July 12, 2013 by Canadian Underwriter
Lloyd’s has completed an 18-month review of binding authority agreements in the market with the publication of three new wordings by the Lloyd’s Market Association.
The new model agreements, down from the previous number of nine wordings from 2006, are for Canada, the United States, and Rest of the World.
A binding authority is an agreement that allows an underwriter to delegate authority for certain aspects of underwriting to a third party (coverholder) such as a broker or a managing general agent.
The new agreements apply to both the marine and non-marine markets, the first time binding authority wordings have done so for more than 20 years, according to the LMA.
The LMA is suggesting using the new agreements from Nov. 1 of this year, or earlier if agreed by all parties.
The new agreements take into account technological and regulatory changes such as online trading, and “have been streamlined to reflect current market practice,” LMA said in a statement.
Many of the standard endorsements brokers had to attach to the old agreements have also been included in the new wordings.
The agreements are also intended to be more user-friendly, with the order of the clauses rearranged with commercial placed at the front of the agreements and regulatory, compliance and legal clauses at the rear.
In addition, there is a new default claims section and the requirement for lead underwriters to countersign agreements has been removed.
“The new agreements were drafted following a major cross-market consultation exercise and have been well received,” noted Neil Smith, LMA’s head of underwriting.
“The good news is that we believe that these new agreements provide the market with the ability to be commercially flexible while also meeting regulatory compliance requirements,” he added.
“It was necessary to have specific wordings for both the U.S. and Canada because of regulation and tax legislation in those countries.”
To help with the introduction, the LMA will be holding a series of workshops over the summer.
The agreements are being made available to the market through the Lloyd’s Wordings Repository, the LMA’s website, Lloyd’s website and Xchanging.
Around 29% of all insurance business written in the Lloyd’s market is done so by binding authority agreements.