A binding authority is an agreement between a managing agent and a coverholder.
Under this agreement, the managing agent delegates its authority to enter into a contract of insurance to be underwritten by the members of a syndicate managed by it to the coverholder in accordance with the terms of the agreement.
A binding authority agreement can also be used to give a coverholder the authority to issue insurance documents on behalf of Lloyd’s syndicates. Insurance documents include certificates of insurance, temporary cover notes and other documents acting as evidence of contracts of insurance. It also set out the coverholder’s other responsibilities, such as handling premiums or agreeing claims.
The contract that frames the responsibilities, entitlements and obligations of the parties is the contract of delegation and is referred to as the binding authority agreement. It is the document that the parties use to make sure all contracting parties are clear about their roles and responsibilities. The binding authority agreement (contract of delegation) is not the contract of insurance.
Binding authorities need to comply with the requirements Lloyd’s sets. Details can be found in the Code for Delegated Underwriting. The LMA produces model binding authority agreements that the market may use and which are designed to meet those requirements.
The LMA has produced multi-year versions of the model binding authority agreements. With effect from the 2016 year of account, managing agents may enter into binding authority agreements of up to 36 months ('multi-year binding authorities')
The LMA has launched three new model binding authority wordings: LMA 3113 (Worldwide excluding USA/Canada); LMA 3114 (USA); LMA 3115 (Canada). These wordings replace a number of the existing 2006 model binding authority wordings. These are intended for use from 1 November 2013 (or earlier if all the parties agree).