Question 1

You are the Delegated Authority Manager of a UK-based insurance broker, specialising in motor insurance.

You have recently formed an affinity relationship with the Classic Car Owners Club. The broker is considering
delegated authority agreements with insurers for some classes of cover. The broker offers the following five
classes of cover:

 High performance motor.

 Fleet motor.
 Private motor.
 Motor trade.
 Classic car.

Identify one advantage and one disadvantage for the insurance broker of arranging a delegated authority
agreement for each of the classes of cover above.

Answer

There are several advantages and disadvantages for a broker that holds the delegated authority of an insurer
and these are listed as below.

(i) High Performance Motor

One advantage for the insurance broker of holding a delegated authority agreement from an
insurer for high performance motor business is the ability to access high quality products and
services from a highly rated, secure and reputable insurer.

High performance vehicles are normally very expensive and by having an agreement in place with
a reputable and secure insurer, this will give the insurance broker the backing to provide their
clients with peace of mind and confidence that should they have a claim then there will hopefully
be no major issues.

One disadvantage to the insurance broker of holding a delegated authority agreement for high
performance vehicles is the potential for a large amount of risk under one roof. As mentioned
above, high performance vehicles are not only expensive, but are more of a risk given their
attractiveness and performance ability.

Should the insurance broker hold a delegated authority that allows an underwriting ability, then
should these risks not be rated correctly, there is a possibility that the insurer will make a
financial loss and then remove the authority all together, leaving the broker with a book of
business that they need to place.

(ii) Fleet Motor

One advantage for the insurance broker of holding a delegated authority agreement from an
insurer for fleet motor is the ability to streamline the handling of clients policies so that decisions
can be made quickly without the need to refer to the insurer for every given risk.

The result of this is the enhancement of customer service and quicker turnaround times, which
may also result in cost savings.

One disadvantage to the insurance broker of holding a delegated authority agreement from an
insurer for fleet motor is the potential need to have a larger amount of trained staff that enable
the broker to keep their customer service standards consistently high as this may form part of
their service level agreement.
 This could involve an extra expense on the brokers behalf for continuous training requirements
and an increase in salary costs.

(iii) Private Motor

One significant advantage for the insurance broker of holding a delegated authority agreement
from an insurer for private motor is the ability for them to continue to offer a local, tailored
service to individual clients but relying on a quality insurance provider to handle claims.

Private motor policies tend to have a higher frequency of claims and policyholders have a high
level of expectation regarding service. By holding a delegated authority, the insurance broker can
keep their local, tailored service but rely on the insurers claims team to promptly deal with any
claims.

One disadvantage to the insurance broker of holding a delegated authority agreement from an
insurer for private motor is that should the broker only hold a prior submit agreement, then they
will be required to refer any risks to the insurer.

Given the current market for private motor insurance, it is easy to obtain insurance online
instantly. With this in mind, should the broker have delays in providing quotes or making
amendments to policies, this is likely to lead to potential customer frustration and an increase in
complaints.

(iv) Motor Trade

One significant advantage for the insurance broker of holding a delegated authority agreement
from an insurer for motor trade is the ability to partner and tap in to the knowledge of an insurer
who are experts within the motor trade sector.

One potential disadvantage to the insurance broker of holding a delegated authority agreement
from an insurer for motor trade is that if the client’s needs fall outside of the limits of the insurers
underwriting criteria then the broker may find themselves restricted on where they can place the
risk.

(v) Classic Car

One significant advantage for the insurance broker of holding a delegated authority agreement
from an insurer for classic car is the ability to offer their clients a niche product that is specifically
tailored to meet the diverse needs of the unique classic car market, for example by offering an
“agreed value” service.

One potential disadvantage to the insurance broker of holding a delegated authority agreement
from an insurer for classic car is that should the broker not fully understand the true value of
vehicles within the classic car market, then they may not adequately insure them on the policy,
which may lead to potential disputes and reputational damage.
Question 2

You are the newly appointed Compliance Officer for HJ Ltd, a UK-based coverholder-MGA. HJ Ltd is planning to
expand its distribution into Europe via delegated authority agreements.

HJ Ltd has previously been criticised by the Regulator for its unfair treatment of customers. Therefore, before
this planned expansion, the Chief Executive Officer (CEO) of HJ Ltd has asked you to consider the relevant
regulation with reference to the Insurance Distribution Directive (IDD).

