Continuous contracts guidelines

Lloyd’s believes that it is appropriate for managing agents who can demonstrate that they are capable of effectively managing their delegated authority arrangements to grant continuous binding authority contracts where they think appropriate. ^[1]

For this reason, Lloyd’s agreement to managing agents granting continuous contracts is dependent on the managing agent meeting the Customer Outcomes Principle. By meeting that principle the managing agent will have demonstrated that it has suitable processes to manage its delegated authority arrangements. The effective management of continuous contracts should therefore support better ongoing oversight and management.

Where managing agents choose to enter into continuous binding authorities, they should:

Only make them available for coverholders who can demonstrate consistent sustainable performance, meet the standards expected and demonstrate they provide value in the distribution chain
Ensure that the coverholder’s commission and fee arrangements under the binding authority will actively promote commercial alignment between the coverholder and the managing agent
Ensure premium and claims are allocated to the correct year of account; and
Ensure that oversight and management of the facility is continuous and not linked to the annual transfer/re-signing process

_{[1] Managing agents may wish to retain annual or the existing multi-year contracts.}

For these reasons the following important guidelines must be applied –

Guidance	Outcomes to be delivered
Underwriting	Managing agent should set clear metrics that the managing agent would be expected to use to monitor continuous contracts and these should be monitored on an ongoing basis (and must not be linked to the annual transfer process). Managing agent may wish to consider utilising data derived from DDM or other Delegated Authority management systems. Underwriters must not use conditional notices of termination to achieve a renewal style review or imposition of new terms, especially around the transfer date
Remuneration	Remuneration arrangements should be aligned to a managing agent’s established remuneration strategy. In particular, the managing agent should ensure that the coverholder’s commission and fee arrangements under the binding authority will actively promote good customer outcomes and commercial alignment between the coverholder and the managing agent. This may be driven through appropriate profit commission arrangements, with other remuneration being commensurate to the services and role undertaken by the coverholder.
Operations	Managing agent should ensure that operational processes are in place that continues to ensure premium and claims are allocated to the correct year of account, with an annual transfer of the binding authority to the next year of account taking place as at 1 January each year. The annual transfer process will be automated and supported by Lloyd’s via DCOM. Additional guidance will be provided on this in due course. Where practical a single consistent “UMR” should be used each year but consideration needs to be given to ensuring that premium and claims are capable of being correctly allocated. Please note that the use of Lloyd’s Consortium and Coverholder numbers are not currently in scope for continuous contracts.
Wordings	Managing agent should have the appropriate binding authority wording with relevant remediation and termination provisions to ensure that the managing agents can intervene where necessary and ultimately to terminate. The termination period written into the contract needs to suitable and proportionate given the nature of the business. Guidance is available on the contractual provisions that should be incorporated into the continuous contract. This includes certain mandatory provisions that must be included to allow for the annual transfer of the binding authority to the next year of account. The contract used may be a modified version of the current LMA binder wording but it must be clearly identifiable as a continuous contract and must be continuous from the outset (i.e. current LMA wordings cannot be endorsed to make them continuous)
Compliance	Managing agent should ensure that it manages its compliance requirements in an ongoing, risk based manner and in such a way that it is not linked to the annual transfer process.