market bulletin

Ref: Y4562

Title

Byelaw amendment - Third Party Administrators

PurposeTo inform market of new requirements in relation to claims outsourcing

TypeFromTom Bolt

Date

10 February 2012

Deadline

Byelaw in force from 1 March 2012

Related links

http://www.lloyds.com/The‐Market/Operating‐at‐Lloyds/Regulation/Acts‐and‐
Byelaws

Following discussions with the LMA, the Council of Lloyd’s has made amendments to theIntermediaries Byelaw to establish a byelaw framework in respect of outsourced claims
handling authority. Accordingly, at its meeting on 2 February 2012, the Council made –1

the Intermediaries (Claims Determination) Amendment Byelaw; and2

the Requirements made under that Byelaw.

The new byelaw provisions replace Part G of the existing Intermediaries Byelaw and comeinto force from 1 March 2012. The new requirements are included in the Underwriting
Requirements 1 . Links to the new byelaw and requirements are above.
Scope of the byelaw
The new byelaw provisions are designed to establish a clear framework for claims
outsourced arrangements. This will help enable Lloyd’s to achieve its vision of fast and fairclaims handling, help protect Lloyd’s reputation and control the risks associated with theoutsourcing of this key function.

1Chapter 2 of the Underwriting Requirements (at paragraph 17A-C)

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Lloyd’s is authorised under the Financial Services and Markets Act 2000

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The provisions discussed below principally only apply where a managing agent appoints a
TPA to handle claims on risks bound under a binding authority. In particular, the notification
process and the “suitability criteria” only apply at this time to TPAs appointed to determine
claims 2 in respect of risks bound under a binding authority.
The main provisions in the byelaw
Entities to whom managing agents may delegate claims determining authority
It is important there should be clarity as to whom managing agents may delegate authority
to determine claims. The byelaw sets out (paragraphs 36A and 36B) a definitive statement
as to whom managing agents may delegate their authority to determine claims.

•In respect of risks bound under binding authorities, this includes to coverholders andalso to TPAs where the TPA meets the relevant minimum suitability criteria (seebelow).

•In other cases, managing agents should only delegate claims determining authority toentities who are competent and appropriate taking into account the applicable Lloyd’s
claims management principles and minimum standards. 3

Minimum suitability criteria for TPAs
Minimum suitability criteria have been set that in-scope TPAs need to meet (see byelaw
paragraph 36A(h) and Requirements paragraph 17A). For the avoidance of doubt, Lloyd’s
will not be centrally assessing or “approving” potential TPAs using these criteria. Insteadthese are the minimum criteria that managing agents should use when they assess
potential TPAs. The criteria are consistent with market guidance that the LMA’s Binding
Authorities Claims Group (the “BACG”) has already established for assessing new TPAs.
The byelaw also requires managing agents to inform Lloyd’s if they believe that an existing
TPA is no longer fit and proper or poses a reputational risk to Lloyd’s. 4 If a managing agent
has such a concern they should contact the Lloyd’s Claims Team within the Lloyd’s
Performance Management Directorate.
Content of Claims Delegation Agreements
Requirements have also been set to ensure that managing agents have clear,comprehensive and suitable written agreements delegating claims handling authority withcoverholders and TPAs. (See byelaw paragraph 36H and requirements paragraph2

See paragraph 36C of the Intermediaries (Claims Determination) Amendment Byelaw for thedefinition of the phrase “to determine claims”
3
See Claims Minimum Standards 2, 3, 4, 5, and 6 (h) – (m)4
See FSA Handbook (FIT 2.1) for guidance as to “fit and proper”

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17(b)(c)). The agreement terms may be as set out as applicable in the binding authority
wording, in a separate claims agreement or in both.
To the extent that current claims agreements do not include all the areas required, thenLloyd’s is content that full compliance should be achieved for agreements renewing after 1January 2013 (although we would encourage full compliance as soon as possible wherepractical).
Notification to Lloyd’s of TPAs
Going forward managing agents need to notify Lloyd’s of the identity of TPAs they intend
appointing so that a central list of TPAs can be maintained. (Byelaw paragraph 36D). The
purpose of this notification process is so that if a managing agent proposed to use a TPAwith which Lloyd’s has concerns, Lloyd’s would have the ability to discuss the matter withthat managing agent and with any other managing agents who deal with that TPA.
Lloyd’s recognises that the responsibility for assessing TPA rests with the relevant
managing agent(s). Accordingly, on receiving notification of a TPA, Lloyd’s will proceed on
the assumption that the managing agent has assessed each TPA notified to Lloyd’s andthat the managing agent is satisfied that the TPA meets the “suitability criteria”.
Lloyd’s will not therefore challenge the appointment of a TPA (or use its reserve powers)
other than where it has specific reason to believe that to be necessary to protect Lloyd’s
brand or reputation. In such circumstances Lloyd’s would discuss its concerns with therelevant lead managing agent in the first instance.
Details of the notification process will be separately emailed to managing agents’ Heads ofClaims.
Future development
Lloyd’s had originally proposed that all TPAs should be subject to these provisions(including the notification provisions) whether or not the TPA is appointed to determine
claims under binding authorities. In response to feedback from the market Lloyd’s has
agreed that it is sensible to deal with TPAs appointed to determine claims under binding
authorities in the first instance and to work with the LMA to extend the scope of the Byelaw
so that it covers all TPAs and other claims handlers.
Queries
Queries should be addressed to Helen Ashenden (Lloyd’s Claims Team) 020 7327 5781 or
helen.ashenden@lloyds.com

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