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M66 - Delegated Authority > C4 - The contractual framework > Flashcards

C4 - The contractual framework Flashcards

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1
Q

Are binding authority templates all the same

A

No, the insurers are at liberty to create their own documents.

Depending on the class of business, insurer and circumstance.

All however must ensure that contract certainty is achieved

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2
Q

What are the 3 sections of a Binding Authority Agreement

A
  1. Binding authority schedule
  2. Binding authority wording
  3. Non-schedule sections (essentially mirror the elements of a standard LM MRC/slip)
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3
Q

What are the 4 opening sections in a BAA schedule

A
  1. Agreement number - unique number of the contract
  2. Unique Market Reference Number (UMR) - generated by the broker which links to the insurer (used for all business written by the insurer, not just BA)
  3. The Coverholder - Name and registered office address of the organisation
  4. The (Lloyd’s) Broker - Name and registered office address of the broker(s)
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4
Q

What is section 2 of a BAA

A

PERIOD

what is the period of the agreement

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5
Q

What are sections 3.1-3.4 in a BAA

A

3.1 = PERSON(S) RESPONSIBLE FOR OVERALL OPERATION

3.2 = PERSON(S) AUTHORISED TO BIND INSURANCE

3.3 = PERSON(S) WITH RESPONSIBILITY FOR THE ISSUANCE OF DOCUMENTS

3.4 = PERSON(S) AUTHORISED TO EXERCISE ANY CLAIMS AUTHORITY

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6
Q

What is sub-section 7.1 in a BAA

A

AUTHORISED CLASS(ES) OF BUSINESS/COVERAGE - identifies the nature of business that the CH-MGA can write

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7
Q

What is sub-section 8.1 under a BAA

A

OTHER EXCLUDED CLASS(ES) OF BUSINESS OR COVERAGE

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8
Q

What are sub-sections 9.1-9.3 under a BAA

A

9.1 = RISKS LOCATED IN - geographical limitations of risks

9.2 = INSUREDS DOMICILED IN - geographical limitations of insureds

9.3 = TERRITORIAL LIMITS - geographical limitations to policy coverage

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9
Q

What is sub-section 10.1 under a BAA

A

MAXIMUM LIMITS OF LIABILITY/SUMS INSURED

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10
Q

What is sub-section 11.1-11.2 under a BAA

A

11.1 = BASIS FOR THE CALCULATION OF GROSS PREMIUMS - sets out the fees or charges that can be deducted from gross premiums (before brokerage)

11.2 = DEDUCTIBLES AND/OR EXCESSES - any deductibles that need to be applied to risks

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11
Q
A
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12
Q

What are sub-sections 12.1-12.2 under a BAA

A

12.1 = GROSS PREMIUM INCOME LIMIT - limit of premium that the CH-MGA can accept

12.2 = NOTIFIABLE PERCENTAGE OF THE LIMIT NOT TO EXCEED - identifies a “trigger point” where it must warn the insurer

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13
Q

What are sections 13.1 and 13.3 under a BAA

A

13.1 = PERIOD OF INSURANCES BOUND - the duration of policies that the MGA can offer

13.3 = MAXIMUM ADVANCE PERIOD FOR INCEPTION DATES - how early an MGA can quote business before inception

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14
Q

What are sub-sections 16.1-16.2 under a BAA

A

16.1 = THE COVERHOLDERS-MGAs COMMISSION - what % of premium is the CH-MGA paid

16.2 = CONTINGENT OR PROFIT COMMISSION - what % of profit is the CH-MGA paid

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15
Q

What is section 19.1 under a BAA

A

19.1 = APPLICATIONS OR PROPOSAL FORMS - describes the necessary application process

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16
Q

What is sub-section 20.1 under a BAA

A

20.1 = WORDINGS, CONDITIONS, CLAUSES, ENDORSEMENTS, WARRANTIES AND EXCLUSIONS APPLICABLE TO INSURANCES BOUND - makes it clear what terms and conditions must apply to risks bound under the BAA

This is an important section which lists all of the market exclusions as well as the class specific ones.

