When is a policy not a master/group policy?

Below are some questions to ask yourself when determining whether an arrangement is a master/group policy. This is not a checklist but guidance to assist in your assessment. Ultimately if you are unsure whether an arrangement is a master/group policy you should speak to Lloyd’s Customer Oversight Team.

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For a master/group policy it is likely that the members of the group will be able to make a claim. This includes where the policyholder assists in coordinating claims but for all intents and purposes the member is the claimant. There are circumstances where the policyholder may also be able to make a claim on their own behalf but this would generally not be expected under a master/group policy.

For a master/group policy it is likely that claims will be paid to, or on behalf of, in the case of liability policies, the group members rather than the policyholder. If claims will be paid via the policyholder but ultimately belong to the group member and the policyholder has an obligation to pass the money on this is likely to be a master/group policy. Please note that we would not expect to see this second scenario without a solid justification for the policyholder being involved in processing the claim payments. There are circumstances where the policyholder may also be eligible to receive a claim payment but this would generally not be expected under a master/group policy.

For a master/group policy it is likely that the members of the group will have the right to make a complaint. The policyholder is likely to also have the right to complain.

It is indicative of a master/group policy that the members of the group pay the premium. However, there are many examples of master/group policies where the policyholder elects to pay the premium and provide coverage free to members. So, the fact that the policyholder is paying the premium does not necessarily indicate that it is not a master/group policy.

	Policyholder	Member of the group
Who is able to make a claim?	Unlikely to be a master/group policy	Likely to be a master/group policy
Who will the claim be paid to?	Unlikely to be a master/group policy	Likely to be a master/group policy
Who will the claims be paid on behalf of? (Liability policies)	Unlikely to be a master/group policy	Likely to be a master/group policy
Who can make a complaint?	Not an indicator	Likely to be a master/group policy
Who is paying the premium?	Not an indicator	Likely to be a master/group policy

Example arrangements

We recognise that there are some arrangements that have similarities to master/group policies. To assist the market in identifying master/group policies we have produced the following guidance and examples.

Contractual Liability Insurance Policy (CLIP)

A CLIP is not a master/group policy. This is because the cover is provided to the policyholder to indemnify their separate contractual liability to others (clients). The policy is not taken out in order to provide the benefit of insurance coverage to others. The policyholder’s clients will receive whatever they are due under their contract with the policyholder regardless of whether the CLIP responds to a claim from the policyholder. To avoid the risk of disputes and potential reputational damage, when writing a CLIP it is important to consider how the contractual liability is presented to the policyholder’s clients. It should not be presented as insurance cover or insurance backed and the Lloyd’s name or brand should not be used by the policyholder.

For example: In its terms and conditions contract with its clients a drycleaner commits to reimburse clients for any damage to their belongings while in the care of the drycleaner. The drycleaner then takes out a policy to protect themselves in the event that they have to pay out for damage. When an item is damaged the drycleaner will reimburse the client. The drycleaner will then claim on their insurance policy in an attempt to recoup the money they have paid out. This is not a master/group policy.

Employer Schemes

An employer scheme will usually be a master/group policy. However, if the employer has the benefit of the insurance and any related obligations to the employees are independent of the insurance purchased this will not be a master/group policy. This means the operation of the insurance policy will not impact on the experience of the employees and any claim will be made by the employer. The policy has not been taken out in order to provide the benefit of insurance coverage to others. This is similar to a CLIP but the related obligations to employees may or may not be contractual.

For example: An employer takes out a corporate travel policy that covers employees when travelling for business. This insures the company for the cost of the travel but also provides the employees with personal belongings, medical and repatriation coverage while travelling. The employee (possibly with assistance from the employer) would make a claim e.g. for lost luggage and receive the claim payment. This is a master/group policy.
For example: An employer commits in its employee handbook, by way of an employee benefit, to pay any employee who is admitted to hospital as a result of an injury at work a £10,000 lump sum. The employer takes out an insurance policy to cover this commitment with a total sum insured of £30,000. In one year 4 employees are admitted to hospital as a result of work injuries. The employer pays each of them £10,000. The employer then recovers £30,000 from the insurance. The obligation to pay the employees is independent of the insurance policy. This is not a master/group policy.

