Information on fair value referrals can be found on the fair value page.
Fair Value Referrals
For the purposes of Lloyd’s requirements for the writing of Master policies, a Master Policy is an insurance policy issued to a master policyholder who purchases the insurance to provide the benefit of insurance coverage for others. The requirements therefore equally apply to policies commonly referred to as group policies or group schemes and to employer schemes (except where the employer has the benefit of the insurance and any related obligations to the employees are independent of the insurance purchased. i.e. Where the operation of the insurance policy will not impact on the experience of the employees and any claim will be made by the employer).
Master Policies provide an efficient and cost-effective distribution method for providing coverage across a range of products, usually to individuals and small and medium sized enterprises. Despite their unusual legal nature Master Policies (or their equivalent in other territories) are generally recognised by the legal systems of most countries where they are subject to the application of ordinary principles of insurance contract law. In addition, the writing of Master Policies will generally be subject to the same regulatory rules that govern the writing of other insurance business. It is a managing agent’s responsibility to ensure arrangements are permitted in the relevant territory and that they are compliant with all applicable local rules and regulations. Guidance is available on Crystal for some territories.
Further information on Master Policies including our 2018 thematic review and previous communications can be found on the below pages.
The Requirements for the Writing of Master Policies set out the circumstances where Lloyd’s considers that Master Policies can be used appropriately. Where an arrangement does not meet all these requirements it should be written using a different placement method, such as a binding authority.
Where a managing agent considers that the best placement method remains a Master Policy an application can be made to the Customer Oversight Team for an exemption from one or more of the Master Policy requirements. Exemption requests should be submitted by the lead managing agent to their Customer Oversight Manager and firstname.lastname@example.org. These should include an overview of the Master Policy including who the Master Policyholder is, who the beneficiaries are and what coverage is provided as well as setting out the requirement(s) for which that exemption is being requested and an explanation of why the exemption will not have a detrimental impact on the Master Policyholder or beneficiaries. The Master Policy should not be bound until approval has been received from Lloyd’s.
Managing agents are expected to maintain a list of specific information in relation to all their Master Policies, both lead and follow, whether written direct or via a third party. These lists are to be submitted to Lloyd’s on an annual basis, when requested.
Further information on Master Policies including previous communications can be found on the below pages:
Removal of Underwriting Authority from a Coverholder on Short Notice
Typically, binding authorities provide for notice periods of three months, or longer, if the parties wish to bring the binding authority to an early close. This notice period is important as it allows the coverholder to continue to offer cover to policyholders and maintain continuity while it seeks replacement capacity.
In exceptional circumstances a managing agent may need to require that a coverholder ceases underwriting immediately or on short notice either by removing their underwriting authority or terminating the binder entirely. Any circumstance where underwriting authority is withdrawn without use of the full notice period set out in the binder is considered to be a removal of underwriting authority on short notice. This includes changing the level of authority granted to the coverholder to ‘prior submit’.
Short notice removal of underwriting authority can negatively impact both policyholders who may not be able to obtain renewal terms or have their existing policy serviced and coverholders who may not have the opportunity to find replacement capacity. If not properly justified it can also have a negative reputational impact on Lloyd’s and may draw regulatory investigation. Managing agents should therefore only take steps to remove a coverholder’s authority on short notice where it is able to demonstrate good reason for taking such action.
To monitor the use of short notice removal of underwriting authority managing agents are required to refer binding authority arrangements to Lloyd’s prior to removing underwriting authority on short notice.