concern for risks bound
Section 7.1 of MRC
Classes of business
Section 8.1.5 of MRC
Excluded Classes of business
Section 9.1 of MRC
Risks located in
Section 9.2 of MRC
Insured domicile
Section 9.3 of MRC
Territorial limits
Section 10.1 of MRC
Max limits of sum insured
limit apply to the size of policy a coverholder can write
Section 11.1 of MRC
Calculation of gross premium
Section 11.2 of MRC
Deductibles and/or excess
Section 12.1 of MRC
GPIL
Section 12.2 of MRC
Notifiable % of the limit not to exceed
Section 13.1 of MRC
Period of insurance bound
Principles for doing business at Lloyd’s
- Underwriting Profitability
- Claims management
- Customer Outcomes
- Regulatory and financial crime
Principle 1: Underwriting Profitability
- 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
Principle 4: Claims management
- Clear appetite for outsourcing claims
- Clear oversight and reporting of outsourced claims
Principle 5: Customer outcomes
- Conduct culture promotes good customer outcomes
- 3rd party service providers are engaged/overseen properly
Principle 11: Regulatory and financial crime
- CH systems to deliver activities are appropriate and training (financial crime) is completed
Agreement setting out level of authority
MRCs are mandatory for binders and lineslips in london market.
Risk reporting
Responsibility of the insurer to make sure the coverholder is providing information in the bordereaux thats required to be reported
Auditing coverholders
Regular physical audits should be performed by insurer
Audit policy
Frequency of audits
Scope for reviewing in audit
Details of the auditors
Subsciption binders audits
Slip lead is repsonsible for organising the audit, although costs can be shared
Audit examination areas
Underwriting
Accounting
Financial Reporting
Credit Control
IT systems
Documentation controls
Compliance with regulations
Claims function within consortia
- Handled by consortium leader
Claims function within Lineslip
Claims handling done according with the market claims handling rules for Open market business
Claims function with Binding authority
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
