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Lm2 > 9 Delegated Underwriting > Flashcards

9 Delegated Underwriting Flashcards

1
Q

What’s delegation

A

Empowering someone to do something on your behalf

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2
Q

What tasks do insurers/brokers delegate?

A

Insurers - some or all of activities for eg to another insurer, broker or another entity altogether

Brokers - document production

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3
Q

Insurer - how does delegation to another insurer(s) work

A

Via either a consortium or a line slip

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4
Q

Insurer delegation - consortium

What are the benefits

A

Arranged by insurer

Consortium - group of insurers taking risks in a proportion. One insurer is manager and accepts/declines/handles claim. Usually set up for 1 year.

Benefits
- For broker, placing process is shorter
- For consortium leader, commission/fees for their responsibilities
- Followers - Access to business without having to deal with broker, saves time

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5
Q

Insurer delegation - line slip

A

Arranged by broker

Broker finds insurers who are interested in writing similar business on similar terms. Either on delegated authority or not (where insurers still agree to their participation)

Advantages
- For broker, pre set security, more efficient
- For followers, access business without having to agree risks individually

Less usual for leader to have commission on a line slip

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6
Q

What’s open market

A

Visiting Insurers individually

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7
Q

Bulking vs non bulking lineslip

A

Bulking lineslip - can aggregate premium presentations to XCS ie bordeaux. Less admin but hard to tell what premium relates to what risk.

Non bulking lineslip - risks presented separately, premiums paid individually per Declaration

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8
Q

Insurer delegation - non insurer - eg broker or another entity

A

Via binding authority / a binder

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9
Q

Lloyds input re delegated authority

A

Lloyds very strict about discipline it imposes on Syndicates who operate using delegated underwriting authority

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10
Q

Why would an insurer delegate?

A

More manpower

Local access, licensing without setting up offices

Accessing business outside of local markets

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11
Q

Who is the cover holder in delegated authority

Diff between coverholder and MGA

A

a non-insurer entity that the insurer delegates to. Can be a broker - be careful of conflict of interest

managing general agent is when the entity is separate so has no other direct clients other than insurers, no conflict of interest. can be part of a broker still. subset of coverholder

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12
Q

How many cover holders are there in Lloyds

A

Approximately 4200, 30-35% of Lloyds premium income. As different offices recorded separately, actually separate entities are more like < 4000

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13
Q

Best way to manage conflicts of interested in delegated authority for broker

A

Individual conflicts - chinese walls - specific people allocated to work on the delegated authority so no interaction with those facing insured

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14
Q

Steps in setting up a cover holder

A

Application via ATLAS, electronic system, process is started by the broker

  1. Insurer has to obtain approval from Lloyds. This is usually sponsored by a broker and managing agent. Sometimes just a managing agent.
  2. Managing agent must complete due diligence into the new cover holder. Because should only delegate to competent and well-run organisations. Brand reputation very important.

On ATLAS application, coverholder should indicate what work they want to do, what areas of world

  1. Lloyds will consider if the coverholder has:
  • Experience
  • System and controls in place
  • Good financial status
  • Authority to operate in specific territories
  • Indemnity insurance/certificates

Lloyds decides in 25 working days

if approved, ‘coverholder undertaking’ is signed where coverholder agrees to Lloyd’s standards

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15
Q

Where can you find info on Lloyds cover holders

A

Atlas. Centrally available. PI certificates, financial statements, etc provided once a year.

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16
Q

What is Delegated Contract Oversight Manager DCOM

A

ATLAS soon to be replaced by Delegated Contract Oversight Manager DCOM - this will be compliance check for both delegated binding authority and delegated claims agreement parties (under one umbrella)

Advantages for coverholders/delegated claims administrators:

  • only providing info once
  • consistent / better data from one system
  • more efficient

Advantages for brokers:

  • less administration
  • single source of data

Advantages for managing agents:

  • less administration
  • better quality, consistent data
  • approval times proportionate to complexity of request
17
Q

Types of cover holders

A

Approved coverholder / service company

Both have to pass Lloyds approval. Additional approval processes if EEA from Lloyds Brussels

Service company is set up by a managing agent as a separate company (usually another country) with authority under a binding authority from a syndicate. Helps to access oversea business.

