5.1 Different ways of writing business London

Subscription market

Insurers must build relationships with Client + Broker to maintain business

1. Price
2. Speed
3. Aggregations

Check for UNDERWRITING RESITRICTION

Concept of fronting is reinsurance

Advantages

1. Access business not otherwise available
2. Reinsurers control drafting of the contract
3. Reinsurers can implement claims control

Disadvantages

1. Original insures ignore wording & settle claims WITHOUT reinsures involvement
2. Commissions

LM3 - C3 - Business Planning#Why Business plan?

What is the source of risks and platform/structure

What are the distribution methods?

1. Only Open-Market basis or Delegated underwriting? How to manage/mitigate Exposure

Fac RI Consider each risk on its own merits
Proportional treaty (QS/SL) = Require Risk Bordereaux

Layers and appetite

When will insurers respond in a tower and Retention from insured

1. Are legal cost within sum insured?
2. Will erode the limit layer & upper layers exposed more rapidly.
3. Legal cost in addition to policy limit with no financial cap... LOWER level will face with a larger defence cost burden HAS to STATE IF SHARED with upper layers. (Layers should have similar terms of cover OR could not be recoverable)

5.2 Distribution methods

Local and overseas branches

Lloyds Brazil, Dubai, Australia, Singapore, China, USA, Brussels

Location between insurer, retail and wholesale broker

1. Lloyds moat allowing brokers to place business via market place and
   USA direct business Admitted status or only as a surplus lines carrier.

Delegated authority to another insurer under a Lineslip/Consortium or to a third party under a binder, (control is being lost)

Link into pre-existing networks

Group/affinity programmes

Group of customers associated with a bank OFFERS insurance products. (Monthly fee bank provides benefits)

What are the exclusions? Travel insurance for over 70s
Conduct risk? LM3 - C5 - Distribution#5.6 Underwriting controls and peer review

1. Group/affinity programmes (travel insurance, phone, car breakdown, phone)

Master policies

1 policyholder (bank or employer) cover provided to members of that group.
Company buying private health care for employees or liability cover for professionals

Line Size = Risk Appetite + Capacity of BOOK

2. Master policies - coverage is provided to members of group

5.3 Different types of delegated underwriting authority

Partnering with other insurers

What is bind authority and how it operates

....

lineslip

Broker organises groups of insurers
Lead insurers bind follow markets.
Followers can get bound to risk outside there authority and need to be diligent

Consortium

• Renewable energy book
• Leader responsible for reporting bound risks
• Consortium partners and construction extension

5.4+5 Stakeholders roles and responsibility + Advantages and disadvantages of lineslip, BA, consortium

Using partners to attract business

1. MGA (Volt) have 1 principle which is insurer
2. Broker can be Coverholder but 2 principles = conflict
3. MGU (managing general underwriter)

Risk vs benefits:
cost effective grouping of small risks

MGA - depends on location but OPEX lower on per risk basis even with commissions, localised claims handling, vs employing inhouse underwriting team.

high quality security, reputational benefits and fairly free to run book.

Insurer may by pass MGA

Pros
high quality risk for low value, high volume,
overseas business
built relationships with MGA

Con
dependent on 1 MGA
additional regulatory + compliance
Authority = additional headcount (Responsibility) increase base cost
Loss relationship with other insurers (How Secure is the process?)

Identify risks then steps to mitigate and manage them.

Acquisition costs

More parties in chain = higher acquisition cost VS Open-market business

Individual risk premium LM3 - C4 - Pricing#Risk Premium cover the cost for losses eroded by high acquisition costs

1. Lineslip: Broker placing business onto the Lineslip
2. Consortium: Broker placing business into + Leaders fees and profit commissions
3. Binding Authority:
   1. Broker placing business
   2. Coverholder commissioning for placing business
      1. Getting business placed
      2. profit-based commission

Other cost: TAX, fire brigade
FCA want consumers to get fair price THUS track acquisition costs

Breach of their instruction or action not authorised
WHEN brokers consider markets for placing clients business shouldn't be swayed by additional income from a binder.

Post bind authorised changes
GUA! LM2 - C8 - Business process#8.7 Changes to contract after agreed, approval via GUA & Endt

Brokers role

Conflict of interest arises when

1. Intermediary between Insurer and MGA
2. Coverholder holding authority on behalf of insurer

5.3 Delegated Authority Management

Delegated underwriting and insurers business plan

1. binding authorities
2. Lineslips
3. consortia
   If insurer are not leader under above agreements better focus on the risk is required.

Partner selection

VOLATILITY OF STRUCTERS ABOVE
What is the Teams experience? Risk appetite
Assessment of partners what metrics to consider

Partner approval

For cover holder to be approved at lloyd's syndicate +
Robust operational systems
Underwriters bound by principles for lead and follow business

Coverholder process (investigation)...
ATLAS system...

Regulatory oversight

FCA and PRA + Lloyds partial regulators

Claims outsourcing issues

Lloyds

Risk based approach to approval application
Lloyds approval for parties handling claims
Flexible discretion will allow firms to be given delegated authority without having to obtain Lloyd’s prior approval

sub-delegation of authority
Principle 1 - underwriting profitability

1. DUA reporting to be done at a frequency which allows for effective challenge.
2. pricing adequacy
3. Articulate appetite for open market
   

...

