Chapter 9 - Delegated Underwriting

Question 1

Who delegates their activities + what for?

Answer 1

1. Insurers in LM can delegate some or all of their business activities
2. Brokers can delegate some, such as document production

Question 2

Who is underwriting authority delegated to?

Answer 2

1. Another insurer or set of insurers
2. Lineslip (facility)
3. A broker - this contract is a ‘binding authority’ or ‘binder’
4. Another entity - this contract is a ‘binding authority’ or ‘binder’

Question 3

When underwriting authority is delegated to another insurer, what are the 2 main types of contract in the LM?

Answer 3

1. Consortium - group of insurers that have formed an agreement to accept risks together, in a set proportion
2. Lineslip (facility) - set of insurers brought together by a broker

Question 4

In delegated underwriting, what is a consortium?

Answer 4

•Group of insurers have formed an agreement to accept risks together, in a set proportion

•Risks are sub-divided among the members in pre-agreed way

•Set up for 1 year + has 4 number unique code

Question 5

What does the consortium leader do?

Answer 5

1. Accept/decline risks on behalf of the consortium + will handle the claims
2. Stamps on the slip to indicate each members agreement to take a share of the risk

Question 6

What are the benefits of a consortium for the broker?

Answer 6

•Placing process is potentially shorter as consortium usually accepts larger share of a risk w/ 1 visit + 1 signature

•Less admin

Question 7

What are the benefits of a consortium for the leader?

Answer 7

Most agreements include commission + fees to the leader

Question 8

What are the benefits of a consortium for the followers?

Answer 8

Have access to business without seeing a broker, saves time + effort, + can have access to niche areas

Question 9

In delegated underwriting, what is a lineslip (facility)?

Answer 9

•Set of insurers brought together by a broker who write similar business on similar terms

•Put together using a MRC

Question 10

What are the different ways lineslips (facility) operates with delegation?

Answer 10

1. Normally, 1 or 2 insurers act as leader + agree risks on behalf of others
2. No delegation + each insurer agrees their own participation
3. Contract labelled as lineslips even though there’s 1 insurer on it - this is don’t to process risks through Velonetic in a bulked/aggregated form

Question 11

What are the benefits of a lineslip (facility) for the broker?

Answer 11

Having pre-set security in place is more efficient when trying to place risks that fall u that criteria

Question 12

What are the benefits of a lineslip (facility) for the followers?

Answer 12

Insurers gain access to business w/out having to agree the risks individually themselves

Question 13

What is declaration in lineslips (facility)?

Answer 13

The individual risk being presented for agreement by the broker so it can be attached to the lineslip

Question 14

Why an insurer would want to delegate underwriting authority?

Answer 14

1. Manpower - there isn’t enough time for insure to underwrite everything directly
2. Local access - insurer wants to access local business w/out setting up offices out of London
3. Other access - insurer wants to access business that wouldn’t come into the London market

Question 15

What should processes + procedures concern for insurance companies who write using delegated authority have?

Answer 15

1. Decision to enter into the contract
2. Choice of partner
3. Setting up of arrangements
4. Ongoing management + monitoring of the account

Question 16

What are the characteristics of a good partner/coverholder for delegated underwriting?

Answer 16

1. Good reputation
2. Well known in its home market
3. Has expertise in niche products or territories

Question 17

Why could a broker being a coverholder/parter in delegated underwriting, give rise to a conflict of interest?

Answer 17

They need to act in best interest of the insured, but shouldn’t favour the insurer who they’re the coverholder for

Question 18

How should a broker being a coverholder/parter in delegated underwriting, manage a conflict of interest?

Answer 18

Identify someone within its firm to hold authority, so only 1 person w/ delegated underwriting deals w/ the insurer + the other with the insured

Question 19

What info does Lloyd’s consider when reviewing new coverholder applications from a Lloyd’s syndicate for delegated underwriting?

Answer 19

1. Suitability + experience of individuals working for the applicant
2. Systems + controls used in applicate’s infrastructure
3. Financial status of applicant
4. Authority of applicant to operate in specified territories

Question 20

How does a Lloyd’s syndicate set up a new coverholder for delegated underwriting?

Answer 20

1. Needs to get approval from Lloyds
2. Potential new coverholder can be sponsored by broker or supported by a managing agent - managing agents must complete due diligence to investigate coverholder
3. Sponsoring broker starts the electronic process via ATLAS + coverholder finishes application + uploads documents (e.g. financial statements, etc)
4. Application is considered by Lloyd’s within 25 working days
5. When approved, the coverholder signs the ‘coverholder undertaking’, setting out the high standards from Lloyd’s
6. Coverholders annually review details on ATLAS + provide core info (updated PI certificates + financials) to Lloyd’s

Question 21

What are the 2 main types of coverholder in Lloyd’s Market for delegated underwriting?

Answer 21

1. Approved coverholders
2. Service company

Question 22

What is a ‘service company’ as a type of coverholder in Lloyd’s Market for delegated underwriting?