Explain, with justification, the two most significant provisions of the IDD which will impact the planned
expansion of HJ Ltd into Europe.

Answer

In this scenario, as the newly appointed Compliance Officer of HJ Ltd, we have been asked to consider the
relevant regulations that apply to delegated authority agreements that expand in to Europe, with particular
reference to the Insurance Distribution Directive.

The aim of the Insurance Distribution Directive is to make it easier for firms to trade across borders, strengthen
policyholder protection and provide a level playing field (CII Study Text M66 Delegated Authority 23/24).

With the above in mind and considering that HJ Ltd has previously been criticised by the Regulator for their
unfair treatment of customers, the first significant provision that will impact HJ Ltd.’s expansion in to Europe is
that around “the customers best interest rule”.

The Insurance Distribution Directive has introduced a rule “which requires that all firms act honestly, fairly and
professionally in the customers' best interests regardless of their position in the distribution chain, and
whether or not they have direct contact with the end customer (CII Study Text M66 Delegated Authority
23/24). Therefore, it is imperative that HJ Ltd ensure that they are adhering to this rule to remain compliant,
avoid regulatory issues and rebuild consumer trust.

The second significant provision of the Insurance Distribution Directive which will impact HJ Ltd.’s planned
expansion in to Europe is surrounding their professionalism. As noted in CII Study Text M66 Delegated
Authority 23/24, “all firms engaged in any of the activities covered by the Directive must possess appropriate
knowledge and ability to complete their tasks and perform their duties adequately”.

Given this requirement, it is of the upmost importance that HJ Ltd recruit staff that are not only well trained
but also fully understand the market for which they are about to enter. Furthermore, HJ Ltd should ensure that
these staff are continuing to maintain and further develop their knowledge by completing a minimum of at
least 15 hours CPD annually. By HJ Ltd doing this, it will hopefully lead to a smoother claim process, less
complaints and a better overall customer experience.

Question 3
You are the Underwriting Manager for FG Ltd, a Lloyd's Managing Agent. FG Ltd transacts commercial casualty
business including the utilisation of service companies.

You have been approached by a wholesale insurance broker who has an overseas liability client. The wholesale
broker is looking for you to underwrite the risks, however, you do not have experience in underwriting
overseas risks. The risks are very profitable for both the wholesale broker and the insurer.

You are keen to underwrite this business, in view of the profitability and the fact that it fits in with FG Ltd.’s
overall business strategy which includes overseas coverholder-MGAs.

A) Describe three significant practical steps to be taken to pursue FG Ltd.’s overall business strategy.
B) Describe three significant issues for FG Ltd when complying with the Lloyd's coverholder approval
process.

Answer

In this scenario, FG Ltd have been approached by a wholesale broker who currently has an overseas liability
client, for which the broker has asked FG Ltd to underwrite the risks. FG Ltd are keen to underwrite the risks
but there are practical steps that must be considered beforehand. All of the below points should be directly
addressed within FG Ltd.’s detailed business plan.

A) The three most practical steps that must be taken by FG Ltd for them to be able to pursue their
overall business strategy are as below.

(i) The first significant practical step that must be taken by FG Ltd would be to invest their time in
obtaining a comprehensive understanding of both the regulatory requirements and compliance
standards within the overseas jurisdiction in which the liability client currently operates and then
for the particular type of risks in which they are trying to obtain capacity for.

Furthermore, FG Ltd should ensure that they obtain the necessary approval from the relevant
regulator for them to be able to underwrite risks overseas via a delegated authority arrangement
with the wholesale broker.

It would also be prudent of FG Ltd to develop their own internal robust risk management and
compliance procedures which will ensure that they are adhering to the relevant local laws and
regulations and adhering to Lloyds requirements.

By FG Ltd proactively addressing any regulatory and legal issues, this will assist them in building
credibility within the desired market and attract business.

(ii) The second significant practical step that must be taken by FG Ltd would be the consideration of
their own capacity and ability to provide and underwrite a tailored solution for the risks from an
overseas environment.

Given that FG Ltd have stated that they do not have the necessary experience in the overseas
market, they may not fully understand nature of the potential exposures that they are facing. FG
Ltd should evaluate their capacity and assess whether they have the necessary financial strength
and resources to support the increased exposure to the overseas risks.

