A New
Approach toThird Party
Oversight
Consultation Document
January 2019

2

1

Consultation1.

Lloyd’s is proposing to make changes to its requirements and processes for delegatedunderwriting and delegated claims handling. These changes are designed to modernise
our arrangements, support reduced compliance costs and support a new risk-based
approach to oversight. We believe these changes will make our prudential oversight ofthe market more robust and will drive better policyholder outcomes.

2.

The changes will involve making amendments to the Intermediaries Byelaw, theRequirements made under the Intermediaries Byelaw1 and to the ‘Code of Practice Delegated Authority’2. These changes will also be supported by a new integrated online
system to replace the current ATLAS and BAR systems.

3.

Before making the changes, Lloyd’s is consulting on its proposed new approach and on
the corresponding required changes to the Intermediaries Byelawand the associatedRequirements. The byelaw changes will provide the framework provisions we need to
put in place and, in due course, we will publish the more detailed rule changes that willmore fully implement the proposals set out here. You can find details on how to respondto the consultation by visiting www.lloyds.com/a-new-approach-to-third-party-oversight.
Lloyd’s will also be actively engaging with the market, including relevant market
associations, to obtain feedback.

4.

In summary, we are proposing to make the following changes –a.

Lloyd’s will embed a risk-based approach to delegated authority approval andoversight, meaning that it will focus its resources on higher risk arrangements andwill place more reliance on managing agents’ own judgments where Lloyd’s
assesses the risk as lower. Our risk-based approach will have regard to the risk
profile of the firm in question, the products it deals with and also the capabilities of
the relevant lead managing agent. Approvals for more straightforward applications
including certain changes to permissions will in some cases be automated to be
dealt with on the new system without the need for a member of the DelegatedAuthority Team becoming involved.

b.

The new approval and ongoing oversight process will be supported by an LM TOM
funded replacement to the ATLAS and BAR system to be known as Chorus. It will
also have a binding authority contract builder functionality to make it easier toachieve placements with ‘right first time’ binding authorities.

c.

We propose to bring claims third party administrators (TPAs) into the scope of
Lloyd’s oversight so that they will require Lloyd’s prior approval before appointment
and they will be subject to Lloyd’s ongoing oversight consistent with thearrangements already in place for coverholders. TPAs are a key part of Lloyd’s
service network but at present are assessed individually by managing agents, eachof which will have their own, different due diligence criteria. There is therefore alack of consistency of approach to TPAs and the quality of the due diligence is

1 All byelaws referred to in this Consultation Document and any requirements made pursuant to those byelaws canbe viewed at www.lloyds.com/actsandbyelaws.
2 Available at www.lloyds.com/coverholders

3variable. We believe TPAs would benefit from the centralised oversight already inplace for coverholders, which will offer TPAs and managing agents a single, bestpractice approach. Once approved these TPAs will be able to use the Lloyds brandand refer to themselves as a ‘Lloyd’s Approved Claims Administrator.’d.

We are proposing to introduce into our rules a new category of firm that can havedelegated authority to underwrite or determine claims on behalf of underwriters
without first obtaining prior Lloyd’s approval to be a coverholder or TPA. Before
delegated authority can be given, however, the firm will need to satisfy certain
criteria prescribed by Lloyd’s or otherwise obtain express agreement from Lloyd’s tothe delegated authority. Creating this new category will give Lloyd’s flexibility that itpresently lacks to allow certain types of arrangement for delegating underwriting or
claims handling that do not fit well within our current coverholder approval regime.
In particular, we believe introducing this new category is important as it is clear thatour present requirements do not work well for products sold via the internet by firms
operating automated online systems where the use of such systems can reduce
operational risk and do not merit being subject to the full approval process. Ourcurrent requirements also do not work for high volume products being sold by firms– ‘distributors’ – that have a fixed or system generated price and terms and which
do not involve any individual risk underwriting. These products are often sold toconsumers alongside other retail purchases. Subject to managing agents having
appropriate controls in place, which we are prescribing, we believe that the firms
selling these products should not be required to go through the full coverholder
approval process.

e.

We are updating our rules to remove the strict prohibition currently in place for subdelegation. We continue to view sub-delegation as undesirable in most cases but it
is clear that there are times where sub-delegation should be allowed, if
appropriately controlled. This particularly can be the case where coverholders wish
to distribute products through ‘distributors’ or online portals, which can involve a
limited element of sub-delegation. At present there is no flexibility in ourrequirements to allow sub-delegation regardless of the risks posed. We propose tochange our rules to allow Lloyd’s greater discretion. All forms of sub-delegation
will, however, still be subject to strict requirements, which we will prescribe; subdelegation will still only to be permitted in restricted cases or will need to be agreed
with Lloyd’s on a case by case basis.

f.

A number of other more limited changes are proposed to the Intermediaries Byelaw
and the Requirements made pursuant to that Byelaw, which are summarised at theend of this document.

5.

We believe that the package of measures in this Consultation Document will not only
support good oversight but they are also integral to supporting the ‘ease of doing
business’ objective for delegated authority business at Lloyd’s.

6.

The detailed proposals are explained in the next sections. We are also making available
the byelaw amendments we intend to make and the related amendments to theRequirements made pursuant to the Intermediaries Byelaw - these will allow us to deliver
the changes. We will, in due course, publish the more detailed changes to the ‘Code of

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Practice – Delegated Authority’ which will implement a number of the changes discussed
in this document.
7.

This Consultation Document contains a number of specific queries upon which we areinviting comment. However, consultees are welcome to provide comments generally onthese proposals.

8.

This Consultation Document is being made available to all managing agents, the Lloyd’sMarket Association, all members’ agents, the Association of Lloyd’s Members, theWholesale Speciality Insurance Association, the Managing General Agents’ Associationand to the London and International Insurance Brokers’ Association, as well as to existing
coverholders and TPAs.

9.

Details of how to respond to the consultation can be found by visiting our webpage at
www.lloyds.com/a-new-approach-to-third-party-oversight where a copy of this document
and other supporting materials, including details of our proposed byelaw and requirementchanges, can be downloaded. All responses must be received by 15 April 2019. If
you have any questions or would like more information, you can contact
coverholders@lloyds.com.

2

Background and context to our proposals

10.

The Lloyd’s market currently underwrites around £9 billion of premium each year throughits network of delegated underwriting arrangements. This represents around 30% of themarket’s business.

11.

At Lloyd’s, the principal way of giving delegated underwriting authority is by appointing
firms known at Lloyd’s as ‘coverholders’3. They are authorised to enter into (i.e. ‘bind’)contracts of insurance with policyholders in accordance with the authority given to themby the syndicate on whose behalf they are underwriting. The coverholder’s authority will
be set out in contracts of delegation which are known as ‘binding authority agreements’.

