The increase in Lloyd’s market business being accepted overseas by managing agents’ own operations, accelerated by the strategic development of Lloyd’s Trading Centres, prompted Lloyd’s to make enquiries regarding local placement procedures.
During a helpful dialogue with managing agents involved in the Singapore market, local circumstances have been discussed, in the context of addressing Lloyd’s Underwriting Standards.
While Lloyd’s recognises that London placement practices are not necessarily transferable to overseas territories, it was felt appropriate for Lloyd’s to clarify expectations, via additional guidance. Also to confirm the resources that are available to assist where risks are being accepted in overseas territories by managing agents, or entities to who they have delegated their underwriting authority.
While this enquiry initially involved Singapore, the guidance that follows is applicable to all overseas territories where business is being accepted, and to business accepted within the UK outside of the Room.
These guidance notes are not intended to replace or revise the requirements that Lloyd’s already places upon managing agents involved in local underwriting carried out by coverholders, or service companies who fall within the definition of coverholders.
View Lloyd's requirements regarding coverholders
Lloyd’s overall approach Lloyd's is seeking to assist managing agents trading in local markets to manage the risks associated with contract certainty within the placing process, thereby ensuring that Lloyd's Underwriting Standards are being addressed. Lloyd’s recognises that the way in which each managing agent manages those risks may differ.
Where existing Lloyd's tools/guidance can be used to good effect Lloyd’s recommends that as good practice. Where managing agents operate alternative approaches which can be demonstrated to be effective Lloyd's has no concerns.
Managing agents operating in overseas markets are encouraged to adopt Lloyd’s subscription business processes where risks are co-insured, to assist in the delivery of contract certainty, and for greater process efficiency for all parties. Lloyd's is not seeking the imposition of all Market Reform Contract (MRC) London market procedures ‘across the board’.
Lloyd’s recognises that consistent placing processes require dialogue with international and indigenous brokers, as well as their continuing support and Lloyd’s will actively support overseas markets to this end.
Market feedback regarding potential issues Managing agents’ feedback in late 2008 regarding slips assessed in Singapore, has identified that the following aspects presented issues, mainly where documentation is being developed by local brokers. The notes below are set out by way of example and it is very likely that managing agents in other territories would identify similar issues via their review activity.
Risk and coverage details:
- wording not confirmed or not complete ie with all clauses attached or referenced.
- jurisdiction not clearly defined.
- risk details not completed correctly.
- use of TBAs (limited to seven days and excluding “material information”)
- information relating to the risk not always attached.
- options not always taken up before inception.
- status of warranties/ subjectivities/ conditions not made clear
Claims:
- basis of claims notification and agreement not clear
Taxes:
- unclear or missing tax details
Premiums and accounting details:
- premium or rate not clearly expressed
- absence of ‘settlement due date’
- payment terms not clearly defined
Subscription details:
- absence of subscription agreements (risks accepted on coinsurance basis, via email), thereby losing the efficiencies of subscription placements
- absence of LMA3333 (LSW1001 not full alternative)
- slip leader not identified
- no provision for agreement of contract changes
Insurance documentation:
- responsibility for production and despatch of documentation not defined
- insurer-authorised evidence of cover not specified
Slip references:
- absence of UMR
- MRC headings missing
As can be seen a number of these aspects represent significant risks for the managing agent. Other aspects, for example UMR and coding, may be more about the ability to process and record although still important to the parties involved.
The existing guidance notes regarding Pre-Bind Quality Assurance (accessible via the Underwriting Standards section) set out the approach expected of the market, ie that each managing agent will have their own procedures in place for the assessment of contracts, based upon their own consideration of exposure to risk.
Available tools/ information
When considering their required procedures, Lloyd’s strongly suggests to managing agents that they consider the following sources of assistance regarding placement activity, accessible anywhere in the world via lloyds.com or via the Market Reform website where noted. Below are examples which while developed within London may provide managing agents with potential solutions for their business written overseas:
- Contract Certainty principles and guidance notes, all via the Market Reform website.
- Guidance notes regarding the management of underwriting embedded within Lloyd’s Underwriting Standards (as well as information regarding Lloyd’s Claims and Risk Standards). In particular the suggested approach to the management of pre-bind quality assurance is addressed under Underwriting Controls, underlining the risk-based approach expected of all managing agents, and endorsed by a market working group.
View Lloyd's Franchise Standards
- The Market Reform Contract (MRC) template and guidance documents addressing open market, lineslips and delegated authority business. There is no requirement to use either the generic template or extensive guidance on slip content, although it should be noted that these were developed by market practitioners, largely to satisfy the need for contract certainty. Available via the Market Reform website.
- Sample slip content. Recognising the wish of Lloyd’s operations in overseas markets to adopt subscription market procedures, where these are appropriate, generic subscription slip content, using the MRC template, can be accessed under the ‘Placing’ section of the Market Reform website. Apart from subscription elements, this example shows good general practice regarding the content of all slips.
- The Lloyd's Wordings Repository (of model clauses & wordings) – a readily available source of model wordings and a home for managing agents who want to retain their own wordings safely and securely, with international access via lloyds.com.
- Lloyd's QA tools checks – a source of checks against which slips can be reviewed, as well as access to Wordsensa QA a software package for all managing agents which will run the checks and supply slip assessment reports. The majority of managing agents in London have arranged licenses for the use of Wordsensa QA.
- Crystal database for extensive Lloyd’s tax and regulatory information held at country level, available via lloyds.com
Additionally, managing agents have developed a range of their own tools to support the attainment of quality in insurance contracts. By way of example, Lloyd’s is aware of structured training regarding required slip content, summary sheets of slip content priorities for underwriters (structured around slip sections and highlighting mandatory content), peer and independent reviews of slip quality achieved, as well as underwriting team briefings and the use of external checking service providers.
Areas where overseas practices may differ
Lloyd’s recognises that there are differences between procedures operated in the Room and in overseas territories which will need to be reflected within slips. A number of these are highlighted below:
- Claims agreement and settlement procedures: Market Bulletin Y4196 acknowledged that certain London procedures regarding claims do not operate in overseas territories and that revised arrangements will be required.
- Coding: managing agents will need to have regard to the inclusion of relevant coding needed for Lloyd’s processing, followers and the completion of bordereaux returns. UMRs on subscription risks and would assist co-insurers in the management of their portfolios.
- Bureau services: there should be no reference to XIS/ XCS or any bureau services in slips within territories where these services are not applicable.
- Settlement Due Dates: where bureau services are not operating, it should be clear that SDDs specify the requirements of the insurers concerned.
- Insurers’ evidence of cover: it is recognised that London market agreement on what constitutes an insurer’s evidence of cover (in brief, the slip, Lloyd’s policy or agreed certificate under a master policy) will need additional consideration within overseas territories. It is expected that there will be clear and written agreement as to what will be issued to the Insured and whether the insurer regards that as its evidence of cover.
- local tax and regulatory requirements: Lloyd’s supplies extensive tax and regulatory information, by territory, within Crystal. Managing agents will need to monitor requirements in the territories where they operate and are encouraged to liaise with Lloyd’s local managers regarding any issues or concerns
Lloyd’s oversight of contract standards in overseas territories
It is expected that all managing agents will be monitoring the standard of contracts being entered into where risks are being accepted in overseas territories by syndicates, or entities to whom they have delegated their authority.
It can be expected that Lloyd’s will, in the first instance, make requests to the managing agent’s risk and compliance team for evidence of the extent to which slips meet contract certainty and the managing agent’s own risk-based procedures.
Thereafter, specific enquiries may be made within overseas territories, working with the managing agent’s leadership team.