What authority to give

Insurers to give under any delegated authority divided into...

Underwriting

How much authoiry to delegate ? if insurer is not licensed to write risks in a region

binder 1 prior submit is no decision making authority accepted by insurers once decision is make the coverholder can bind

pre agree rating matrix - coverholder agrees based on matrix approved by insurers

Full decision making and pricing within confined agreement
Following insurers → consortium leader → insured risk is bound

Claims - TPAs/DCAs

delegated claims administrator (DCA) for organisations that hold delegated claims authority. or third party administrator (TPA)

No authority at all.. handled by the insurers within
IUA (International Underwriting Association)

Limited financial and factual authority - capped at a $amonunt.
contracts should be clear with rights and duties

Document issuance only

with prior submission -
reputation and track record to date
how much authority and risk benefits
Cost implications

Contract Certainty

document setting out agreement is CLEAR

1. extent of the authority
2. rights and obligations of both parties
   Same principles apply for lineslips and consortium
   or
   binding authority to 3rd party

Value of model wordings

contracts for and of insurance
London Market has formatted templates for the

1. creation of binding authorities,
2. lineslips and
3. lineslip declarations

Insert MCR template how bare structure
OTHER templates include for the schedule to a binding authority only
LMA Clauses

Contracts between insurers, or between insurers and their coverholders, will form the basis of any audit or formal dispute resolution.

Lloyds coverholders contracts issued must contain:

1. Wrapper cover: LMA3136J
2. Schedule or declaration page: policyholder attention of main terms and variable info
3. FULL product wording:
   

The schedule contains specific contract information and adds to the generic wording which contains gaps.

poor contract draft impact on stakeholders

1. insurers:
   1. wider coverage then desired
   2. unclear termination = ON RISK longer
   3. reputational risk
   4. deal with claims
   5. penalties or regulatory issues
2. coverholders
   1. authority narrower
   2. reputational risk
   3. delegated xontracts cancelled
3. insured
   1. claims delayed due to query of coverage
   2. legal ramification for incorrect insurance

5.6 Underwriting controls and peer review

Types of underwriting controls

Individual authorities:

Expressed authorities which are documented. (Risk can only be bound to a certain value) + factual elements.

1. Agreement to non-material Endorsements
2. Inking a line on a piece of business previously agreed by another underwriter
3. Confirming acceptability via electronic systems
   Managing exposure vs empowering people to make decisions

Lloyds principle 1, & sub principle 3:
Managing agents understand risk profiles in order to deliver the agreed business plan
Basis of promotion as gaining authority.

Individual risk control:

Underwriting peer review Check if risk within appetite
historic exclusions removed? Learning experience spotting trends or might need to buy Fac RI
Go easier on underwriter when reviewing.

Higher level Control:

Principles of doing business: Robust governance and oversight in place from executive level to monitor delivery and outcomes in accordance with business plan.
Underwriting guidelines.

Conduct and product risks

Delegate underwriting attracts low value, high volume risks.
Presented via BINDERS
Insurer’s conduct should reflect the customer’s level of expertise.
Protecting consumers...

Customer risk: How experienced is intended customer.
Product Complexity: Policy, coverage, exclusions, conditions to understand.
Sales Risk: how long is the distribution chain what control do insurers have and influence over buying something unsuitable.
Service risks: Customers interaction during buying or renewal process of policy.

Higher risk = more exposure to underwriters thus tighter controls

Retail consumers fair outcomes - consumer duty rules
evidencing compliance with conduct risk is a factor

Management and monitoring

Authority that is delegated needs to be monitored via audits

premium/risk bordereaux
premium settlement
document issuance
referrals/quotes
risks written outside authority

Lineslips which are placed via a broker but insurance leader should let follow market know for updates

regular review

data submitted by a coverholder, consortium leader or linelsip broker is easiest way to spot issues early
collect all data for review from a management perspective
what is total exposure

Audit

Binder management

holder of delegated authority is perfoming in accordance with it.

Topics to address:
The company: people involved in the contract, attrition, training, controls, security risk

Accounts: how will funds be held, investments, credit control (premium delay), Tax and regulations

IT: backups, datastorage, data protection, system failures?

Compliance:

Financial crime:

Contract specific: Consider underwriting and claims process in detail for individual binders,

once audit is complete share good and bad findings

1. reccomendations and re-audit date scheduled
2. changing the authority
3. termination

Binder ends:

1. What controls are there in place to prevent coverholders binding risks after their authority ends? If they can issue electronic documentation how does the insurer stop them? • How will coverholders continue to manage live risks? Will they still be diligent? One area of particular importance to insurers is tacit renewals, which occur in some territories whereby insurances are automatically renewed if specific cancellation procedures are not followed. A coverholder no longer particularly interested in the business might not be diligent in following these procedures, thus exposing insurers to longer risks than originally anticipated. • How will the coverholder handle any claims. Does it still have the insurer’s money to pay claims in its account? Should claims handling perhaps be taken over by someone else?

Key points