12.

Typically, coverholders write relatively high volume, low individual premium business
which is predominately consumer and SME business, although some coverholders do
write commercial risks or reinsurance. Currently, Lloyd’s has around 4,300 coverholder
offices worldwide (including service company coverholders) operating under more than
5,100 binding authority agreements. There has been a significant rise in the number ofcoverholders and the premium income they write over the past decade.

13.

Coverholders themselves vary enormously in terms of size, complexity and operational
capability. There have also been very significant changes in the operational anddistribution methods that coverholders employ. The rise in the use of technology has, inparticular, revolutionised many aspects of the way coverholders can now do business in a

3 Delegated authority can also be given to other managing agents pursuant to consortium agreements and line slips.

Paragraph 1 of the Intermediaries Byelaw also provides for other limited cases of permitted delegated underwriting
authority. However, presently, largely the only form of delegated authority to third party firms at Lloyd’s arecoverholder arrangements.

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way that could not have been imagined even 15 years ago when the current frameworkfor delegated underwriting oversight was adopted by Lloyd’s. This includes theautomation of underwriting and the mass selling of insurance products via the internet.
14.

When operated well, the coverholder model can be an efficient method of accessing
business that would otherwise be uneconomic or impractical for a syndicate to write direct
through its managing agent. Coverholders allow the Lloyd’s market to provide insurance
solutions and services to policyholders who would not otherwise have access to themarket. Coverholders therefore remain a highly valued and core part of Lloyd’s
distribution strategy.

15.

In addition to coverholders, the market is supported by a network of firms with claims
authority. These are normally referred to as ‘third party administrators’ or ‘TPAs’. The
Lloyd’s market uses the services of around 500 TPAs worldwide. In addition, many
coverholders will have some level of claims authority. As with coverholders, TPAs will
typically deal with consumers or SME claims and they will often work closely withindividual coverholders to service claims on their binding authority agreements.

16.

Together, the coverholder and TPA community represent key outsourcing partners that
support the market. In this role, they play a valuable role as the face of the Lloyd’s
market to many of our consumer and SME policyholders, representing and promoting the
Lloyd’s brand worldwide.

17.

Lloyd’s has long recognised, however, that if not properly managed, the delegation ofunderwriting and claims authority to third party coverholders and TPAs can bring with it
additional risks to Lloyd’s, policyholders and the syndicates that operate in the Lloyd’s
market. The occasions when coverholders or TPAs have caused the market serious
issues are, it should be acknowledged, relatively rare but history has shown that failure to
manage the risk can be costly and time-consuming to resolve and policyholders can be
impacted. And managing the risk is not only about avoiding things going wrong. On thepositive side, by identifying the risks that can arise and educating managing agents,
coverholders and TPAs about these risks there is also an opportunity to promote a
culture that continuously looks to raise standards and adopt best practice.

Risks to be managed
Conduct Risk
In the UK/EEA alone the Lloyd’s market currently has approximately 15 million
consumer and SME customers most of whom will have bought their policies throughcoverholders and many of whom will have their claims handled by a TPA. Theinteraction that the customer has is with the coverholder or TPA and accordingly Lloyd’s
needs to be confident they have the right conduct risk controls in place.
Credit Risk
Almost all coverholders will handle premium as agents for Lloyd’s underwriters. The
binding authority agreement will set out the basis on which that premium is held and6

how quickly the coverholder must remit the premium to underwriters. TPAs will typicallyhold loss funds on behalf of Lloyd’s underwriters. Accordingly, Lloyd’s underwriters
may face a credit risk in the event of default.
Underwriting Risk
The majority of Lloyd’s coverholders have some level of delegated underwriting
discretion and 26% have full underwriting authority. Underwriters therefore need tohave confidence in the quality of the underwriting decisions of the coverholder; poor
underwriting can result in syndicates making significant losses. In more severe cases,
underwriters are also exposed to the risk that a coverholder may write business outside
the terms of its authority either deliberately or because of a lack of proper controls.
Reputational and Regulatory Risk
Coverholders in particular hold the Lloyd’s ‘brand’ and coverholders whose conduct
does not meet the standards expected of someone representing the Lloyd’s market can
impact Lloyd’s reputation. Improper behaviour on the part of a coverholder or TPA may
also have an adverse impact on Lloyd’s licensing arrangements.

Current Lloyd’s Controls
18. Given the risk profiles of these entities, Lloyd’s Performance Management Directorate(PMD) has for many years overseen and supervised the coverholder distribution networkand more recently it has put in place oversight controls for TPAs. These controls areprimarily as set out in the Intermediaries Byelaw, the Requirements made pursuant to theIntermediaries Byelaw (which sets out some of the more detailed rules) and the ‘Code ofPractice - Delegated Authority’. Lloyd’s has also prescribed a number of minimum
standards that are particular to delegated authority arrangements4.

Coverholder controls
19.

The current principal controls for coverholders include –
•
•

•
•
•

approval of all new coverholders
setting (and agreeing changes to) the permissions that a coverholder has tounderwrite on behalf of syndicates at Lloyd’s (e.g. by reference to the classes that acoverholder can underwrite or the territories in which they can bind risks)
an annual compliance check (Ongoing Coverholder Oversight)
maintaining a register of binding authorities
setting minimum standards for managing agents to meet for delegated authority
arrangements

4 All Minimum Standards can be found at www.lloyds.com/minimumstandards.

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Where Lloyd’s sees coverholders falling below the standard expected of them, Lloyd’s willtake pro-active steps to intervene, which in the final instance can include removing acoverholder’s approval. Lloyd’s also expects managing agents to exercise oversight overtheir coverholders as set out in the Customer Minimum Standards MS9 and Lloyd’s
reviews managing agents for their compliance against those standards. Best practice isalso promoted, for example through the promotion of model contracts of delegation andthrough regular training.

TPA controls
20.

TPAs do not currently require Lloyd’s prior approval to be given delegated authority.
However, since the introduction of Lloyd’s Claims Management Minimum Standards in2005 (incorporated into the Customer Minimum Standards MS9 with effect from 1
January 2019) managing agents have been required to carry out appropriate due
diligence before appointing TPAs and since 2012 managing agents have been required
to notify Lloyd’s of any TPA that they intend to appoint. In 2013, Lloyd’s required
managing agents to also notify Lloyd’s where they intended to delegate claims handlingfor open market business where that delegation constitutes an important outsourcing
arrangement and is in respect of contracts of insurance of a particular category or class
rather than for an individual claim.

