A restricted coverholder is any company or partnership whose name has been entered in the register of restricted coverholders .
To be a restricted coverholder it must be:
- Either a company whose registered office is in the United Kingdom, or is a partnership based in the United Kingdom.
- Only have delegated authority under the terms of a “restricted binding authority” (described below).
- Must have the Financial Services Authority’s permission to act as an insurance intermediary. (This permission may be either as an authorised company or as an appointed representative.)
- Must enter into a contract directly with the insured or issue the insurance documents to the insured. If a coverholder does not deal directly with the insured it is not a restricted coverholder and so must be approved by Lloyd’s. This does not prevent a restricted coverholder from using an ‘introducer’ to refer business to them or to send on insurance documents on their behalf.
A restricted binding authority is one which:
- Prescribes the terms and conditions to be included in each contract of insurance to be entered into by the coverholder under the binding authority;
- Contains comprehensive arrangements for the determination of the premium to be charged in respect of each contract of insurance to be entered into under the binding authority. These arrangements must not give the coverholder any significant discretion in calculating of the premium or making any adjustment to it.
- Only authorises the coverholder to enter into contracts of insurance where:
- The contract is concluded in the United Kingdom.
- The property to be insured under the contract is situated in the United Kingdom; or
- The property to be insured is a motor vehicle which is registered in the United Kingdom; or
- The risk to be insured is a travel or holiday risk and the contract is for a duration of 4 months or less.
- The risk to be insured is a “liability risk”.
In practice, there are two main ways to make sure a restricted coverholder cannot exercise any discretion when calculating premiums. These are either:
- to give the restricted coverholder a rating schedule, basis or guide.
- to require the restricted coverholder to refer each proposed contract of insurance to you so that you can set the premium to be charged. (This is sometimes called a ‘prior submit’ arrangement.) The referral can be made via electronic means such as an internet referral arrangement.
If a coverholder meets the criteria to be a restricted coverholder, it will not need Lloyd’s approval and the restricted binding authority does not need to be registered on the Lloyd’s binding authority registration website (the BAR). However, the restricted coverholder’s details must be recorded on the register of restricted coverholders. A managing agent must keep complete and up-to-date records of all restricted coverholders to which it has delegated authority. (Lloyd’s does not register restricted binding authorities.)