Furthermore, to ensure that FG Ltd are charging the relevant premium for the risk proposed, they
should invest in staff training and development which will allow their underwriters to enhance
their expertise in handling these particular types of risks and therefore charge correctly. If more
cost effective, then it may be a better option to employ staff with the necessary expertise to
underwrite the risks posed.
 Whilst assessing their own financial security, FG Ltd should ensure that they perform a
comprehensive due diligence process on the wholesale broker. The reason for this is because FG
Ltd will want to ensure that they are “dealing with an entity that is well capitalised and capable of
surviving difficult economic conditions” (CII Study Text M66 Delegated Authority 23/24). By doing
these checks, they will ensure that they are also complying to Lloyds requirements.

(iii) The third significant practical step that must be taken by FG Ltd would be for them to assess the
possibility of setting up a service company within the overseas territory to solely deal with the
wholesale broker.

The benefit for FG Ltd of doing this is that not only would they have access to the market in which
the wholesale broker is approaching them with, but they may also be able to take advantage of
other business within the overseas territory which may be another avenue and source for income
for them.

Before FG Ltd go ahead and set up either a branch or a service company within the overseas
territory, they should consider the possible complications and practicalities of doing so. For
example, they may need to seek legal advice to ensure that they comply with local requirements,
they may need to upgrade or purchase new I.T systems and they may need to employ local staff
as opposed to using the staff they currently have (CII Study Text M66 Delegated Authority 23/24).

Given the costs involved in setting up either a branch in the local territory or setting up a whole
new service company, this is an option that will need to be scrutinised by FG Ltd as there are
heavy cost implications involved and this is an expensive choice for them to pursue (CII Study
Text M66 Delegated Authority 23/24).

B) Before FG Ltd decide to delegate authority to the wholesale broker, they should be aware of the strict
approval process within Lloyds for the delegation of authority to coverholder MGA’s, as they may face
several issues in this process.

(i) The first significant issue that must be considered by FG Ltd in respect of the Lloyds coverholder
approval process would be the difficulty in monitoring any remote workers, especially as they are
overseas.

Firstly, FG Ltd should ensure that they have procedures in place so that any remote workers have
been approved and logged and that they have the relevant I.T systems that will allow them to
access the same systems or alternatively can be linked directly to the coverholders approved
office.

Secondly, FG Ltd will want to ensure that if they have agreed to the coverholder having remote
workers, they have firm procedures in place, which detail their levels of authority and to ensure
that their work has been subject of a peer review process by colleagues to avoid the potential for
any unauthorised activities or mistakes being made. This will provide an extra layer of security for
FG Ltd given the remote workers lack of supervision.

Lastly, FG Ltd will want to ensure that the coverholder has the relevant Professional Indemnity
insurance in place that will provide cover to their staff who work remotely. Should this not be the
case, then the coverholder will need to obtain this beforehand.

(ii) The second significant issue that must be considered by FG Ltd in respect of the Lloyds
coverholder approval process would be that of the regulatory and compliance requirements for
the coverholder, including those relating to conduct risk and its ability to meet its financial
obligations.

As part of the Lloyds coverholder approval process there is a requirement to ensure that “the
coverholder possesses all the licences, approvals or authorisations required in order to act as an
 approved coverholder wherever it will conduct insurance business in that capacity (CII Study Text
M66 Delegated Authority 23/24).

Given that the coverholder is wanting to place risks from overseas, they must ensure that they
meet not only their own local authority requirements and those of Lloyds, but they must also
ensure that the meet those of the overseas territory for the type of business they are pursuing.

In this regard, Lloyds may use their own country representatives to obtain further information
about the overseas regulations and requirements (CII Study Text M66 Delegated Authority
23/24).

(iii) The third significant issue that must be considered by FG Ltd in respect of the Lloyds coverholder
approval process would be the coverholder undertaking.

The coverholder undertaking is a vital part of the application process and sets out the
expectations that Lloyd’s has of its coverholders and the way they will interact with their
customers, brokers and with Lloyd’s. It also sets out the powers of Lloyd’s relating to the approval
of a coverholder and any binding authorities (CII Study Text M66 Delegated Authority 23/24).

Furthermore, the coverholder undertaking will provide criteria and information in relation to any
underwriting authority given, how the coverholder deals with the Lloyds market, follows any
relevant data protection requirements and also how they conduct their general business.

Given that this is a set of requirements for the coverholder, FG Ltd will have limited control over
this and therefore, this may cause issues during the approval process.