The reasons for making these proposals
21.

The current controls, outlined above, have for the most part remained unchanged for anumber of years (in the case of coverholders since 2003). While there have been some
important enhancements including the introduction of the Minimum Standards both fordelegated underwriting and claims handling, the framework in place is still much thesame. The following factors drive the need for change to our oversight framework –•The considerable growth in delegated authority arrangements means that Lloyd’s
and the market need, more than ever, to ensure that the approval and oversightprocess focuses on the key risk areas and attributes for sustainable and well-run
business. Our rules and controls need to be risk-based and more flexible so we
can be better focused on the things that really matter.

•

There have been major changes in distribution techniques including the use of
online technology for sales, claims, marketing and data reporting. These mitigate
some risks and potentially increase other risks (such as data security). Our rules
need to be better at accommodating the rapidly changing landscape both to ensure
we can be flexible in allowing new distribution methods and to ensure theassociated risks can be managed.

•

Managing agents have developed their internal resources and processes tooversee delegated authority arrangements. For instance, most managing agents
now have dedicated first line Delegated Authority and Conduct Teams and haveinvested in bordereaux management systems. They have also implemented
sophisticated frameworks to meet Lloyd’s Minimum Standards as they relate to8delegated authority, conduct and claims and so are better at proactively managing
their own business. Our current framework, however, has not evolved to recognise
this change and does not support Lloyd’s adopting a flexible, risk-based approach
which would allow us to place greater reliance on the improved capabilities ofmanaging agents.
•

Given the importance of TPAs to the market and the common risk factors that theyshare, the different treatment of TPAs compared to coverholders is now difficult tojustify. A central due diligence platform is currently provided through the Charles
Taylor LME database, the development of which was initiated by the market. That
has provided significant value, both in terms of functionality and in pushing themarket towards a more common best-practice approach. Nevertheless, the fact
remains that our requirements do not support a consistent risk-based approach to
TPA approvals and ongoing compliance, particularly when compared to ourframework for delegated underwriting.

•

Regulatory expectations have continued to develop over the years since theIntermediaries Byelaw was made. This is seen, for example, with theimplementation in 2018 of the EU’s Insurance Distribution Directive, the FCA’s
increased expectations for outsourced arrangements and the management ofconduct risk. Our requirements need to evolve to reflect these changes in theregulatory environment.

•

The market is investing considerable resources through the LM TOM initiatives toachieve market efficiencies and we need to ensure the delegated authority
processes both can take advantage of and are aligned with those changes.

3

The principles underpinning the new risk-based approach

22.

The proposals in this Consultation Document are based on the following operating
principles –23.

We want to be risk-based. At present, each year, Lloyd’s PMD deals with around 6,000
requests for delegated authority permissions of one type or another or a related activity,
all of which generates a ‘task’ to be completed. These cover new coverholder application
requests, requests for change of permissions (including permissions relating to territories
and classes of business), change of coverholder details and annual compliance checks.
For the more complex risks, it is right that Lloyd’s should be actively engaged with theapplication, but in reality, the majority of these requests do not raise issues that pose arisk for the Society and Lloyd’s role in processing them is predominately administrative.
But processing these tasks takes time both at Lloyd’s and for the requesting managing
agent or broker. In the future, we want to focus on higher risk factors. We also recognisethat many managing agents have their own sophisticated approach to managing the risks
involved and, where appropriate, we want to reduce the burden on all parties by being
able to place more reliance on managing agent’s own capabilities in assessing the risk ofan arrangement.

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24.

We want to be consistent and remove duplication of effort. We believe all third
parties, both coverholders and TPAs, should be dealt with in a consistent way. Thatmeans both ensuring that our third party network operates to a consistent standard but it
also means that participants should not be subject to multiple and different compliancedue diligence checks with the accompanying duplicative requests for information. Where
possible and appropriate we should drive single data collection from third parties with asingle source of validation.

25.

We want to be joined up and use integrated systems. The market is investing insystems through the LM TOM that are designed to provide straight-through processing to
reduce the need to re-key data and to reduce errors. At present the ATLAS and BAR
systems do not link to other key systems. We want their replacements to link directly into
other DA systems. An example would be where DA SATS is used (the London Market
TOM data repository for delegated authority business) as this will support the ‘ease of
doing business’ objective.

26.

We want to make better use of data. At present the limited integration with othersystems offered by ATLAS and BAR means there is a lack of shared data, which impacts
the quality of the oversight that can be performed by Lloyd’s. We want to make sure weare making the best use of data to drive better informed engagement in support of ourprudential oversight of the market.

27.

We want to embed flexibility into our rules and systems. We want to make sure ourrules and processes keep up with changes and can be adapted to address new risks,regulatory requirements and ways of working. In the past we have had difficulty
responding to changes because our rules and systems are not sufficiently flexible. We
need to future proof our rules and processes as far as possible.

28.

We want to drive efficiencies and remove friction when onboarding third parties.
We need to ensure that the approval and onboarding process is as frictionless as
possible without compromising on oversight standards.

Consultation Question 1 – Do you agree that Lloyd’s should adopt a risk-based
approach to third party oversight based on the above operating principles?

4

Embedding risk-based approvals and ongoing oversight29.

A key focus of PMD’s current oversight strategy is to embed a risk-based approach tooversight, which focusses on key risk factors and which places reliance on high quality
and effective managing agent oversight capabilities.

30.

In the area of delegated authorities, we currently deal each year with around 6,000 ‘tasks’(permission requests) for delegated authority arrangements (either new coverholder
approvals or to change existing permissions or related tasks). Many of these requests
are low risk. On the other hand, there are an increasing number of tasks submitted to
Lloyd’s where we do need to engage significantly before approval can be given.

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Examples include where the coverholder is seeking permission to write business in aclass that is a focus class of business for Lloyd’s or where Lloyd’s considers that the
distribution proposal raises questions of increased conduct risk. In these cases we would
still want the opportunity to consider carefully the suitability of the proposition.
31.

Rather than process each task without regard to the underlying risk factors to Lloyd’s, wewant to focus only on high risk issues having regard to (a) the nature of the risks involved,(b) the risk profile of the firm in question, including the product it will service, and (c) thecapability of the lead managing agent to oversee that firm.

32.

Our proposal is that, although Lloyd’s will continue to approve all applications or requests
to vary permissions, we will focus our resources on higher risk applications. On thisapproach (which will involve a change of process but does not require byelaw or otherrule changes), a member of Lloyd’s PMD will only need to become involved in theapproval process where an application involves specific higher risk factors, which we willprescribe. The system we will use to replace ATLAS and BAR therefore will allow many
applications to be automatically approved by the system (although in the case of
applications involving overseas licences, a referral to the relevant Lloyd’s country
manager may still be required). The diagram below shows the model for how we intend
to operate our new approach.

