A key characteristic of a master/group policy is that the master/group policyholder does not have any discretion as to who can be declared to the policy, the premium charged to the Customers or the terms of coverage. Nor should they provide any advice regarding the insurance. Where a master/group policyholder is doing any of these things Lloyd’s considers that a binding authority should be in place with all associated controls to ensure that the delegated authority is properly managed and overseen.
Master/group policies may provide automatic coverage (i.e. every member of the group receives coverage automatically by joining the group) or opt-in (i.e. each Customer chooses whether to take up the coverage or not). Where a master/group policy is opt-in the Customer must make the choice whether to opt-in for themselves without advice or influence from the master/group policyholder.
A typical master/group policy would provide one product at a single price with every member of the relevant group eligible to receive coverage.
However, master/group policies may also offer different choices for the Customer in terms of coverage. Again, the Customer must make this choice without advice or influence from the master/group policyholder. In addition, the options must not give the master/group policyholder any discretion i.e. the master/group policyholder must not have any discretion with regard to who is eligible for each option.
Examples might be:
- A health scheme may have different options for individual, spouse/partner and family cover.
- A travel scheme may have different options for Europe and worldwide.
- A PA scheme may have different levels of cover e.g. £40,000, £80,000 and £100,000.
Where there are different options under a master/group policy these should not become too numerous or too complex. In general, we would expect to see no more than 3-4 options. These should not be for complicated insurance packages but in relation to a single product type or possibly a simple package.
A master/group policyholder must not have any discretion as to how premium is calculated for its Customers which should be the same for all Customers, depending on the option chosen.
It is acceptable for the master/group policyholder to pay the premium themselves. The cover may then be offered to the Customers for free or recouped through, for example, a membership fee which is not directly apportioned to premium.
It is also acceptable for premium to be charged directly to the Customer. In these circumstances we would expect to see premium calculated in one of two ways:
- A set premium where a single product is offered or a set premium for each option where the Customer is offered a choice; or
- A set calculation based on the level of cover purchased.
An example of appropriate calculation of premium based on level of cover purchased:
A product offered by an investment firm is designed to cover the potential inheritance tax liability in respect of the investment offering in the event that the Customer dies within two years. Premium is calculated as a % of the amount invested.
Premium should not be calculated for Customers using a rating table as this veers into the realms of a ‘no discretion’ or ‘pre-determined rates’ binding authority and should be subject to the attendant controls. The only exception to this is that it is acceptable to have different premiums for different age bands for life and health products. The master/group policyholder must still not have any discretion and additional factors should not be added to the rating table. For example it would not be appropriate for the master/group policyholder to amend premium to reflect whether the Customer is a smoker as an additional rating factor.
However, whilst there must be no discretion in the calculation of the premium to be charged to Customers, where the premium will be paid by the master/group policyholder the premium can be negotiated between the insurer and master/group policyholder however they choose.
Where the master/group policyholder will be paying the premium and all members of the group will automatically receive coverage for free it is acceptable for the Lloyd’s underwriter or coverholder to calculate the premium to be paid by the master/group policyholder on whatever basis is agreed with the master/group policyholder. Where an arrangement is set up in this way all members of the defined group must still be eligible for cover i.e. the master/group policyholder, the Lloyd’s underwriter or coverholder must not have any discretion with respect to eligibility. Also, the members of the group should be covered regardless of whether any premium allocated to them individually has yet been calculated or paid.
For example, a global company (the master/group policyholder) takes out a policy to cover employee’s personal belongings while in transit when they are sent on secondment overseas (defined group of all employees that are based in X and Y location and are sent to A, B or C location). The master/group policyholder must provide the coverholder with a monthly report identifying travelling employees, their current and secondment locations, the value of their belongings being transported, the type of transport being used and the name of the relocation company. The coverholder will then calculate the premium for each employee in accordance with the rates that have been agreed in the master/group policy and charge the master/group policyholder. Provided the employee is part of the defined group cover cannot be refused and cover will be in place even if the move has already taken place by the time the employee’s details appear on the monthly report and the premium is calculated and paid.
In general, we would expect all members of a group to be eligible to receive the coverage offered under the master/group policy. If only some members of the group are eligible issues arise over how to determine eligibility and who is responsible for doing so. This very quickly begins to look like underwriting. Where the product is opt-in or there are multiple options it is up to the Customer to decide whether they want coverage and if so what option to purchase to suit their needs.
The only exception to this is life and health policies where the Customer is asked to sign a declaration of health and it is a condition of coverage that the Customer is below a certain age. The declaration should be designed by the managing agent or coverholder and the master/group policyholder must not be given any discretion as to whether to provide coverage to a Customer or not. The Customer must sign the declaration, giving the requested confirmations, in order to obtain cover.