Understanding Lloyd’s II

(This is the second in a two-part series on Lloyd’s of London and Canadian Independent Adjusters)

In a previous article on Lloyd’s of London (August-September 2013 Claims Canada), I discussed the structure and uniqueness of this marketplace, particularly in terms of underwriting and distribution. This article will focus on the claims management side of Lloyd’s and how it applies to Independent Adjusters in Canada.

Lloyd’s Claims Structure

Adjusters have to understand how the Lloyd’s market operates from a claims handling standpoint. There are significant differences between how claims get reported and adjusted compared to the way many domestic insurers operate in Canada.

Let’s first tackle the claims structure at Lloyd’s of London, which operates as an insurance market, not an insurance company. There is no central claims office. Instead, losses are reported back to the Canadian broker who wrote the policy on behalf of the Lloyd’s insurance market; in Lloyd’s parlance, those brokers are known as “coverholders.” A retail broker may have brought the business to the coverholder and that retail broker is likely where the insured first sends the notice of loss. From there, the claim gets passed on to the coverholder and it is at that point the Lloyd’s way of doing things kicks in.

When setting up relationships, Lloyd’s and the coverholder agree on the coverholder’s authority for direct-handling, reserving and settling claims.

In terms of claims handling, if a coverholder has authority for, say, all claims under $50,000, there is only need for updated reporting via bordereaux; a spreadsheet of claims reported and their status, usually submitted monthly. If a reported claim exceeds the coverholder’s authority, at the onset or as a claim progresses, the coverholder submits the claim to the London Broker and from there it goes on to lead syndicate at Lloyd’s for agreement. However, as noted in the previous article, there are often “following” or secondary syndicates that also participate on the insurance policy.

To expedite the claims process, Xchanging Claims Services was formed in November 2001. It is essentially an outsourced business relationship owned 50% by Lloyd’s and 50% by Xchanging, a publicly traded company that specializes in back-office support.

Xchanging Claims is responsible for the provision of claims handling services to the Lloyd’s market, under the terms of the relevant Lloyd’s Claims Scheme. In cases where claims are required to be reviewed for the “following” market, Xchanging Claims handles the adjustment activity on their behalf. In other words, it provides a central overview function on behalf of the following syndicates for any claims, working closely with the lead underwriter(s).

With more than 200 employees, Xchanging Claims sees virtually all of the loss activity reported through Lloyd’s and maintains expertise on key aspects of claims handling, such as which legal firm should handle a professional indemnity claim, for example.

This ongoing dialogue between lead syndicates and Xchanging also allows all underwriters to be at the same table when it comes to claims – and provides an efficient resolution mechanism for the vast majority of reported losses.

Once a claim has been agreed and validated against the slip details, an electronic record is created and a Unique Claims Reference number is allocated.

It’s crucial for adjusters to familiarize themselves with claims reporting standards for Lloyd’s and coverholders. In February 2011, Lloyd’s introduced new standards for reporting claims across all classes of business and territories. It was designed to “move towards straight through processing by standardizing information flows,” according to Lloyd’s.

The standards, which cover mandatory fields and relevant conditional fields for any claims submissions to the Lloyd’s market, also include a Lloyd’s claim reporting spreadsheet tool. New coverholders and TPAs (adjusters) are expected to build and file their reports with the requisite information. A field adjuster can obtain details of all that is required from the coverholder of TPA through which they report. 

Accessing the Lloyd’s Market

For adjusters in Canada, this doesn’t answer the question – How do I access the Lloyd’s market?

As I mentioned in the last article, one of the key opportunities in the Lloyd’s of London market for adjusters in Canada is to become a Third Party Administrator (TPA) for a domestic coverholder. For a long time, I didn’t fully understand the role and function of the TPA; it is not that complicated. A TPA is simply a company hired to oversee or administrate claims on behalf of an insurer. The TPA deals with many of the everyday functions of a traditional insurer claims department; however, the insurer retains the final word on any claims that are of a certain type or exceed a certain dollar amount.

Since most coverholders (typically MGAs in Canada, but also some larger brokers) have claims settlement authority, they also need loss adjusting expertise. Finding those opportunities is a solid potential revenue stream for independents.

