Premium handling

An introduction to what premiums are, the process for handling premiums and what the coverholder needs to know.

In the coverholder distribution channel, both brokers and coverholders are involved in the processing of premiums, on behalf of the managing agent. Here you can find out about the related process, roles and responsibilities.

  • What are the coverholder's obligations with premium collection and reporting?

    The coverholder is given authority to write risks on behalf of the managing agents via binding authority agreements. Part of the coverholder's contractual obligation is that they will collect premiums on risks written and regularly report and pay the premiums collected to the managing agent via the Lloyd’s broker.

    In many territories, there are local obligations to pay taxes and to report to tax authorities and regulators. Some of these are dealt with by local Lloyd’s offices (country managers: see the Lloyd’s Offer) and coverholders may also be required to report details of premiums to the Lloyd’s local office so that these commitments can be met.

    In Canada, Lloyd’s provides a system called Lineage which assists with premium handling, claims handling and regulatory reporting:

    Find out more about Lineage

    Lloyd’s has an online business tool called Crystal to provide coverholders with quick and easy access to international regulatory and taxation requirements:

    Find out more about Crystal

  • What do premiums consist of?

    Gross premium received may include:                                                                                      

    • Net premium due to the underwriter for the product
    • Retail broker commission (if applicable)
    • Coverholder's commission
    • Applicable taxes and fees


  • What are credit control and terms of trade?

    Credit control:
    Credit control is the process by which the managing agent monitors that all premiums have been paid on time.

    Terms of trade:
    Payment of premiums is made by the coverholder via the Lloyd’s broker within the maximum number of days specified in the binding authority agreement.

     

  • How does it happen and who is responsible for what?

    The binding authority agreement will be between the coverholder and one or more managing agents. The coverholder may place risks across more than one binding authority agreement which means that premiums are often shared between several managing agents.

    The steps for the premium handling process are:

     Premium Process
    1. The coverholder collects the gross premiums from the policyholders.

    2. The coverholder deducts their commission and any fees and taxes that they have had to pay local authorities. In some situations they may be permitted to offset the claims against the premiums. They will then report and pay the remaining premium to the managing agent via the Lloyd’s broker.

    3. The Lloyd’s broker produces the London Premium Advice Note (LPAN) and sends to Xchanging Ins-sure Services (XIS).

    4. XIS will:

    • Perform various checks and controls:
          - Document checking
          - Data entry
          - Numbering and policy signing
    • Provide information to Lloyd’s to enable tax and regulatory commitments to be met.
    • Provide information to Lloyd’s central settlement department which is known as the  Settlement and Trust Fund Office (STFO) so that the correct premiums can be paid to the market participants.

    5. STFO settle payments between the managing agent and the Lloyd’s broker.


     

  • What is XIS?
    Lloyd’s managing agents delegate aspects of their back office process to a third party called Xchanging.

    Within Xchanging there is:

    XIS (Xchanging Ins-sure Services) which manages premium payments and makes sure that premium and reporting information is recorded accurately to enable Lloyd’s to fulfil its overall tax and reporting obligations.
  • What are the coverholder reporting standards?

    Lloyd’s has introduced standards for coverholders to report premiums. Part of the contractual agreement of the binding authority contract is that the coverholder regularly reports the premiums they have collected to the managing agent.

    To make this flow of information consistent Lloyd's has introduced standards for coverholders to report premiums. These standards are mandatory for new coverholders and strongly recommended for all existing coverholders.


     

  • What are the benefits of having reporting standards for premium handling?
    • A clear statement of the information coverholders need to provide for the whole of the Lloyd’s market. 
    • A consistent list of requirements around which processes and systems can be designed.
    • Standard information flows into the Lloyd’s market so long as the required information can be produced.
    • Freedom to use your own systems and technologies

    More about Lloyd's coverholder reporting standards

     

Download

Coverholder Toolkit | Premium Handling  pdf file
Chapter 6: Premium handling

This chapter gives an introduction to what premiums are, the process for handling premiums and what the coverholder needs to know.

Related Links

More on taxation and regulation for each territory

More on the coverholder reporting standards