R
i
s
k
P
r
o
f
i
l
e

Lloyd’s prior review –Third Party &/or
assess risk areas only
contract with High
Risk features

Third Party &/or
Self-serve approval
contract without
High Risk features

Managing agent –strong capability
profileFull Lloyd’s prior review

Full Lloyd’s priorreview

Managing agent –standard capability
profileManaging Agent Capability

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33.

To achieve this, applications or requests to vary permissions will continue to be made as
now on the Lloyd’s compliance system. The relevant system will no longer be ATLAS but
its LM TOM funded replacement system, Chorus. Chorus will be configured to triage
applications and permission requests having regard to pre-determined risk factors
identified through the application process. This robust identification of risk features will
trigger referrals in set circumstances, ensuring that risks outside of a managing agent’s or
Lloyd’s risk appetite are identified and addressed. The rules directing the routing ofreferrals are reconfigurable by Lloyd’s and will be kept under review with input from themarket associations to reflect changes in risk appetite as well as the legal and regulatoryenvironment.

34.

Where an application or variation request is considered to be low risk (i.e. green as
above), other than sometimes requiring a review by a Lloyd’s country manager, thesystem will grant approval without involving a member of the Lloyd’s PMD team. But
where an elevated risk factor is identified the system will refer the application to Lloyd’s
PMD for further, more detailed consideration. In many cases the referral triggers will
mean that Lloyd’s only needs to check one issue (such as the class of business) whereas
multiple triggers may require a full review of the application by Lloyd’s.

35.

We have set out in the Appendix the factors that relate to the risk profile of thecoverholder application which will be used by the system to triage whether Lloyd’s needs
to check one or more factors.

36.

In terms of the reliance that Lloyd’s will place on the sponsoring managing agent’s
capabilities, we will initially apply a rating as either ‘standard’ or ‘strong’ based on the
managing agent’s minimum standards compliance. In the first instance, a red or amber
rating for Customer Standards MS9 will result in a ‘standard’ rating being applied. A
green minimum standards rating will be rated as ‘strong’. This rating methodology will be
developed over time using other management information available.

37.

To provide an indication of what this could mean in practice we have looked at the tasks
we dealt with in 2017. We estimate that if we had applied the approach that we are now
proposing –• 30% could have been dealt with on a self-serve basis• 30% could have been dealt with on the basis of a limited review, and• 40% would have required a full Lloyd’s review.

38.

The Chorus system is also being configured to be able to produce the binding authority
contract in the required MRC template form from the data provided when registering thebinding authority. Lloyd’s regulatory requirements and checks will be built in andvalidated as the user enters the information. This extra optional functionality ensures thatbinding authorities can be created accurately first time. The benefit of this is illustrated by
the fact that currently 90% of binding authorities contain errors when submitted to thebureau. Coverholders will also have access to the system to be able to agree to theterms in the contract electronically allowing for easier and more efficient placing andcompliance negotiation.

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Post approval ongoing oversight39.

Lloyd’s already undertakes much of the post approval ongoing compliance oversightrequired for approved coverholders, ensuring that coverholders continue to meet Lloyd’s
core compliance requirements without the need for the coverholder to deal with multiple
managing agents. This is known as ‘ongoing coverholder oversight’ and is in addition to
the processes for approving new coverholders or considering applications to vary theirpermissions.

40.

As we describe in the next section (on claims TPAs) we propose delivering ongoingcompliance oversight in parallel, across all approved relationships. This is intended toprovide the added reassurance that entities underwriting risks and managing claims onbehalf of Lloyd’s managing agents continue to achieve compliance requirements throughrenewal cycles and with minimal additional intervention needed.

Expected benefits
41.

The benefits of this risk-based approach are expected to include –•Approvals for more straightforward applications, including certain changes topermissions, will in some cases be automated on the new system. This means thatan expected 40% of tasks could be handled without requiring the involvement of amember of the Lloyd’s team, allowing the application to be agreed quickly andefficiently.

•

Lloyd’s will instead focus on higher risk arrangements ensuring that it is satisfied inthose cases that risks have been properly addressed. Through the time savings on
low risk applications we estimate that we will be able to allocate an additional 30% oftime to high risk arrangements. In other words our proposals should allow for the
more efficient allocation of resources both in the market and within Lloyd’s.

•

Applications should be dealt with more quickly and the overall approval andonboarding process for new coverholders and TPAs will be made more efficient,utilising integrated systems.

•

Coverholders and TPAs will have the benefit of a single point of contact for annualcompliance checks.

•

Lloyd’s supervisory oversight will be better informed through the new system linking
to transactional data through DA SATS and AiMS.

•

The contract builder functionality of the system will mean that coverholders will be
provided with compliant, contract certain binding authorities and that these will be
produced by the system reducing re-keying or resubmission due to errors.

13

Consultation Question 2 – Do you agree with our proposal that Lloyd’s adopt a
differentiated approach to coverholder applications and oversight based on the risk
factors identified?
Consultation Question 3 – Do you agree with our views of the oversight and practicalbenefits associated with these proposals for coverholders? Do you believe thebenefits identified will make a positive difference to your firm?

5Delegated claims third party administrators (TPAs)

42.

TPAs are often the main contact point for policyholders when they make a claim. The
service they provide reflects directly upon Lloyd’s brand and reputation worldwide.

43.

In 2017 Lloyd’s issued its thematic review of delegated claims handling5. That reportfound that standards of due diligence for TPAs and other third parties with claims
handling authority needed to improve. It also recommended that a consistent andstandardised approach be taken to oversight where possible. The proposals in thisConsultation Document draw upon those review findings and are intended to promote theenhanced oversight of TPAs whilst also delivering a consistent approach to complianceoversight.

44.

Our central proposal is that the new risk-based approval and oversight operating model
for coverholders described in this Consultation Document should be extended to TPAs.
A key element to this proposal is that TPAs, like coverholders, should be approved by
Lloyd’s before they can be appointed to handle claims. The new Chorus system we aredesigning for coverholder approvals has therefore been configured so that it is capable ofalso being used for TPA approvals. This approval process would cover not just TPAs
appointed to handle claims under binding authority arrangements but all firms withdelegated claims authority including those appointed by managing agents to determine
claims from open market business or under a line slip. Our proposal, however, is limited
to those TPAs with claims handling authority. It is not our intention to extend the approvalrequirement to other claims-related third party service providers such as adjusters,
surveyors, lawyers, claims management firms or first notification firms. Coverholders withauthority to handle claims on policies bound or administered by them will not be required
to obtain approval as a TPA – their authority to deal with claims will be dealt with as partof the ordinary coverholder approval process.

