The emergence of the new Lloyd’s Delegated Authority (DA) risk-based ecosystem last year as well as the regulatory requirements and solutions that came with Brexit, meant that 2020 was an eventful year in the Lloyd’s DA marketplace.
The key changes in the DA landscape are described below, with a view on what to expect in 2021.
Central Technology Replacements
Long-established systems that support third-party oversight in the Lloyd’s market, including Atlas, BAR, DA SATS and AiMS, are all being enhanced, renamed or replaced. This support Lloyd’s vision of having an infrastructure that allows a seamless and well-managed ecosystem that enhances customer experience, making it easier, faster, and more cost-effective to do DA business.
During 2021, we expect to see the emergence of the Delegated Oversight Manager, Delegated Contract Builder, Delegated Data Manager and Delegated Audit Manager. Synchronised systems, consistency and data validated at source will reduce re-keying of data.
The transition to the new solutions will require all market participants to review their own systems and controls to ensure they best leverage the enhanced functions and capabilities. However, this will create a dependency on Lloyd’s delivery. In addition, we expect participants to seek the opportunity to derive operational benefits of connectivity via APIs to eliminate or minimise duplication of effort.
Taking a Risk Managed Approach
As part of the Future at Lloyd’s vision for DA, Lloyd’s regulations now enable a risk-based approach to approving DA arrangements. Delegated Claims Administrators (DCAs) (previously known as third-party administrators (TPAs)) can be approved subject to ongoing oversight by Lloyd’s. There is flexible discretion to allow sub-delegation of authority and for low-risk firms to be given DA without the need for prior Lloyd’s approval.
This approach will help streamline the overall time taken to review and approve new DA applications allowing governance to focus on higher risk arrangements and business to flow more easily for lower risks.
Nevertheless, interpretation of risk can vary. It remains imperative to have a deep understanding of the DA requirements to ensure regulatory risk is not jeopardised and to ensure processes aren’t lengthened by re-work caused by misinterpretation of the new rules.
The Transfer of Existing EEA Policies and Claims
Under the Part VII Transfer of the Financial Services and Market Act 2000, the Lloyd’s market had to manage an orderly transfer of existing EEA policies and claims underwritten by Lloyd’s Syndicates to Lloyd’s Brussels by 31 December 2020.
This has included DA business and there has been a significant amount of work undertaken and challenges met to source, cleanse and submit accurate data to Lloyd’s for Part VII Transfer, compounded by the tight timeframes and the number of different parties involved.
Solutions to Continue Placing EU business
As a result of EIOPA’s Recommendation 9, all business underwritten by Lloyd’s Brussels can only be accepted and administered from EU intermediaries, authorised by an appropriate EU regulatory authority. As a result, both Coverholders and brokers have had to establish solutions to continue placing EU business with Lloyd’s Brussels. We have seen reverse branch Coverholder applications, new or joint ventures to establish an authorised insurance intermediary regulated in the EU and unfortunately on some occasions business lost as result of this transition due to Brexit.
Data Integrity
Both of these Brexit-driven changes could compound existing market data inconsistencies and lead to client service disruption, especially in the complex DA trading landscape where Coverholders and brokers may not have followed the same approach as Lloyd’s and consistent coverholder data standards continue to be an aspirational target.
Seeking accurate data in a timely manner continues to be a challenge for the market and underscores the need for each organisation to select a suitable software solution that allows data to be captured, validated and reported swiftly and accurately. In an increasingly regulated reporting environment, where such information is key to help understand the risk and ultimate client better, this swift and accurate data visibility can mitigate risk and lead to a competitive advantage.
How r10 can help?
r10 provides an integrated partnership approach to define and execute your DA and facility approach. We have the expertise to provide advisory services, project delivery, technology solutions and outsourced managed services across your DA and facility footprint
Written by Bhuvinder Judge, r10 Associate and DUA Expert