To conclude, there are many steps that need to be taken by FG Ltd for them to explore the possibilities of
transacting business with the coverholder. There may also be several issues along the way, however ensuring
that these issues are addressed prior to the application process will hopefully alleviate any queries and allow
the process to flow smoothly.

Questions 4

You are the Delegated Authority Manager for a coverholder-MGA with extensive experience of operating
delegated authority agreements for commercial combined business.

You are considering entering into a delegated underwriting authority agreement with DF Ltd, an insurer.

DF Ltd does not have experience of underwriting commercial combined business or delegated underwriting
authority agreements.

During initial discussions between the coverholder-MGA and DF Ltd regarding the operation of the delegated
underwriting authority agreement, the issue of underwriting guidelines was raised.

A) Explain briefly, two appropriate levels of underwriting authority that could be offered by DF Ltd to the
coverholder-MGA.
B) Explain one benefit and one challenge for DF Ltd, of each of the two levels of underwriting authority
you have explained in (a) above.
C) Explain one benefit and one challenge for the coverholder-MGA of each of the two levels of
underwriting authority you have explained in (a) above.

Answer

In this scenario, the coverholder-MGA are considering whether to enter in to an agreement with DF Ltd, an
insurer who have no experience in underwriting the type of business for which will be presented to them, nor
that of delegated authority contracts.
A) Given that DF Ltd have little to no experience of the type of business that the coverholder-MGA would
place, they have limited options when it comes to the underwriting authority that could be given to
the coverholder-MGA.

(i) The first level of underwriting authority that may be granted to the coverholder-MGA would be
under a pre-agreed rates authority. Within this type of contract, the coverholder-MGA can make
the decisions on underwriting but will have to use the rating schedules and relevant underwriting
guidelines issued to them by DF Ltd (CII Study Text M66 Delegated Authority 23/24).

(ii) The second level of underwriting authority that may be granted to the coverholder-MGA would
be that of full underwriting authority. In this case, the coverholder-MGA has authority both to
accept risks and also to set the rates independently, without reference back to the insurers, as
long as the risk falls within the criteria set within the binding authority document (CII Study Text
M66 Delegated Authority 23/24).

B) There are many benefits and challenges for DF Ltd should they provide the coverholder-MGA with
underwriting authority, some of which are listed below.

(i) The benefit for DF Ltd of providing the coverholder-MGA a pre-agreed rate underwriting
authority is that they will retain more of the control over the risks that are attached to the binder
and of the premiums that will be charged. This should enable DF Ltd to closely monitor the binder
and retain control of the coverholder-MGA.

(ii) The challenge for DF Ltd in only providing the coverholder-MGA with a pre-agreed rate
underwriting authority is their lack of experience and knowledge within the market they are
underwriting. As this type of authority would require strict underwriting guidelines and rating
criteria that the coverholder-MGA would need to follow, DF Ltd need to ensure that the
underwriting guide is priced correctly so that not only are they competitive, but they are not
leaving themselves open to large exposures.

(iii) The benefit for DF Ltd in providing full underwriting authority to the coverholder-MGA is the
ability to lean on their extensive knowledge and experience within the market. As DF Ltd have no
experience within this sector, the coverholder-MGA would be able to adequately price policies
and ensure that the business is as profitable as possible. Furthermore, they will be able to advise
clients on the correct cover to ensure that this is sufficient.

(iv) The challenge presented for DF Ltd by providing the coverholder-MGA with full authority is that
there is a high risk of them losing control of the type of business that is being written in their
name. By having a full authority, with little underwriting guideline, the coverholder-MGA is able
to make decisions without the need for prior referral to DF Ltd and therefore, they will only see
the various different types of risk being attached to the binder upon the receipt of the bordereau.

C) Again, there are many benefits and challenges for the coverholder-MGA should they enter in to a
delegated authority arrangement with DF Ltd, some of which are listed below.

(i) One benefit for the coverholder-MGA of obtaining a pre-agreed delegated authority agreement
with DF Ltd is the ability to collaborate with a potentially reputable insurer that have a good
rating. By having this in place, the coverholder-MGA can obtain a niche product with a potentially
enhanced cover with a well-known insurer. This will help them gives clients peace of mind and a
sense of security.