45.

As at present the primary responsibility for selecting and managing the relationship with
the TPA will, therefore, remain with managing agents. Managing agents will remain
responsible for selecting which TPAs they wish to use, the level of authority to be
granted, agreeing the commercial terms and setting the service level expectations with
the TPA and monitoring those expectations as well as ensuring appropriate loss fundarrangements are in place.

5 Lloyd’s thematic reports can be accessed through Lloyds.com by searching for Lloyd’s market insight. Access is

restricted to market participants and users will be required to register to access the content.

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46.

47.

Our proposals will instead focus on centralising and standardising the approval andongoing oversight of TPAs. In particular, our proposals mean that –•Lloyd’s will implement a risk-based approval process for any TPA firm that hasdelegated authority to determine claims. That approval process will be aligned withthe process that is already in place for coverholders and will be based on a set ofclearly defined criteria that focus on the corporate suitability of the firm.

•

A firm that receives approval will be given approvals in respect of specified
territories and classes of businesses where the firm demonstrates that it has thecapabilities to handle claims in that territory. This is consistent with the approachalready adopted for coverholders.

•

Firms, once approved, will be able to hold themselves out as a ‘Lloyd’s approved
claims administrator’ subject to complying with Lloyd’s usual brand guidelines.

•

We would utilise the same online system as used for coverholders (i.e. the ATLAS
replacement, Chorus) for both initial approval and subsequent changes topermissions.

•

Minimum standards will be set for TPA contracts of delegation, which (as ispresently required with binding authorities) will be registered with Lloyd’s so that
Lloyd’s can identify which TPAs are supporting which coverholders or managing
agents.

•

We will extend to TPAs the benefits already provided by the coverholder
admissions and ongoing compliance oversight process.

•We will have reserve powers over TPAs in order for Lloyd’s to prevent and manage
risks identified, including powers to review, suspend, revoke or restrict a TPA’s
approval. These would only be used where the managing agent cannot resolve theissue or where the TPA is no longer used by the market.

We set out in the Appendix the risk factors that would be taken into account whenassessing applications to become an approved third party administrator (or for a changeof permissions), which may involve us then taking a closer look at an application.
Applications that do not have these risk factors (other than where the application requiresa review by a Lloyd’s country manager) would be processed automatically by the system,without requiring the involvement of a member from the PMD team.

Expected benefits
48.

The proposals are expected to deliver the following benefits –•Lloyd’s will have better visibility and oversight of a key part of our service network
promoting improved standards and excellent customer service.

15

•
•

•

49.

There would be a single compliance checks process consistent acrosscoverholders and TPAs.
TPAs will have the same benefit as coverholders of a single point of contact forcore compliance checks reducing duplication and inconsistency. At present, themarket’s TPAs provide services on average to three different lead managing
agents. Many support more and in some cases as many as 27 lead managing
agents.
The risk-based approach will mean that a member of the Lloyd’s PMD team may
only need to be involved for more complex applications allowing applications to be
dealt with more efficiently and quickly.

These proposals will build on the other initiatives, including TOM, that are being
developed in conjunction with the market and the LMA to deliver for the Lloyd’s market
world class standards of delegated claims handling.

Existing TPAs
50.

TPAs that are already included on the Lloyd’s TPA Register will be automaticallygrandfathered onto the new register of Lloyd’s approved TPAs without having to go
through a new approval process. Centralised due diligence will subsequently take place
for these grandfathered entities over the period of approximately one year. Where
possible and appropriate, when undertaking this process, Lloyd’s will rely on information
already available to managing agents or available on the LME database. Further details
regarding the grandfathering process will be provided separately.

Consultation Question 4 – Do you agree that Lloyd’s oversight arrangements,
including the requirement for the approval of firms, should be extended to includedelegated claims handling?
Consultation Question 5 - Do you agree with our proposal that Lloyd’s adopt a
differentiated approach to TPA applications and oversight based on the risk factors
identified?
Consultation Question 6 – Do you agree with our views of the oversight andpractical benefits associated with these proposals for TPAs? Do you believe thebenefits identified will make a positive difference to your firm?

16

6

Reflecting modern distribution methods

51.

The Intermediaries Byelaw strictly prescribes the ways that managing agents can use
third parties to distribute products especially for consumer or SME business. In
particular, these requirements provide (with limited exceptions) that apart from othermanaging agents only coverholders can have delegated authority to bind policies onbehalf of syndicates6. In certain cases, cover can also be distributed through the use of amaster or group policies.7

52.

In addition to the restrictions on who can bind policies under delegated authority, theIntermediaries Byelaw also includes a complete prohibition on coverholders, other thanservice company coverholders, sub-delegating their underwriting authority to third parties
regardless of the controls that may be in place.

53.

For a number of years now, these restrictions have successfully served as important
controls, reflecting Lloyd’s view that uncontrolled delegation poses a material prudential
risk to the Society. Distribution methods, however, are evolving and, as currently applied,these requirements no longer accommodate the needs of modern distribution methods.
This is especially the case for online sales methods and the sale of standardised
insurance products by firms that are often themselves exempt from requiring regulatory
permissions to offer the cover. In view of the limited delegated authority involved, thesethird parties will often see becoming a coverholder as unduly costly and burdensome forthe activities they will be undertaking. Our current rules would also only allow delegationof authority to these firms and do not allow sub-delegation by coverholders who are often,
in fact, best placed to manage this type of business.

54.

We therefore propose to change our requirements to give Lloyd’s the ability to address
the issues that we are seeing in the market. In making these changes we also recognisethat the market will continue to evolve and therefore our rules need to be flexible enoughso that they can easily adjusted to meet changing risks and the needs of the market. At
present our byelaws are highly prescriptive and are difficult to change, giving us little
scope to be flexible as circumstances, require. To address this, we are proposing to
make two changes to the Intermediaries Byelaw.
a.

Delegation to non-coverholders. We are proposing to include in theIntermediaries Byelaw a new category of permitted delegated authority that willallow Lloyd’s discretion to permit delegation of underwriting authority to firms thatare not approved coverholders, provided that there is compliance with the criteriathat Lloyd’s will have the power to set, including as to the terms of the contract ofdelegation to be entered into.

6 See Intermediaries Byelaw, paragraphs 1 & 3.
7 Master policies are not considered delegated underwriting under Lloyd’s requirements.

