Continuous contracts will facilitate the move to a risk-based approach to compliance, providing managing agents with greater autonomy to manage compliance in alignment with their internal risk assessment. The approach removes the need for a proactive annual ‘re-sign’ each year as contracts will be continuous until terminated and therefore compliance will no longer have any link to the contract renewing.
Ultimately the oversight framework of the contract will be up to each managing agent to design and implement. Internal controls should improve the oversight of binding authority agreements as the performance will be continually monitored, as opposed to the focus on annual review only. Based on pilot contracts within the market, it is advisable to consider the following:
- This initiative supports strategy to build strong commercial relationships with fewer, larger coverholders. May not be suitable for all relationships including those newer coverholders.
- There will be more ongoing conversations around the binding authority agreement that requires engagement from managing agents and brokers. These contracts should not be reviewed once per year.
- Receiving regular data in a timely manner from the coverholder is crucial to oversight.
- Monitoring requirements take time to define and will be dependent upon managing agent’s internal risk assessment as well as class of business specific detail. Focusing on one class first may be a good option.
- Managing agents should ensure that they only enter as many continuous contracts as can be supported by their performance monitoring and oversight frameworks at any given time and may need time to build or automate these capabilities.
- Managing agents should document their oversight arrangements for continuous contracts internally to ensure there are clear internal guidelines in place.