18
Q

Benefit of a service company

A

Syndicates can access other types of personal lines insurance eg motor that isn’t efficient to underwrite in Lloyds

19
Q

Different types of authority - Full authority

A

Complete control

20
Q

Different types of authority - Pre determined rates

A

Price matching / discretion allowed for renewal business

21
Q

Different types of authority - Pre determined rates with no discretion

A

Only if no change at all made from rating matrix

22
Q

Different types of authority - Prior submit

A

Referred to UW prior to binding

23
Q

What three parts make a binding authority document

A

Schedule (includes restrictions/reporting requirements)
Wording
Non schedule sections - mirror MRC

24
Q

Binding authority document - schedule key elements

A

Agreement number - given by broker or insurer, no format

UMR - by broker

Narrative (address etc)
Section 2 - Period
Section 3 - Who is authorised / responsible
Section 6 - Conditions
Section 7 - What classes are covered
Section 8 - What classes are excluded
Section 9 - Geographical location of insured/risks/any limits
Section 10 - Policy Limit
Section 11 - Premium / deductibles / excess
Section 12 - Premium income limits (and a trigger point to when reaching near)
Section 13: Period coverholder can accept policies
Section 14 - Amendments
Section 16- Commissions
Section 19 - Applications/proposal forms/any information relating to risk itself
Section 20 - wording, endorsements, conditions, clauses, exclusions etc
…

25
Q

What info needed in MRC for binding authority vs open market

A

Binding authority registration date and number issued by Lloyds

26
Q

Where does Lloyds set material relating to delegated authority

A

in the Lloyds ‘Principles for doing business at Lloyds’

27
Q

Lloyds Principles for delegated authority - Principle 1 Underwriting Profitability

A

Principle 1 - underwriting profitability. expects strategy, processes and controls, reporting, visibility on costs, pricing of the coverholder aligns with syndicate, insurer to give coverholder guidance on ESG

28
Q

Lloyds Principles for delegated authority - Principle 4 Claims management

A
  • articulated appetite if outsourcing claims, with a detailed report and oversight of entity
29
Q

Lloyds Principles for delegated authority - Principle 5 Customer Outcomes

A
  • culture promotes good customer outcomes
  • third party is managed and overseen properly
30
Q

Lloyds Principles for delegated authority - Principle 11 Regulatory and financial crime

A
  • System and controls in place
  • any actions raised under audit are completed
  • annual report re financial crime considers risks of delegated authorities, info submitted into MI
  • evidence policies/procedures in place to identify and mitigate financial crime
31
Q

Vicarious liability meaning

A

Insurer retains responsibility for agent even if not aware of actions being taken

32
Q

Lloyds publication on delegated authority are

A

Principles
Code of conduct

33
Q

Controls over delegated underwriting - contract certainty

A

Applies to delegation contracts too. Lineslip / binding authority MRCs are mandatory in Lloyds market and designed to specifically ensure details are captured

34
Q

Controls over delegated underwriting - Registration

A

Lloyds requires registration of all binding authority agreements using Delegated Contract Oversight Manager DCOM. This captures info re contracts with each coverholder. As part of the approval process, restrictions can be put in place. If contracts are wider than restrictions, they will be rejected

35
Q

Controls over delegated underwriting - Reporting

A

The schedule indicates reporting requirements (eg monthly, quarterly) allowing insurer to identify potential breaches of duty

Full-time binding authority manager appointed to oversee this as time-consuming. Also the Delegated Data Manager DDM system helps - central Bordereaux management system for London Market.

36
Q

Controls over delegated underwriting - Documentation

A

needs to comply with the binding authority agreement as well as local regulation. template usually preagreed.

37
Q

Controls over delegated underwriting - Auditing

A

physical audits by insurer on coverholder

need an audit policy in place which dictates:

  • frequency/scope/details

If binding authority is on a subscription basis, lead insurer’s responsibility

audit includes:
underwriting, accounting, financial reporting, credit control, information technology, documentation controls, compliance

audit should be followed up. if it is a subscription basis, report should be shared with leader and follower

38
Q

Outsourcing

A

Roles that are not core to business such as claims handling, data entry, money movement - in Lloyds this is centralised by XCS

39
Q

Delegation of claims handling

A

3 ways:

Consortium - by leader

Lineslip - agreement of one or two syndicates depending on handling rules

Binding authority - by coverholder up to a limit, or can delegate to a third party

Lm2 (9 decks)

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