C3 - Setting up a delegated authority contract Flashcards
(45 cards)
What would be 7 criteria that an insurer should consider when assessing if a CH-MGA is suitable for delegation
- Shared ethos - particularly wrt ESG
- Experience/track record - particularly the personnel not the company
- Staff - as a whole, CVs of all staff should be obtained and assessed
- Profitability - historic success
- Reputation
- Compliance with local regulator - ensuring licensing in all geographical areas
- Operational resilience - consider gaps and possible harm to customers
What should insurers consider for any brokers in the chain
- Do they have systems and controls in place to handle DA business.
- Are they capable of being monitored.
- Can they provide management information.
- What is their financial standing
- If sub-delegation is allowed, can it be monitored.
What might a CH-MGA consider in an insurer that it wants to partner with
- Financial security (use of rating agencies)
- What is the insurer’s reputation
- Can it evidence good data protection processes
- Is it appropriate licensed
- Are there any adverse entries on the financial services register check
In a DA contract who is the broker an agent of
The CH-MGA
What is a prior submit contract also known as
A limited binder
What are the 2 types of pre-agreed rates contracts
- Some discretion - allowed to charge within a range or not below a minimum
- No discretion - has to use a comprehensive rating matrix
What is a full binding authority/full binder
Ultimate level of UW authority where coverholder is allowed to rate as they please and manage the book as they wish.
May still contain limitations and exclusions
What are the levels of claims authority that can be delegated
- No authority at all - essentially a prior submit contract
- Authority handling claims alone - limited financial authority without intervention
- Authority for handling claims with an expert - higher financial authority for claims where there’s an expert such as a loss adjuster
- Factual limitations - claims are submitted to insurers based on a factual basis, such as denied coverage and personal injury
What were the FCAs concerns with delegated authority in the general insurance market from a report published in 2015
- Too much focus on underwriting and too little focus on claims and ops
- Lack of expression of the business appetite and how it fits in with other business written
- Insurers not considering the conduct risk element
- Frequent sub-delegation leading to no control
- Insufficient data for insurers to create management information
- General lack of oversight and audit
What were the additional concerns the FCA had with delegated authority in the general insurance market from a report published in 2019
- Number of parties in the chain adversely affects the pricing of the product
- Number of parties can impact the service that the client receives
What are some cost implications of delegated underwriting contracts
- Profit commissions
- Additional cost of hiring employees to manage contracts
- Reduced costs of outsourcing underwriting
What considerations are made when assessing the quality and adequacy of the underwriting function
- What experience do they have in the class of business?
- What controls do they have over the underwriting function?
- What authority will they be given?
What considerations are made when assessing their ability to operate a binder
- What is their prior experience with binders
- How do they monitor income and aggregates
- What qualifications and experience do their staff have
- Can their current systems record and process information and produce documents to the required standards
- How strong is their credit control function
- What other business do they have and will it distract them
- Do they understand the market from which their capacity will come?
What considerations are made when assessing a CH-MGAs business plan
- Where does the business come from
- What are the targets and an analysis of the current marketplace
- What is the basis for selecting and pricing risks
- How does the BA fit with any other business
- What other delegation contracts do they have
- What is their position on ESG
What considerations are made when assessing quality and adequacy of the claims function
- What knowledge/experience do the staff have
- What are the anticipated caseloads per person
- How do they control authority levels
- What are their record keeping procedures
- Do they understand the UK GDPR
- What are their conflict procedures
- How do they report
- How will they manage 3rd party experts
- How would they cope with catastrophe claims handling
- What is the communication channel with the insurer
What considerations are made when assessing a CH-MGAs reputation and standing
- What is their regulatory status and licenses
- What other classes of business do they handle
- Do they belong to professional bodies
- Who are the current owners/shareholders and is there a conflict of interest
What considerations are made when assessing a CH-MGAs financial standing
- Obtaining a balance sheet for profits/losses for the last 3 years
- Will there be adequate cash flow to maintain an organisation
What considerations are made when assessing a CH-MGAs professional indemnity cover
- Is there a large deductible
- Is the limit the same as any proposed authority being considered
- Wording should be checked to ensure there are no exclusions that relate to the business
What considerations are made when assessing a CH-MGAs operational resilience
- Is it able to cope with the volume of quotes
- Is it able to cope with catastrophe reporting
- How will business continue when faced with a COVID-19 situation
How does due diligence apply at the renewal of a BA
Should focus on changes in circumstance or any anticipated changes to the agreement.
Due diligence should be ongoing through the year, not just at renewal.
What are the items on the checklist for ensuring that Lloyd’s CHs are compliant
- Financials
- PI insurance
- Business continuity
- Anti-money laundering
List should equally apply to a non-Lloyd’s employer
How does a broker manage a conflict of interest when broking a delegated authority contract and being a CH themselves
By setting apart personnel who handle the binding authority and those who handle the client facing business
What are the 2 types of coverholder
- Retail coverholder - binds its own business
- Wholesale coverholder - binds business produced by their sub-broker/agents
How is a broker useful for both insurers and CHs when looking to expand their business
Brokers can identify opportunities for insurers, and also source capacity for coverholders