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17
Q

What is section 20.5 under a BAA

A

FORMAT OF CONTRACT DOCUMENTATION - specifies what should be on any certificate issued by the MGA

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18
Q

What is section 20.6.9 under a BAA

A

SEVERAL LIABILITY NOTICE - the concept that each insurer is not liable for any more than its agreed share

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19
Q

What is sub-section 20.6.10 under a BAA

A

NAME AND ADDRESS TO WHICH INSURED SHOULD DIRECT ALL CLAIMS - might be CH-MGA or TPA

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20
Q

What are sub-sections 20.8-20.8.1 under a BAA

A

20.8 = COMBINED CERTIFICATES - Lists the other insurers privy to contract (if shared)

20.8.1 = IDENTITY OF INSURERS - as required by section above

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21
Q

What are sections 21.1 21.1.1 and 21.1.6 under a BAA

A

21.1 = PROCEDURE FOR THE HANDLING AND SETTLEMENT OF CLAIMS - states whether the CH-MGA has to report claims to the insurer

21.1.1 = PER CLAIMS LIMIT OF AUTHORITY

21.1.6 = NAMES AND ADDRESSES OF 3RD PARTIES TO BE INSTRUCTED BY COVERHOLDER - Lists the contacts of experts

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22
Q

What is sub-section 23.2.1 under a BAA

A

BASIS OF MONITORING AGGREGATE EXPOSURES - Lists the aggregate limits on the contract