Understanding the Lloyd’s market and its unique protocols is fundamental to success in this claims market. Adjusters should know they don’t just hop on a plane, fly to London and start handing out business cards over a pint – that’s not how it works. One of the first steps is to build relationships with coverholders in Canada, of which there are currently 538.

Through coverholders, adjusters will, over time, get introduced to London brokers and syndicates at Lloyds, often becoming part of a “panel” of known and approved adjusting firms.

Other potential avenues to this market could be through lawyers with established ties to Lloyd’s or even through existing national TPAs, which typically outsource a portion of their Lloyd’s-related field assignments to select adjusters in certain regions of the country. Become known as an effective field adjuster in your part of the country or in your niche and the people who need your expertise will beat a path to your office door.

There is, most certainly, a learning curve in understanding the Lloyd’s market and becoming known there. You have to follow the established protocols, network with the right people and build a strong reputation. However, the opportunities are widespread for those adjusters willing to commit the time and effort become a known entity in the market.

For every niche that Lloyd’s (and its coverholders/managing agents) is involved in, there is a requisite need for loss adjusting expertise. That could be sports liability, entertainment, specialty industries/businesses, hard to place risks and increasingly, mainstream property and casualty business in Canada – all the types of claims into which independent adjusters like to sink their teeth.

The Lloyd’s Claim Handling Philosophy

As independent adjusters, we have seen a major focus on cost containment, streamlining and even the outsourcing of claims handling directly to contractors in the insurance industry in recent years. While this approach may result in short-term cost savings for some insurers, many argue it leads to “leakage” in claim costs and a hidden ballooning of loss ratios.

From my perspective, what is different about the Lloyd’s claims management philosophy is that it reflects and reinforces a complete approach to professional field claims handling.

Specifically, Lloyd’s sets out claims principles and minimum standards, which apply to resources, skills and management, performance measurement and management of external service providers. It doesn’t spell out precisely how each specific claim is to be handled, but provides “best practices” for claims handling.

One of Lloyd’s claims management principles is that: “Managing agents should have appropriate
claims resources, skills and management controls in each class of business written or proposed to be written.” For example, a coverholder cannot take on an aviation book of business if they have no experience or ability to mange associated claims.

I mentioned “leakage” in claims results due to cost cutting. One issue often raised, in safe surroundings, concerns insurance companies going direct to contractors; in those situations, there may not be a proper review of coverage that ties the policy wording to the field examination of the facts and circumstances. One insurer in the Canadian P&C marketplace forbids independent adjusters from providing opinions and recommendations on coverage. The Lloyd’s philosophy is entirely opposite.

Some question how insurers may truly know if the loss is covered under the terms and conditions of the policy if they don’t retain and rely on the expertise of an adjuster’s fieldwork; be that the work of an independent adjuster or a staff adjuster. As a professional adjuster, I am disheartened in those situations, where required, the adjuster a) doesn’t address cover or coverage issues at all or, b) reports facts with no recommendation or strategy on future handling.

At Lloyd’s, there is no standard coverage or wording; each policy has wordings that must be reviewed. Unlike some domestic insurance carriers, most Lloyd’s syndicates expect and value their adjusters’ opinions on both coverage and liability. They are in London and rely on professional Canadian adjusters who are local to the loss and who have expertise in their line of business for guidance on the claim.

The claims management philosophy at Lloyd’s is a welcome direction. Through this market, the adjuster is given the freedom, responsibility and encouragement to use his or her professional skills. This is the way adjusting was historically done in Canada before claims were put into silos and the task assignment was born.

Canadian Insurers benefit greatly from what Lloyd’s demands of their independent adjusters. It is those full-blown assignments that keep field adjusters aware of all that is necessary to deal with the bits and pieces that make up the overall requirements for a proper loss investigation and fair claim settlement. The fieldwork of adjusting a claim is respected, and there is an expectation that a loss will be investigated, statements will be taken and evidence gathered. The settlement is expected to be the amount in accordance with the terms of the policy – no more and no less.

If your goal is to be a respected independent loss adjuster actively practicing the skills of your profession and utilizing your expertise and training, Lloyd’s of London represents a market of opportunity.

 Fred Plant is president of Plant Hope Adjusters Ltd. and a Past President of the Canadian Independent Adjusters’ Association (CIAA), having served as National President 2007- 2008. (With special thanks to Chad Hancock of Windsor Limited, London)