(ii) One challenge for the coverholder-MGA of having a pre-agreed delegated authority agreement
with DF Ltd is that they will need to refer to DF Ltd should any risk be presented to them that falls
outside of their restricted underwriting criteria. By having these delays in place, the end point
customer may take their business elsewhere before the coverholder-MGA can receive the
necessary acceptance from DF Ltd.
 (iii) One benefit for the coverholder-MGA by having a full authority underwriting agreement in place
with DF Ltd is that they will have the full autonomy to run the book of business. Having this will
allow them to make decisions quickly on the type of risks that can be bound along with the
premiums to be charged. This should give the coverholder-MGA the best possible opportunity to
obtain policies and enhance customer satisfaction.

(iv) One challenge for the coverholder-MGA of having the full authority of DF Ltd is that they may
have further requirements placed upon them in terms of compliance and regulations. Should this
be the case, then the coverholder-MGA may need to employ more staff to fulfil these roles as
opposed to leaning on DF Ltd, as may be in the case of a lesser authority arrangement.

To conclude, there are many advantages and challenges for both parties in the forming of a delegated
authority agreement, but by ensuring that the correct level of authority is given to the coverholder-MGA,
hopefully both parties can write business that will be profitable, whilst providing their clients with a superior
product.

Question 5

You are an underwriting manager for a coverholder-MGA specialising in High Net Worth (HNW) business.

You have employed a number of junior members of staff responsible for underwriting the business on behalf
of the coverholder-MGA.

There is a binding authority agreement in place between the coverholder-MGA and the risk bearing insurer.

The binding authority restricts the coverholder-MGA to underwrite up to a maximum sum insured of £5 million
and only in areas where there is no significant flood risk. Details of the binding authority agreement have not
been clearly communicated to these junior members of staff.

As a result of this lack of communication, you have decided to write a staff underwriting manual to ensure that
risks are not underwritten outside the limits of the binding authority agreement.

A) Explain, with justification, two significant considerations the coverholder-MGA would make when
underwriting this HNW business.
B) Identify, with justification, five significant processes you would include in your staff underwriting
manual, to assist them to underwrite risks within the terms of the binding authority agreement.

Answer

In this scenario, there is a binding authority agreement in place between an insurer and a coverholder-MGA,
for which we are an underwriting manager. Unfortunately, the details of this agreement have not been clearly
communicated with junior staff members and therefore, we have decided to write an underwriting manual to
clearly state the underwriting limitations.

A) The business being placed on this binder is High Net Worth household, for which there will be many
considerations that need to be taken in to account when being underwritten, two of which are
detailed below.

(i) The first significant consideration that would need to be taken in to account when underwriting
the High Net Worth business would be the location in which the properties insured are situated
and whether there is a danger of an aggregation of risks or exposures (CII Study Text M66
Delegated Authority 23/24).

High Net Worth home insurance policies normally cater for static residential property risks that
have a higher than normal sum insured for both buildings and contents. Given this, the
 coverholder-MGA should ensure that they have the necessary procedures in place so that they
can monitor the risks being attached to the binder. For example, they could perform regular
surveys, monitor the postcodes of properties, or even more specifically, the precise locations of
the properties to ensure that they are not leaving the binder exposed to a large loss in the event
of a natural catastrophe, for example a flood.

Furthermore, the coverholder-MGA should be aware that the binder agreement may have set out
specific requirements as to the extent of any aggregate acceptable, which can either be in
relation to the location of the risks or in monetary values.

(ii) The second significant consideration that would need to be taken in to account by the
coverholder-MGA when underwriting the High Net Worth business would be the premiums that
they are charging for the risk that is being presented to them.

As previously mentioned, the type of property being insured under a High Net Worth policy is
normally that which is larger than the average household and can be of significant value. With
this in mind, if the coverholder-MGA has the ability to rate risks, albeit by following certain
guidelines as set by the insurer, they should have a process in place to assist them in calculating
the adequate premiums for each risk.

Given the type of business the coverholder-MGA is writing, it is likely that should there be a
claim, then the insurer would suffer a substantial loss. Should the coverholder-MGA not charge
an adequate premium to the end client, they risk burning the book of business and rendering this
type of business unprofitable.

If this were to happen then the insurer may well review the scheme and either remove the
binding agreement authority altogether or possibly place more stringent limitations on the binder
in the hope of restricting the likelihood of this scenario happening again in the future.

B) There are many different processes that should be incorporated in to the underwriting process
manual that is being devised, some of which are detailed below.

(i) The first process that should be built in to the underwriting manual would be for staff to check
the postcode of properties to ensure that they do not fall within an area that is deemed
unacceptable to the insurer, due to flood for example. This could be done by having a process in
place to ensure staff check a list of acceptable postcodes or check the area on the environment
agency flood map.