Answer 22

•Set up by a managing agent as a separate company

•Obtains authority to underwrite under a binding authority from a syndicate - so, delegation is carried out between firms within the same corporate group

Question 23

What is the benefit of ‘service company’ as a type of coverholder in Lloyd’s Market for delegated underwriting?

Answer 23

1. Allows Lloyd’s insurers to access more business overseas + have presence in other countries
2. Used by Lloyd’s syndicates to write personal lines insurances, such as motor, which wouldn’t be efficient to write in the traditional Lloyd’s format

Question 24

What are the 4 types of delegated underwriting authority?

Answer 24

1. Full authority - complete control given within boundaries of the contract
2. Pre-determined rates - price matching or discretion are allowed for renewal businesses
3. Pre-determined rates w/ no discretion - no change is made from the rating matrix
4. Prior submit - all risks are referred to UW prior to binding

Question 25

What are the 3 parts of the binding authority agreement document?

Answer 25

1. Binding authority schedule 2. Binding authority wording 3. Non-schedule sections - this mirrors elements of the MRC + binding authority registration date + number

Question 26

What are the 4 binding authority agreement document templates?

Answer 26

1. US non-marine model binding authority agreement 2. Canadian non-marine model binding authority agreement 3. Non-marine binding authority rest of the world 4. Lloyd’s Brussels coverholder appointment agreement

Question 27

In the binding authority agreement document, what is included in the ‘binding authority schedule’ section?

Answer 27

1. Agreement number (unique number given to the contract) + unique market reference number 2. Coverholder name + address 3. Broker - (sits in between the insurer + coverholder) 4. Agreement section 5. Agreement number + UMR (same as beginning) 6. Coverholder signature + insurer/UWs signature + date

Question 28

What do aggregates enable insurers to do?

Answer 28

Monitor the risks it’s writing directly + those being written under delegated authority contracts

Question 29

What is a bordereaux in delegated underwriting?

Answer 29

•Used by coverholders to send info to insurer on a regular basis (monthly/quarterly) •They set out all the risks that have been written + claims that have been submitted during that period •The insurer will analyse the risks being written + validate compliance with/ the terms of the binding authority

Question 30

What does the market aim to create in relation to binding authority agreement documents?

Answer 30

A binding authority contract builder, which would break down the document onto modules that can be bolted together as required

Question 31

Which of the Lloyd’s principles for doing business relate to delegated underwriting?

Answer 31

1. Underwriting profitability - underwriting strategy sets out appetite for delegated authority 4. Claims management - articulated appetite for outsourcing claims + reporting from any party to whom claims are outsourced 5. Customer outcomes - conduct culture promotes good customer outcomes + 3rd party provides are engaged + managed properly 11. Regulatory + financial crime - systems implemented by coverholders deliver contracted activities at appropriate standard + financial crime training/audits are done

Question 32

How does a syndicate register binding authority agreements?

Answer 32

1. Register online using ‘delegated contract oversight manager (DCOM)’ - this captures info about contracts + type of business conducted under binding authority 2. Once registered, a date + unique number is allocated 3. Then, this is put onto the binding authority MRC + submitted to Velonetic for enter onto the risk data systems

Question 33

What is Lloyd’s system, ‘delegated data manager’?

Answer 33

A bordereaux managing system that aims to capture + cleanse large amounts of data from the delegated authority + generate reports from it

Question 34

What ongoing procedures does the insurer need to do for coverholders with delegated underwriting?

Answer 34

1. Analyse the monthly/quarterly bordereaux reports from the coverholder + advise them of info they want included 2. Ensure document/certificate is being issued by the coverholder + give the template (including binding authority agreement + local regulations that apply) 3. Perform regular audits on the coverholder + follow up to discuss areas of concern

Question 35

What are the areas of examination in an audit of delegated underwriting by insurers?

Answer 35

1. Underwriting 2. Accounting + financial reporting 3. Credit control 4. IT systems 5. Documentation control 6. Compliance w/ Lloyd’s or other regulations

Question 36

What activities do insurers outsource?

Answer 36

1. Claims handling 2. Underwriting risks 3. Data capture 4. Money movement

Question 37

How do insurers outsource premium processing + risk data recording?

Answer 37

In Lloyd’s + company markets, data capture of risk info + money movement for premiums are centralised using Velonetic (Xchanging Ins-sure Services)

Question 38

What are the different ways insurers outsource claims handling?

Answer 38

1. Leading insurer can outsource to another organisation, such as Velonetic claims services as a claims decision maker or spscalist providers (lawyers/loss adjusters) 2. Velonetic captures claims data, facilitates messages to insures, + the movement of money between insurers + brokers

Question 39

Under delegated authority, what is the delegation of claims within a ‘consortium’?

Answer 39

Often handled by the consortium leader

Question 40

Under delegated authority, what is the delegation of claims within a ‘lineslip’?

Answer 40

Often handled in accordance w/ the market claims handling rules for open market business, but may be delegated to lineslip leader

Question 41

Under delegated authority, what is the delegation of claims within a ‘binding authority’?

Answer 41

Claims handling authority given to the coverholder or insurer delegates to seperate entity, such as loss adjuster or 3rd party delegates claims admin