Chapter 9 - Delegated Underwriting Flashcards
What are the two main forms of contract insurers use to delegate to other insurers?
Consortium: group of insurers which have formed an agreement to accept risks together.
Consortium leader accepts risks on behalf of consortium and handles claims
Consortium set up for one year
Line slip(or Facility): group of insurers brought together by broker. Line slip put together using specific MRC form Provision in terms that leader agreed to accept risks
Benefits of using a Consortium for the different parties involved
Broker: placing process shorter, can accept larger share of risk with one visit than single insurer
Leader: commission and fees
Followers: dont need to see a broker
Benefits of using a Line Slip for the different parties involved
Broker: pre set security more efficient when trying to place risks that fall within set criteria (eg. Lloyds security, LM security)
Followers: insurers gain access to business without having to agree risks themselves
Declaration
The individual risk being presented for agreement by broker so it can be attached to the line slip
Bulking / non bulking line slip
Whether the broker can aggregate premium presentations into Xchanging (bulking) or whether premium for each risk must be presented individually (non bulking)
What type of contract is used for delegating to a broker or other entity?
Binding authority or binder
Majority of delegated underwriting in LM dealt with this way
3 reasons an insurer might want to delegate underwriting authority
Manpower -more UW done
Local access - access to local business
Other access - business that would not otherwise come to LM
When seeking a CH what does an insurer look for
Good professional reputation
Well known in its home market
Expertise in niche products/territories
Why is there a conflict if interest for coverholders who are brokers
Its client base is no longer only insured clients, it now also includes insurers
Brokers are supposed to act in best interest of their insured clients
Conflict of interest arises when selecting insurers in risk placement process
New coverholders
Must have approval from Lloyds
Usually sponsored by broker
Application supported by managing agent
Once approved available to be used by any managing agent
Needs to indicate: type of work, area of world operating in
What does lloyds have to consider when reviewing a new coverholder
- Suitability and experience of individuals working for them
- Systems and controls used in their infrastructure
- Financial status
- Authority to operate in specified territories
Application process done through Atlas and considered by lloyds within 25 working days
CH signs ‘Coverholder Undertaking’
Two main types
Of coverholder
- Approved coverholder
- Service company
Additional approval required from Lloyds Brussels if working in EEA
Service company set up by managing agent as separate company under binding authority from syndicate.
This allows lloyds insurers access to more overseas business and gives them presence in other countries
Also used to write personal lines
What are the types of authority that can be given to a coverholde
- Full authority (completely control)
- Pre determined rates (price matching or discretion allowed for renewal)
- Pre determined rates with no discretion
- Prior submit (all risks to be referred)
Binding Authority document consists of what three parts
- binding authority schedule
- binding authority wording
- non schedule sections
Who would the person responsible for the overall operation and control be?
An individual employed by the coverholder
If they cease to be employed during binding authority period insurer should be informed
This would be someone different to the persons….
- authorised to bind insurances
- with responsibility for issuance of docs
- authorised to exercise claims authority
What are Non Schedule Agreements?
Final part of the MRC that broker puts together to place a binding authority, similar to MRC but includes:
Binding authority registration number and date (as registered with Lloyd’s)
What is the purpose of Principles and Minimum Standards publication?
Minimum level of performance required of any organisation within Lloyds market
15 sets of standards
“MS9 - Customer” relates to delegated authority, has 6 sections:
1. Culture strategy and fair treatment
2. Settings standards and managing performance
3. Claims case reserving
4. Product assessment and review
5. Customer experience- sales, claims, complaints
6. Outsourcing - 3rd parties with delegated authority
Key points of the MS9 minimum standards relating to delegated authority?
- clear strategy
- due diligence of Chs
- binding authorities in place
- proactive management of contracts
- recognise and manage conduct risk
What is used for registering binding authority agreements?
BAR (binding authority registration)
If attempts to grant a CH a binding authority contract wider in scope than the approval originally received from Lloyds it will be rejected
Date and unique number allocated once registered successfully
Who’s responsibility is it to advise CH of information required for monthly bordereau?
Insurers responsibility
Analysis Allows insurer to identify potential breaches of authority
An insurers audit policy should state:
- frequency of audits
- scope for review in audit
- details of auditors
Areas that can be audited:
- underwriting
- accounting
- financial reporting
- credit control
- IT systems
- documentation controls
- compliance with regulations
Outsourcing
Any roles not core to business
Eg. Claims handling, data capture and money movement
UW is delegation
Delegation of claims
Consortium: handled by consortium leader
Line slip: handled in accordance to market claims handling rules for Open Market business
Binding authority: some authority given to CH up to a limit, or insurer can delegate to separate entity