(ii) The second process that should be built in to the underwriting manual would be around the
maximum sum insured of £5 million. The likelihood is that clients are not fully aware of their true
sum insured and therefore, having a process in place to obtain valuations of the property insured
from an independent company should avoid this limit being breached.

(iii) The third process that should be built in to the underwriting manual would be to include a clear
list of detailed criteria that requires an immediate referral to the insurer for consideration.
Examples of this could be high value property that is taken away from the home or high value
within the property that is not kept in a safe.

(iv) The fourth process that should be built in to the underwriting manual would be to incorporate a
list of criteria that would result in an instant decline from the insurer. By having this in place, the
coverholder-MGA can quickly identify any unacceptable risks and ensure that these are not
attached to the binder.

(v) The fifth process that should be built in to the underwriting manual would be a clear rating matrix
for which the specific underwriter could then calculate the appropriate premium to charge
depending on the information supplied to them by the client. This should also include any
particular premium loadings or discounts available, along with any necessary endorsements or
 terms that need to be applied, should these not be pre-written in to the overall binding
agreement.

To conclude, by putting these processes in place, we should be able to minimise the risk of the coverholder-
MGA’s underwriters deviating away from the binding agreement criteria as set by the insurer.

Question 6

You are the Claims Manager for DE plc, a large UK-based insurer.

DE plc's claims philosophy is to take a strict approach to the interpretation of policy liability when handling and
managing claims. DE plc is also slow to agree to claims and to subsequently pay claims.

DE plc has a binding authority agreement which includes underwriting and claims handling authority with AV
Ltd, a small coverholder-MGA.

AV Ltd has a different claims philosophy to DE plc. AV Ltd's claims philosophy is to generously interpret policy
liability in favour of the policyholder when handling, managing and settling claims. AV Ltd agrees and settles
claims very quickly.

Discuss the consequences of the different claims philosophies between DE plc and AV Ltd.

Answer

The different claims philosophies between DE Plc and AV Ltd may have several different consequences, both
for the insurance company, policyholders, and the relationship between DE plc and AV Ltd. Furthermore, there
may also be regulatory issues surrounding ICOBS 8 and conduct risk.

As mentioned above, one possible consequence of the different claims philosophies between DE Plc and AV
Ltd is non-compliance with ICOBS 8, which details how claims should be handled. Under this provision, claims
should be handled promptly and fairly, they should also be settled promptly once settlement terms are agreed
(CII Study Text M66 Delegated Authority 23/24). The fact that DE Plc are slow to agree and subsequently pay
claims may result in regulatory issues and therefore, to avoid this AV Ltd should look to set up a loss fund with
DE Plc, which could be regularly replenished. Given that AV Ltd handle claims very quickly, this should
hopefully resolve this issue.

This also leads on to the next potential consequence of the differing claims philosophies between DE Plc and
AV Ltd. It has been noted that DE Plc take a strict approach to the interpretation of policy liability, whilst AV
Ltd are generous in their interpretation of policy liability, regularly favouring the policyholder. Given this,
should DE Plc provide a loss fund for AV Ltd, they will want to monitor this regularly to ensure that AV Ltd are
not accepting claims without proper consideration, which may lead to financial loss for DE Plc. This can be
done by ensuring that regular bordereaux’ are received and regularly auditing AV Ltd.

Another consequence of the differing claims philosophies between DE Plc and AV Ltd is the potential for an
indifferent customer experience when processing a claim. Regardless of AV Ltd.’s limit of claim authority, it is
likely that DE Plc will want certain claims to be reported directly to them, for example large liability claims,
personal injury etc, whilst AV Ltd deal with smaller and quicker claims. Given that DE Plc are slower to agree
claims and stricter with their interpretations of policy liability, it is likely that policyholders with claims being
handled by DE Plc will not receive settlement as quickly as those directly with AV Ltd, which could lead to
potential complaints.

The final consequence of the differing claims philosophies between DE Plc and AV Ltd is the possibility of
reputational damage, from both policyholders and other companies that are in the market to do this type of
business. As there is such a variance between the two philosophies, policyholders may see DE Plc as a slow and
stringent insurer, which may hinder them attracting new business. Alternatively, possible capacity partners
may see AV Ltd as over eager and too generous and may not want to transact business with them due to
possible increased financial outlay.
To conclude, DE Plc and AV Ltd should have a firm discussion to ensure that they have a firm agreement in
place around their underwriting and claims authorities and philosophies. Not only this, they should also ensure
that good reporting processes are in place so that both DE Plc and AV Ltd can monitor the necessary fields. By
doing this, they will satisfy the requirements of the regulator and also provide policyholders with the best
possible experience.