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23
Q

What is sub-section 23.2.2 under a BAA

A

AGGREGATE REPORTING INTERVALS - typically monthly

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24
Q

What is sub-section 23.2.3 under a BAA

A

MAXIMUM TOTAL AGGREGATE LIMIT - limit on the whole contract

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25
What is sub-section 23.3 under a BAA
STATISTICAL INFORMATION REQUIRED BY THE UNDERWRITERS
26
What are sub-sections 24.2 and 24.3 under a BAA
24.2 = PREMIUM BORDEREAUX INTERVAL - typically monthly 24.3 = CLAIMS BORDEREAUX INTERVAL - typically monthly
27
What are sub-sections 24.4 and 24.6 under a BAA
24.4 = MAXIMUM PERIOD FOR SUBMISSION OF BDX - # of days a CH-MGA has to submit its bdx 24.6 = MAXIMUM PERIOD FOR REMITTANCE OF SETTLEMENTS - time limit for submitting its monies either to or from insurers
28
What are sub sections 36.1.1 and 36.2.2 under a BAA
36.1.1 = NUMBER OF DAYS NOTICE OF CANCELLATION - applies to cancellation of BA not insurance 36.2.2 = NAME AND ADDRESS TO WHOM COVERHOLDER SENDS NOTICE OF TERMINATION
29
What is sub-section 42.1 under a BAA
JURISDICTION AND GOVERNING LAW STATE - section indicates where any dispute between the insurer and CH might be heard (usually where CH is based)
30
What 2 things are listed at the start and end of a BAA
1. Agreement number 2. UMR
31
What is the last section of a BAA
Signatures of both the CH-MGA and the insurer
32
What 2 sections refer to one another in a BAA
The wording and the schedule. The two need to make sense together.
33
What 3 other supporting documents can be captured in a delegated authority agreement
1. Relationship management - naming personnel to whom questions should be directed to 2. Issue escalation - when and how should issues be reported 3. General referral processes - the CH-MGA might have some standards of the insurer that they want written into the contract
34
What system is used for submitting binding authority arrangements for approval from Lloyd’s
Delegated Contract & Oversight Manager (DCOM) Previously known as Binding Authority Registration (BAR) The system allows Lloyd’s to check that the authority given under a BA is within the approval granted to the CH by Lloyd’s
35
36
When can managing agents handle the registration process on DCOM without a broker
If they have: - a direct deal managing agents (DDMA) relationship, requested through ATLAS - a central settlement number (CSN), essentially a broker code held by a managing agent to dictate the routing of funds in either direction, held in conjunction with the Lloyd’s Delegated Authority Team (DAT) and Velonetic/Xchanging
37
What was the contingency plan to deal with the impact of Brexit on insurers
Insurers set up an EU domiciled insurer (if they didn’t have one already) and transferred all risks and claims for EEA business to that insurer. CH-MGAs had to set up agreements with Lloyd’s Brussels for EEA risks, non-EEA risks continued to be written under their current authorities.
38
What sections under a lineslip agreement are different from a BAA
1. TYPE - states whether the slip is bulking/non-bulking 2. Choice of law and jurisdiction of lineslip - sets out disputes arising between insurers subscribing to the lineslip 3. Premium payment terms - is each risk paid to insurers separately or is it the leads responsibility
39
What does ‘jurisdiction’ and ‘law’ mean in the context of insurance
Jurisdiction = The location of the courts Law = the set of rules that apply
40
What are consortium agreement documents most similar to
Lineslip agreements As they are the same as lineslips but just don’t involve a broker
41
Who published a model consortium agreement
The Lloyd’s Market Association (LMA) - the body that represents MA of the Lloyd’s market
42
What is the name given to the pre-group of insurers who agree claims processes
Agreement parties
43
What situation would require all insurers to agree a settlement
An ‘ex-gratia’ settlement Where a claim is outside the terms of a contract but is paid to maintain good relationships with policyholders, brokers, MGAs.
44
What types of claims have to be referred to the insurers
‘Over authority claims’
45
Who normally makes the claims handling decisions in a lineslip or consortium agreement
Typically the agreed lead(ers) of the UW authority - this should be set out in the document.
46
What are the 3 main matters for which claims will normally be referred to the insurers under a binder
1. If a claim is being denied 2. Serious personal injury claims 3. Matters where insurers are being sued by the insured
47
What type of relationship does an agent have with their principal
A fiduciary (trust-based relationship) duty
48
What remedies does a principal have if an agent fails in their duties
- sue for damages for breach of contract - sue the agent in tort - dismiss the agent without notice or compensation (only in serious cases) - sue the agent to recover a bribe paid to the agent - rescind any contract made through the agent and refuse commission (if breach is fraudulent) - sue for an account if the agent fails to disclose full financial details Hopefully the agent’s prof. Indemnity insurance will respond to failings of the agent
49
Is the broker privy to contracts of insurance or contracts of delegation
Neither Unless the broker is also a CH, then they will be privy to the contract of delegation NOT insurance
50
What 2 considerations are an important part of an insurers due diligence of a CH-MGAs professional indemnity insurance
1. Does the limit of insurance cover the largest risk that the CH-MGA has authority to accept 2. Is there an exclusion relating to activities performed under a binder
51
When would an agent have remedies against the principal
If the principal fails to comply with the contract. I.e failing to pay agreed commissions
52
How does the Contract Certainty Code of Practice define contract certainty
“Contract certainty is achieved by the complete and final agreement of all terms between the insured and the insurer by the time that they enter into the contract, with contract documentation provided promptly thereafter”
53
What is a simple process that prevents issues with contract certainty
Version control - where amendments are made to documents a clear timestamp of when each version was applicable at any one moment in time is important (particularly when claims are advised some time after the policy year)
54
What post bind matters would necessitate all insurers agreeing to them
1. An increase of limit of liability of more than 10% 2. An extension in the period of cover for more than 30 days 3. An increase in the gross aggregate premium limit 4. A material variation in ratings, exclusions or terms and conditions 5. A class of business or territorial extension 6. A material amendment to vary commissions and fees 7. Any other material amendment
55
What are some implications of a poorly constructed contract for an insurer
- wider cover has been granted than desired - unclear termination provisions can leave insurers on risk for longer than expected - reputational impact if CH-MGA acts outside of authority - having to deal with claims - regulatory issues if documents are not clear - penalties if taxes/charges are not paid due to unclear who had responsibility - failing any contract certainty checks
56
What are some implications of a poorly constructed contract for a CH-MGA
- finding authority narrower than expected - reputational impact of insurers withdrawing authority - reputational impact of poor claims handling due to unclear wording - cancellation due to insurers not being confident in MGAs ability to issue contracts
57
What are some implications of a poorly constructed contract for an insured
- claims delayed due to queries over coverage - if insurance is one that is compulsory, there may be legal ramifications for not having correct insurance in place
58
What is the requirement of ‘problem case monitoring’ wrt to Lloyd’s And what are some examples of problem cases
Problem cases, need to be notified to Lloyd’s Some examples of problem cases are an MGA: - becoming insolvent - committing a criminal offence or acted fraudulently - materially breaches contract terms or conditions - failed to pass funds from policyholders - behaved in a way that risks Lloyd’s licences, the central fund or Lloyd’s reputation - incorrect or inappropraiate use of the Lloyd’s brand guidelines - systems that are not ‘fit for purpose’
59
What are some practical issues of non-renewing a delegated contract
1. Run off in-force contracts 2. Tacit renewal - in some jurisdictions, policies automatically renew unless notice of cancellation is given in a predetermined set of time. 3. Claims handling - if claims are handled by a TPA then claims files and funds should be taken back in-house from the CH 4. Removal of access to branded certificates - the insurer needs to ensure that customers are not being issued paperwork with its brand or logo
60
What are some reasons for the early cancellation of a delegated contract
1. Poor performance 2. Acting outside of authority - insurer has to ratify contracts of insurance that it would not have wanted to enter otherwise 3. Financial issues - failure to pass, manage or account for funds 4. Audit failure 5. Loss of authorisation - if the CH-MGA loses its ability to bind business by its regulator 6. Change of ownership - if the insurer does not want to conduct business with the new owner
61
Who should do the run off process
Typically the CH-MGA If for whatever reason it is too risky to allow them to manage this, then the insurer may want to transfer this responsibility to another party

M66 - Delegated Authority (8 decks)

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