Under a master policy
arrangement, the master policyholder will buy insurance on behalf of the individuals who form a group, for example
by virtue of common employment, association, occupation or activity. The members of the group do not buy theirown insurance individually but rather will obtain the benefit of the master/group policy by virtue of being in the group.
Lloyd’s requirements for the writing of master policies are set out in Market Bulletin Y5223.

17

b.

Sub-delegation. We are proposing to remove the strict prohibition against subdelegation and instead the byelaw will permit sub-delegation to any firm to which
delegation of underwriting authority is permitted (subject to controls described
below).855.

While these changes are intended to future proof our requirements by allowing us to be
more flexible when the circumstances justify it, our view on uncontrolled delegation ofunderwriting authority and sub-delegation remains unchanged and cautious. We
therefore only intend, at this time, to make use of the additional flexibility in the limited
circumstances we discuss below. We will, accordingly, be making corresponding
changes to other parts of our requirements, including to the ‘Code of Practice –Delegated Authorities’ to strictly limit the circumstances when non-coverholders can beappointed to bind risks and when sub-delegation will be allowed. The net effect of ourchanges, therefore, should ensure that we can accommodate the needs of the market but
continue to have in place a robust, risk-based and flexible set of controls to oversee thisbusiness.

56.

We discuss in the next sections our proposals, within this new framework for permitting
the appointment of ‘distributors’ by managing agents and coverholders and to allow
greater flexibility in selling through online platforms as well as our proposals for permitted
sub-delegation by coverholders. Following the outcome of this consultation, we will be
publishing the detailed rule changes to implement these changes.

Introduction of a new category of delegated third party –‘Distributors’
57.

We continue to view the use of coverholders or master policyholders as effective
distribution channels for the large majority of consumer policies sold at Lloyd’s. But they
do have limitations. Generally, the coverholder model only applies for intermediaries who
are themselves, regulated intermediaries and are specialist in selling insurance.
Master/group policy arrangements are only suitable in very limited circumstances, namely
where the master/group policyholder represents a pre-defined and genuine group on
whose behalf it wants to obtain insurance. It is not a suitable mechanism for offering
insurance to the general public.

58.

Increasingly, however, there are circumstances where consumers may wish to buy simple
insurance products that do not individually require complex or, indeed, any underwriting
and where the premium will be a relatively small amount. This insurance may be sold on
its own or in addition to another non-insurance product being purchased by the
consumer. Very often this type of insurance is sold by or through a firm that is not a
regulated insurance intermediary but may be, for example, a retailer of consumer goods.
Examples of such arrangements include –Example 1 – Company A sells tickets online for entertainment events, including thetheatre and concerts. It wishes to offer insurance to customers to cover the cost of the

8 Any permission to sub-delegate will, for the time being be limited to business with risk locations outside of the EU.

Business written through Lloyd’s Brussels is dealt with separately and will not allow for sub-delegation.

18

ticket in the event that the customer is unable to attend the event for unforeseen
circumstances. There is no individual underwriting of the risk as everyone is able topurchase the insurance on the same terms and for the same price, when they arebuying their tickets online.
Example 2 – Company B is a furniture retailer. It wishes to offer customers insurance
to provide cover in the event that the purchaser accidentally damages the newly
acquired furniture. Customers are able to choose between a Bronze, Silver and Gold
option for cover. Each option offers different benefits but there are no differences in theterms offered within each category and the price for each category is fixed. The
customer is able to choose which of the options it wishes to buy.
59.

The companies selling the insurance could apply to become a coverholder but, in mostcases, as the retailer is not a specialist insurance firm, this route would not be suitable orrealistic. Adding a coverholder into the distribution chain to take on the role of binding therisks may bring the arrangement into the current rules but in so doing may simply add
costs with no corresponding benefit and very often will be impractical; the coverholder willoften not have any direct relationship with the customer. In some cases, master/group
policies may be a suitable option but often, such as in the examples given, there will not
be the required ‘group’.

60.

We believe that provided appropriate controls are in place, our rules should facilitate amore risk-based approach to allowing these sorts of firms to sell Lloyd’s policies without
the requirement for them to become coverholders. Utilising the additional flexibility thatwill be allowed by the changes we plan to make to the Intermediaries Byelaw, we
propose introducing a new limited category of firms which managing agents can authorise
to sell their products, to be called ‘distributors’. Where managing agents comply with the
new requirements for distributor arrangements they will be permitted to delegate limited
underwriting authority to the distributors without the prior agreement of Lloyd’s. We
believe coverholders, where they have demonstrated to Lloyd’s that they have thenecessary capabilities, should also be allowed to authorise distributors to sell theirproducts.

61.

We believe that this type of business is suitable to be written at Lloyd’s without prior
Lloyd’s approval subject to a modified risk-based control framework. These controls
would recognise that distributors do not have any underwriting discretion or complaints or
claims authority and therefore they have a reduced risk profile in that regard. At thesame time, distributors may not be specialist insurance firms but will be dealing with
consumers and so there is increased conduct risk. Lloyd’s is also mindful that the
Financial Conduct Authority (FCA) has published two Thematic Reviews that identified
industry weaknesses in the way outsourced arrangements are managed by insurance
firms, particularly where authorised representatives are appointed.9 Managing agents will
therefore be expected to have robust arrangements in place for carrying out due diligenceon distributors before appointing them, complemented by ongoing and appropriatemonitoring of the distributor.

9 See the FCA’s Thematic Reviews: ‘TR15/7: Delegated authority: Outsourcing in the general insurance market’(2 June 2015) and ‘TR16/6: Principals and their appointed representatives in the general insurance sector’ (22 July2016).

19

62.

Accordingly, the controls that would apply to appointing a distributor would include –
•

•

•
•

•

•

All insurance sold by the distributor must be sold on the basis of pre-set terms andfor a premium which should generally be automatically generated by an electronicsystem agreed by underwriters. Cover must be available to any customer whomeets the prescribed criteria for purchasing the product. There can be no individual
risk selection discretion exercised by the distributor.
The contract with the distributor (the ‘distributor agreement’) must comply with therequirements Lloyd’s will prescribe which will include contractual rights to require
the binding of risks to cease where there is cause.
The distributor must have no claims or complaints handling authority.
All distributor arrangements will need to be prior registered using Chorus, the online
replacement system for ATLAS which will verify that the arrangements do not
require coverholder approval.
Lloyd’s will, as part of managing agent reviews, pay particular attention to whether
managing agents are closely overseeing their distributor arrangements including
the conduct risk of selling policies in this way. Because Lloyd’s believes only
managing agents that have demonstrated they can meet the Lloyd’s MinimumStandards that relate to conduct risk should be permitted to enter into thesearrangements, Lloyd’s will, at least initially, only allow syndicates to write distributor
business where they are rated green for Customer Standards MS9.
Distributor arrangements will, initially, only be permitted for insurance sold in the
UK. Lloyd’s wishes to see distributor arrangements rolled out in a controlled way toensure the new arrangements are working well before they are implemented
worldwide. Different local regulatory rules may also apply in jurisdictions outside of
the UK and Lloyd’s wishes to ensure that appropriate guidance is available on
Crystal for those territories. This will take time to produce. We therefore consider
that it would be prudent to limit the writing of distributor business outside of the UK.

