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Third Party Material Issues

Material issues - what are they?

A third-party material issue is an issue which arises in relation to a managing agent’s delegation of underwriting or claims handling authority to a third party and which, if substantiated and uncorrected, would:

  • result in the Managing Agent deciding to cancel the contract of delegated authority or commence legal action against the Coverholder or Delegated Claims Administrator (DCA); or
  • otherwise indicate that the Coverholder or DCA may no longer be suitable to be approved.

Managing Agents are required to notify Lloyd’s at the email address below of any material issue that arises in their dealings with Coverholders and DCAs and these will also need to be reported to the Board of the Managing Agent as soon as possible. If in doubt, the Managing Agent should notify Lloyd’s of its concern.  Generally, issues which are purely commercial in nature will not be considered to be material issues requiring to be notified to Lloyd’s.

TPMI@lloyds.com

Examples of material issues about which Lloyd’s expects to be informed include where the Coverholder or DCA has:

  • Become insolvent / bankrupt;
  • Committed (or may have committed) a criminal offence or acted fraudulently (this includes the actions of any principal officers);
  • Breached the contract terms and conditions and / or operated outside its authority;
  • Failed to properly control assets;
  • Material or sustained failure to handle claims in accordance with agreed service levels;
  • Behaved in a way that risks damaging Lloyd’s licences, the Central Fund or Lloyd’s reputation;
  • Made incorrect or inappropriate use of the Lloyd’s brand (please refer to the brand guidelines on Lloyd’s website);
  • Is operating systems that are not sufficiently robust to efficiently administer or report on the business bound;
  • Regulatory breaches, fines or licenses revoked; and
  • Cyber-attack or breach of a coverholder or DCA system.

This list is not exhaustive.

Other issues can arise with Coverholders and DCAs, such as delays in bordereaux reporting or premium/claim money settlement, or a delay in implementing audit recommendations. These should be identified via exception reports and escalated internally to an appropriate forum for resolution and monitoring. Managing Agents should ensure that these issues are closely monitored, as they can often serve as early indicators of more serious issues. If these issues are unable to be resolved after being escalated internally then these should also be reported to:

TPMI@lloyds.com

Why do Lloyd’s need to be notified?

The delegation of underwriting and claims handling authority to third parties exposes Lloyd's and/or Lloyd’s Europe (LIC) to conduct, financial, credit, regulatory and reputational risks which may result in customer detriment, financial loss, sanctions by insurance regulators and damage to Lloyd's brand and reputation.

The Lloyd’s Undertaking

Lloyd’s has powers, in accordance with the Lloyd’s Undertaking, to suspend or revoke its approval of a Coverholder or DCA where it is deemed that the entity is no longer fit to be an approved Lloyd’s entity.  The Lloyd’s Undertaking also empowers Lloyd’s to request any information it requires and/or to instruct a third party to cease writing new business.

The Lloyd’s Undertaking (given under the terms of the Intermediaries Byelaw) sets out the primary rules made by the Council of Lloyd’s regarding delegation of underwriting and claims authority.

It is a contractually binding statement of good conduct which must be signed by the managing director, chief executive or the principal of the coverholder or Delegated Claims Administrator (DCA). It confirms that, as a requirement of its approval, they will:

  • Act in accordance with Lloyd's rules and not in a way that harms Lloyd’s name, reputation and standing;
  • Conduct their business with integrity and with due care and skill; and
  • Only act in accordance with the terms of a registered binding authority including their underwriting authority and administrative arrangements, particularly the handling of insurance monies.

Managing Agent Procedures

Managing Agents must have a procedure in place for identifying, monitoring and handling problem cases including material issues. Problem cases can arise where there are irregularities.  Some can be serious such as fraud or dishonesty, or where it becomes apparent that the Coverholder/DCA is suffering financial difficulties which may impact its performance. Where they are serious, managing agents should have processes in place to be able to act quickly to prevent damage to Lloyd’s brand and reputation. 

Proactive monitoring of coverholder performance will assist managing agents in early identification of potential issues, enabling them to be better prepared and make more efficient decisions in the event that remedial action is required.

In dealing with all cases where such issues may arise, Lloyd’s expects that managing agents will seek as a priority to ensure that the interests of policyholders are protected.