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Lloyd's Co-Ordinated Binder Audit – Case Study

The Lloyd’s delegated authorities team is driving an initiative to coordinate the audits of those Lloyd’s coverholders that have multiple binders with different lead underwriters.

Thu 28 May 2015

This initiative, which represents a key action in our strategic objective of making it easier to do business with Lloyd’s, has been well supported by Lloyd’s managing agents and brokers. This case study has been written by Mark Taylor of Turnstone Insurance and Reinsurance Services and details the audit of AJ Gallagher undertaken on behalf of Lloyd’s syndicates late last year.

Lloyd’s is coordinating over 700 coverholder audits on behalf of the market in 2015. Anyone who requires any further information should contact Leena Ekman in the Delegated Authorities Team.

Case study

In July 2014 Turnstone were asked by Lloyd's if we wished to carry out the co-ordinated Binder audit of Arthur J. Gallagher’s (AJG) in the 4th Quarter of 2014.

This was a daunting task, as AJG had around 50 binders spread across 6 broking teams and the audit needed to be undertaken using the new Lloyd's audit scope, which contains some 144 questions rising to 278 with the appendices. We carefully considered whether to take on this task. Our primary concern was that the audit report had to be of the same quality as if it was a single audit and it had to be delivered on time. We decided to take this project on because we believe that co-ordinated audits are the future of binder audits.

Our first task was to book out two months worth of time to complete the audit and assemble the audit team. We then met with AJG and Lloyd’s as soon as possible to understand the dimensions of the project. We were fortunate that AJG had assigned a dedicated liaison person - Sarah Peppiatt - who worked on the AJG Binders team. Having a broker liaison person was fundamental to the success of project, as AJG are a large organisation to navigate and over the course of the project we would need to arrange to meet with around 40 separate people. Our next task was to review the Lloyd’s scope, as we had conducted a number of audits using it and we were aware it was not necessarily drafted with co-ordinated audits in mind. We broke down the Lloyd's scope into three levels of questions, those relating to how AJG function as a whole, those relating to how each of the broking teams worked and those relating to how the Binder itself was managed.

Rather than wait for all the order forms from the Managing Agents, we carried out the AJG generic part of the audit as soon as a time could be arranged in late August 2014. As is commonplace amongst some Lloyd’s brokers, AJG were initially reluctant to provide copies of their procedures, but did eventually agree to allow us to review the documents on site. AJG's procedures were very thorough, which we were happy to point out in our report. We then drafted the generic information and created template reports for all the Binders we were expecting to audit. This would speed up our ability to continue drafting the reports as soon as the underwriting pieces were completed.

We agreed a start date of the beginning of October 14 with AJG, even though we had still not received all of the audit order forms. We then planned the order we wanted to audit each broking team, picking the three with the most Binders first, which would be audited at the same time by three separate TurnStone auditors then to take on the next three and so on until completed. The first Binder reports would then be issued and we would then move on to the next three Binders in the same way. On starting the audit we hit a few issues:

  1. We were still getting audit order forms in which altered the balance of the work.
  2. There was also a pre-dominance of full authority binders (vs prior submit) in certain teams, which meant those audits would take longer.
  3. It also became apparent that our intention to cover the ‘team’ audit scope questions in one go would not work, as each Binder is unique and each was managed by one broker who would manage them in their own way.

The combination of these issues meant quickly changing our resources and approach. We then reallocated the audits between the auditors. We then began auditing and reporting one at a time, rather than trying to do all the on-site work in one go and then reporting. We found that this change made a real improvement to the project as the time from audit to report was reduced to a few days and trying to juggle 10-15 audits at once was getting difficult.

By early December 2014, all 42 reports were issued. We were pleased that we finished on schedule and had not compromised on quality of the reports. Our view of the co-ordinated process is that there are significant time and cost savings for Coverholders and Managing Agents by covering the generic piece once and that these are large projects which require a different approach to normal audits. Co-ordinated audits are undoubtedly more challenging, but we found they can be undertaken successfully with proper planning, coverholder collaboration, obtaining correct binder information, and having a flexible approach.

Many thanks to both Lloyd’s and AJG for their support on this project.