Internet selling
63.

Online selling is now an important distribution channel for insurance. Some managing
agents or coverholders may use their own proprietary systems for selling via the internet
but very often third party firms are involved in providing the online distribution expertise,including the platform through which risks are bound. The insurer will provide the terms
and rating rules to be applied, but once uploaded, the third party system will operate
automatically to bind risks. This can raise issues of delegation and sub-delegation under
our current requirements –•while the managing agent/coverholder may be able to access the system to change
rates and terms (and the third party provider may have no involvement in this)nevertheless, in the final instance, the insurance is being bound on the third party’s
system on behalf of Lloyd’s underwriters. In addition, as well as providing IT
expertise the third party firm will very often provide expertise on how to market
insurance products online. The third party provider will also often be actively
involved in designing how the product should be presented online and in marketingthe facility to consumers. In these cases, there is often very little difference
between these types of online arrangements and traditional coverholders.

20

However, as with distributors, requiring the online provider to become an approved
coverholder is often impractical and disproportionate to the risks that need to beaddressed.
•

where coverholders want to use third party online systems as a distribution channel,
issues of sub-delegation can arise.

64.

Like distributors, we believe that it should be possible to make use of third party online
systems to distribute insurance products without requiring that the third party provider
becomes an approved coverholder. Once the Intermediaries Byelaw has been amended,
we propose amending the ‘Code of Practice – Delegated Authorities’ to better facilitate
internet selling. Provided that the requirements are met then managing agents will bepermitted to use online systems for distributing insurance direct to customers without
requiring that the system provider becomes an approved coverholder. We also propose
extending this approach to allow coverholders to sell insurance through third party
providers, provided the same requirements are met.

65.

The important feature of these third party systems that allows us to adopt a modified
control approach is that the underwriting is fully automated and the third party does nothave any input in the terms or rates used.

66.

There are, however, risks that still need to be considered and we will expect managing
agents to have processes in place to address these. First, it will be important for
managing agents (or their coverholders on their behalf) to carry out proper due diligenceand testing of the electronic systems being used. The way in which the products aremarketed online, often to consumers, can also increase the conduct risk and managing
agents will need to be able to show they have considered this. Because the internet isborderless, difficult licensing questions can also arise where individuals from different
jurisdictions may look to buy policies from the online platform. It will therefore beimportant for managing agents to check the way in which the platform can be accessedby customers to ensure that policies are always only sold in accordance with Lloyd’s
trading licences. Where appropriate, controls should be included to ensure policies canonly be sold to customers in the target risk location. The managing agent or coverholder
should also have access to detailed and regular (ideally real-time or daily) reports of thebusiness being bound.

Sub-delegation by coverholders
67.

The sub-delegation of underwriting authority by a coverholder to another firm is presently
prohibited by Lloyd’s in all circumstances. Experience has shown that where
underwriting authority is sub-delegated managing agents can very quickly lose the ability
to exercise proper control over the underwriting, putting policyholders and members of
Lloyd’s at risk. We know that other regulators are often similarly cautious about
permitting extended distribution chains involving sub-delegation of underwriting authority.

68.

Lloyd’s therefore continues to remain extremely cautious about permitting sub-delegation
and we have taken as our starting point that, except where expressly permitted by
Lloyd’s, managing agents should not allow the sub-delegation of underwriting authority or
the authority to issue insurance contractual documentation.

21

69.

But where sub-delegation can be properly controlled then we do not believe that our rules
should automatically prohibit those arrangements. In particular, with the development ofelectronic systems managing agents and coverholders can often control in real-time ornear real-time the distribution of their insurance products through online systems. We
therefore believe that there is greater scope to permit some sub-delegation of authority
where it is properly controlled.

70.

Lloyd’s is therefore proposing to amend the Intermediaries Byelaw to remove theautomatic prohibition on sub-delegation. At the same time, we will prescribe thecircumstances when sub-delegation is permitted. Initially, this will be limited to thefollowing circumstances, where we believe the risks associated with sub-delegation canbe managed –•••To permit sub-delegation by coverholders to distributors (as discussed above).
To permit sub-delegation by coverholders to third party providers of online
distribution systems (as discussed above)
To permit a coverholder to sub-delegate their authority to bind risks and issue
contractual documentation to other approved Lloyd’s coverholders, where Lloyd’s
has given permission.

71.

With regard to the last of the cases listed, it is not our intention to allow sub-delegation ofsubstantial underwriting authority from one coverholder to another. We continue tobelieve that where a coverholder has substantial underwriting authority then its binding
authority agreement should be with the managing agent and not another coverholder.
There are, however, arrangements where coverholders (a ‘master coverholder’) operate
networks of other insurance intermediaries who are given authority to access the mastercoverholder’s rating matrix and bind risks using the quotes they obtain from the system.
Where, on an application from the managing agent, we are satisfied that the appropriate
controls are in place then we will give permission for the coverholder to sub-delegate aslong as the sub-coverholder has the correct class of business and territorial permissions.

72.

We will set out in the ‘Code of Practice - Delegated Authority’ the conditions that need tobe met in each case to sub-delegate in accordance with our new rules. In summarythese would be –•••The coverholder intends to sub-delegate authority to another approved coverholder
or a ‘distributor’ and where it has express authority in its binding authority to subdelegate.
Where a contract of delegation will be in place between the coverholder and the
sub-delegate that complies with Lloyd’s requirements.
Except where there can be no variation in the premium or terms to be applied, thesub-delegate must only be authorised to bind risks through the use of an online
system that contains appropriate and robust security features and operating
controls. This will include that the system must have real time (or near real time)reporting functionality and that the system can be disabled by the mastercoverholder as required.

22

Expected benefits
73.

The expected benefits from amending our rules to introduce the new category of
distributor and from removing the automatic prohibition on sub-delegation are that a
number of schemes the market currently does not place on the Lloyd’s platform could be
brought to Lloyd’s. Also, the placement of some schemes that are currently operated in
the market could be simplified.