Risk Purchasing Group

Insurance underwritten to a US Risk Purchasing Group (RPG) is not a master/group policy. These arrangements are governed by the US Federal Liability Risk Retention Act (1986). Guidance should be sought from a law firm with appropriate expertise where an RPG is being established. Managing agents should still be mindful of the principles in this Guidance and ensure Customers are treated fairly and receive good outcomes. It is the managing agent’s responsibility to ensure all federal and local rules are satisfied.

Liability Policies

Liability policies taken out by a group (e.g. club, association, employer) to cover liability for the actions of members of the group when acting as a representative of the group will not generally be master/group policies. This may be where the group has vicarious liability for members’ actions by law or where it has voluntarily accepted vicarious liability. Liability policies will be master/group policies where any element of personal cover is extended to the members of the group.

For example: A local hockey club purchases a liability policy that covers liability arising from the activities of coaches and referees when they are representing the club. This will cover third party claims against the club and against individual coaches and referees where both the club and the individual are liable. There is no cover for coaches and referees when they are representing other clubs, acting in a personal capacity or where the club would otherwise not share liability. This is not a master/group policy.
For example: A local cricket club purchases a liability policy that covers liability arising from the actions of players when they are representing the club. It includes an extension that provides liability cover for the players for their personal liability when they are playing cricket but not representing the club. For example when they are practicing or representing another club. This is a master/group policy.

Directors and Officers (D&O) policies taken out by an organisation will not generally be master/group policies. This is a standard type of Corporate Liability Policy taken out by an organisation to protect the interests of its senior representatives when carrying out duties in their role as a representative of the organisation.

Franchise/ Location Arrangements

An insurance policy purchased centrally by a corporation to cover different locations or franchises, where the central corporate body retains responsibility for the risks covered by the insurance, is not a master/group policy. If franchisees/locations are responsible for the risks and their own insurance but are given the opportunity to opt in to an arrangement set up by a central corporate body this would be a master/group policy. The insurance policy has been taken out to provide the benefit of insurance coverage to others. The master/group policy requirements would be particularly relevant to ensure that:

(1) the central corporate body is not acting as a coverholder/underwriting/distributing insurance without authority (either Lloyd’s or local); and

(2) the franchisees/location managers receive sufficient information to be able to make an informed decision about their insurance needs.

For example: A fast food company has 50 outlets around the UK. The central corporate body owns and/or leases the premises for all the outlets and retains responsibility for the buildings. The central corporate body therefore takes out an insurance policy to cover all the buildings. Claims are made by the corporate body as the policyholder, although they may be dealt with on a day-to-day basis by the managers of the various outlets. This is not a master/group policy.
For example: A dog grooming company has 50 grooming centres around the UK. Each centre is run as an independent business by the local franchisee. The franchisees are required by the dog grooming company to have suitable public liability insurance in place as part of their franchise agreement but they are free to source the insurance from anywhere. To assist, the company has taken out a master policy which the franchisees can opt into to save themselves time and energy in trying to find a suitable policy. Franchisees submit their own claims directly to the insurer. This is a master/group policy.
For example: A hairdressing company has 150 salons around the UK. The salons are a mixture of independent businesses run by local franchisees and centrally owned salons run by a local manager. To protect the brand the central corporate body requires all locations to have the same comprehensive public liability cover which is arranged centrally. As independent businesses the franchisees are generally responsible for their own insurance but they rely on the central corporate body to purchase their minimum public liability insurance in line with their franchise agreements. This is not a master/group policy.

Multi Occupancy Buildings Insurance

Policies for multi-occupancy buildings are not generally considered to be master/group policies. Different territories have different established practices for the writing of such policies. In the UK the FCA has a particular interest in multi occupancy buildings insurance. Wherever such policies are written it is important that all local requirements are met. While such policies are not generally master/group policies it is still important to consider who benefits from the policy and ensure the policy is fair to and provides value to them. We therefore strongly encourage consideration of our master/group policy requirements when writing multi-occupancy buildings insurance.

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Local terminology and requirements for master policies

In some territories we have seen arrangements that are called master/group policies locally but that do not comply with the Lloyd’s Policy Level Requirements. However, they do comply with Lloyd’s binding authority requirements. In these cases there was a link to a group but each Customer was being referred to an approved coverholder operating under a binding authority who underwrote the risk and issued the documentation. The master/group policyholder’s role was to direct its members to the coverholder to obtain cover. We understand that there can be administrative benefits to calling these arrangements master/group policies. We are comfortable that where an arrangement meets the local requirements of a master/group policy but not Lloyd’s Policy Level Requirements it may be classed as a master/group policy for local administrative purposes. However, as in this example, where the arrangement is in fact a binding authority it will need to be treated as such for all other purposes. A record should be maintained where this is the case and annual review should be undertaken to ensure that the arrangement remains locally appropriate and compliant.

For example: A club for classic car enthusiasts develops a relationship with a coverholder and negotiates rates and coverage for its members under an arrangement that they call a master policy in accordance with local rules. The car club then provides it members with the details of the coverholder. When members contact them the coverholder uses the negotiated rates and coverage to provide the club member with their own individual insurance policy (although it is identified as being under the ‘master policy’). The coverholder is operating under the terms of their binding authority and the bordereaux has an entry for each club member as a separate policyholder. Premium is paid directly to the coverholder by the club member. This is not a master/group policy. But it may be called a master policy for local administrative purposes.
For example: An association for long distance truckers offers it members, amongst other benefits, access to insurance coverage at preferential rates. These rates have been negotiated with a coverholder under an arrangement that they call a master policy in accordance with local rules. When a member of the association expresses interest in the insurance the association refers them to the coverholder. The coverholder then underwrites each driver’s risk individually using the negotiated rates to calculate the premium. In accordance with the ‘master policy’ the association sends the documentation to the members who choose to purchase the insurance, but they act only as a post box between the coverholder and driver and do not produce the documentation. The arrangements put in place are all permissible under local regulations. Each driver is entered on the coverholder’s bordereaux as a separate policyholder. This is not a master/group policy. But it may be called a master policy for local administrative purposes.
For example: An employer purchases a master/group policy from a coverholder to cover the empty homes of all employees based at X location with homes in Y radius when they are sent to work in a different location for a period of greater than 2 months but less than 2 years. The employer pays the premium and the employees receive the cover for free. The employees complete a simple proposal form and every quarter the employer submits all the proposal forms to the coverholder and the coverholder adjusts the deposit premium accordingly. While the coverholder is individually underwriting the risks in accordance with the rates agreed with the employer they cannot decline cover for any member of the group. The employees are covered as soon as their home is empty even if their proposal form has not yet been submitted to the coverholder. This is a master/group policy.

Named insureds - purchasing as a group

Where a group of people or companies choose to purchase their insurance together to save money, often through the inclusion of a shared aggregate, this will not be a master policy. In this scenario all the insured parties should be named as insureds on the policy. This should not be a master/group policyholder as there is no genuine group.

For example: A group of independent schools that have similar insurance needs decide to purchase an insurance policy together as the inclusion of a shared aggregate will decrease the premium for all of them. They make an informed decision that the aggregate is suitable as due to their various locations they believe they are unlikely to all suffer high enough losses within the same year for the aggregate to be breached. They are willing to take that risk for the cost savings. All the schools are listed on the policy as named insureds and they split the premium proportionally between them based on the level of risk at each location. This is not a master/group policy.

Open Cargo Covers

Open Cargo Covers are not master/group policies. Where a managing agent grants an open cargo cover it must ensure it complies with all local licensing and regulatory requirements. Much like master/group policies consideration should be given to ensuring the arrangement is a genuine open cargo arrangement and not a way to avoid setting up a binding authority.