Consultation Question 7 – Do you agree with our proposal that the Intermediaries
Byelaw be amended to give Lloyd’s the discretion in appropriate cases (1) to permit
delegation to firms that are not approved coverholders (at this time being ‘distributors’or third party online platform providers), and (2) to permit sub-delegation?
Consultation Question 8 – Do you agree with the controls set out in our proposals
regarding the use of distributors and third party online platforms?
Consultation Question 9 – Do you agree with our proposed approach (including the
proposed controls) to permitting sub-delegation by coverholders?

7

Other changes to the Intermediaries Byelaw

74.

At the same time as amending the Intermediaries Byelaw to implement the changes
outlined above, Lloyd’s is also proposing to make a limited number of other changes tothe Intermediaries Byelaw and the Requirements made pursuant to the Intermediaries
Byelaw, with consequential amendments to the Definitions Byelaw and other byelaws.
The main changes are as follows –a.

Lloyd’s is proposing to introduce a new definition of ‘consortium agreement’.
Presently, these contracts of delegated authority between managing agents aretreated as falling within the definition of registered binding authority (seeparagraph 1(d) Intermediaries Byelaw). Lloyd’s considers, however, that just asline slips are recognised separately from binding authority agreements the sameshould be the case for consortia arrangement. All three arrangements havecommon features, as contracts of delegated authority, but they are also all treatedin different ways by the market with different Lloyd’s regulatory controls applying.
The proposed changes to the byelaws will ensure that is better reflected in theIntermediaries Byelaw. In addition to introducing a new definition of consortium
agreement, we are also adopting a new defined term of ‘contract of delegatedauthority’ as a collective term for the various types of delegated authority
agreement that will now be recognised in our requirements.
b. At present, Lloyd’s maintains registers of approved coverholders and binding
authorities. We are proposing to extend the cases where persons given delegatedauthority must be registered, as well as their contracts of delegated authority, sothat as a default we will generally expect everyone given delegated authority to berecorded by us (although there will still be cases where we may not require this).
Operationally, this will be facilitated through, Chorus, the system replacing ATLAS

23

and BARS. A limited change is required to the Intermediaries Byelaw to allow for
this.
c. When referring to coverholders the byelaws variously refer to both the definedterms ‘coverholder’ and ‘approved coverholder’. The byelaws also variously refer tothe defined terms ‘binding authority’ and ‘registered binding authority’. Since theremoval of the ‘restricted coverholder’ category, all coverholders and binding
authorities must now be registered and there is therefore no need to have separate
defined terms. It is therefore proposed to simplify the definitions by removing thereferences to ‘coverholder’ and ‘registered binding authority’ with the necessaryconsequential changes to the Intermediaries Byelaw, the Underwriting Byelaw andInsurance Certificates Byelaw, where these terms occur. In their place will beinserted the defined terms: ‘approved coverholder’ and ‘binding authority’. These
will now be the only defined terms to be used.
d. Presently Lloyd’s requirements for binding authorities (paragraph 10(g) to (i) of theRequirements made pursuant to the Intermediaries Byelaw) provide that binding
authorities must include a list of every person at a coverholder who has authority tobind policies, issue contracts of insurance or to agree claims on policies bound by
the coverholder. We know that the market finds this an unduly onerous
requirement given that, particularly at larger coverholders, there can be regularchanges of personnel in the ordinary course of business. While in appropriate
cases managing agents may still need to obtain from coverholders a list of thepersons at the coverholder who have these authorities, we recognise that thisinformation does not need to be routinely included in the binding authority. We are
therefore proposing to change the requirements for binding authorities so that only
the person with principal authority for these functions needs to be identified in thebinding authority.
e. In view of the United Kingdom’s scheduled departure from the European Union, we
need to make some changes to the criteria we apply when registering Lloyd’s
Brokers, which are set out in the Requirements made pursuant to theIntermediaries Byelaw. In substance, our approach is not changing and theamendments we are making are merely intended to put brokers from European
Union countries who are seeking to become Lloyd’s Brokers into the same position
as firms from other parts of the world. At present, our rules make a limited
distinction between the two.
Consultation Question 10 – Do you have any comments on the proposed otherchanges to be made to the Intermediaries Byelaw?

24

Appendix - Risk ratings to be adopted by Lloyd’s

DA Risk Based Oversight – System supported triage rules
Notes:
System Permissions

R (Full Referral) means Lloyd’s will undertake a full assessment✓ No referral needed
R Full Referral
RR Restricted Referral

RR (Restricted Referral) means Lloyd’s will only assess the higher
risk factors

Managing AgentCapability RatingStandard

Managing AgentCapability Rating
Strong

LBS application

R

RR

Sole trader

R

R

Previously cancelled binders

R

R

Previously rejected applications

R

R

Previously deregistered by local regulator

R

R

PI Claims in the last 5 years

R

RR

Portfolio Review ClassR

RR

Criminal convictions of any director or controller (unless spent)R

R

Insolvency or bankruptcy of any director or controller

R

RR

Record of overdue audit findings

R✓

Record of open/unresolved OCO checks

R✓

Poor performance record for complaints

R✓

Arranges master policies

R✓

Multiple parties in the sales/distribution chain

R✓

Includes sub-delegation

R

R

Sales through multiple outlets

R✓

Sales via broker operated third party platform

R

R

Sales to consumers through call centres

R✓

Application Features
covering applicant, product, geography

25

Binder EPI >£5m or 1% of syndicate GWPR✓

CH produces more than 20% of market business

R

R

Projected to cover >20k eligible complainants

R✓

Discretion to write <100% of a risk

R

R

Sales through sub delegation or online platforms where rateadjustments are permitted

R✓

Trading in high risk regions

R

RR

Profit commissions linked to targets not performance

R

R

Profit share commissions where claims handling is delegated to the
CH

R

RR

No segregation of UW and claims handling

R

RR

Additional customer charges apply

R

RR

Previous record of high loss ratio/high combined ratioR

RR

Previous record of or projected to be very low loss ratio

R

RR

Acquisition costs >50%R

RR

High static commissions

R

R

Authority to deny claims and handle complaints

R✓

Claims authority previously restricted or removed

R

R

Unlimited claims handling authority

R✓

High concentration of catastrophe exposed business

R

RR

TPA handles a high concentration of the market’s claims

R

RR

Limited system capabilities

R✓

Unable to capture and record required v5.1 information

R

R

Insufficient policies, procedures and processes

R✓

No established means of measuring customer outcomesR

R