Question 7

You are the Compliance Officer of SW Ltd, a medium sized coverholder-MGA.

SW Ltd operates various binding authority agreements with different insurers. Some of these insurers have
carried out a recent audit of SW Ltd and have criticised SW Ltd's compliance with procedures, including
handling money.

In particular SW Ltd has been criticised for the lack of corporate governance regarding the following issues:
 Bribery.
 Sanctions.
 Embezzlement.
 Money laundering.

The Board of SW Ltd has instructed you to address these issues and improve its corporate governance. Discuss
the actions you would take to address the issues above, and improve the corporate governance within SW Ltd.

Answer

As the Compliance Officer in this scenario, our role is crucial in establishing and enforcing effective policies and
procedures and also performing continuous monitoring processes and providing feedback to ensure that the
corporate governance within SW Ltd has improved. Addressing the issues raised by the various insurers and
improving corporate governance within SW Ltd will require a comprehensive approach and some of the
actions that need to be taken are detailed below.

It is worth mentioning that some of the insurers have criticised SW Ltd.’s handling of money. It would be
prudent of SW Ltd to have the relevant processes in place that ensures they hold any insurer funds, whether
premiums or claims, in dedicated trust accounts. Furthermore, SW Ltd should ensure that funds are not used
for any matters other than those for which they were intended (CII Study Text M66 Delegated Authority
23/24).

Firstly, there are various actions that could be taken to address the issue of corporate governance around
sanctions. SW Ltd should ensure that they have a robust process in place that allows them to continuously
screen their clients and also recipients of any claims against the relevant sanctions lists. Furthermore, SW Ltd
could also look to implement an automated system that will identify potentially sanctioned individuals for
further investigations. If SW Ltd identify a sanctioned individual, then there should be a clear plan in place on
what steps need to be taken.

Secondly, to improve the corporate governance issues surrounding bribery, SW Ltd should firstly ensure that
staff are regularly attending training which surrounds how to identify bribery and what constitutes as bribery.
Further to this, SW Ltd should also ensure that they are challenging themselves to understand where business
is coming from subsequently put a process in place so that they can regularly monitor these transactions. It
would also be prudent of SW Ltd to have a process in place that documents any “gifts or hospitality” to ensure
that it is justified and appropriate.

Thirdly, to improve the corporate governance issues surrounding money laundering, which is the process of
converting dirty money in to clean money, SW Ltd should first ensure that their staff are well trained to
identify the typical triggers of money laundering. Normally, this would include unclear insurable interest, short
cancellation of contracts and requests for payment to parties that are seemingly unconnected with the
contract (CII Study Text M66 Delegated Authority 23/24). Following the identification of a money laundering
trigger, SW Ltd should ensure that they have a clear process in place that details exactly what steps the
relevant staff members should take next. One of which would be to ensure that staff do not raise awareness to
their suspicions as this would amount to tipping off. Furthermore, SW Ltd are required by the regulator to have
a money laundering reporting officer to whom all suspicious transactions should be advised (CII Study Text
M66 Delegated Authority 23/24).

Finally, to improve the corporate governance issues surrounding embezzlement, SW Ltd should firstly ensure
that they undertake extensive internal audits to help identify any potential vulnerabilities within their financial
systems. Furthermore, SW Ltd should encourage their employees to report any suspicions of embezzlement by
operating a confidential reporting system and a strict code of conduct that clearly defines any unacceptable
behaviours.

To conclude, by ensuring that SW Ltd regularly assess their processes and have the necessary data collection
procedures in place, they will mitigate the potential for any further risks of poor corporate governance.
Fundamental to this is regular staff training and continuous communication as this will help to promote a
healthy culture in which staff feel comfortable to raise any issues, without fear of prejudice.

Question 8

You are an independent auditor, specialising in binding authority contracts. One of your clients is FT plc, a UK-
based general insurer.

FT plc has a number of binding authority agreements with several coverholder-MGAs who underwrite small
motor fleet risks. FT plc has asked you to carry out underwriting audits of these binding authority agreements
on their behalf.

FT plc does not underwrite fleet risks in the open market and believes that conducting business through
delegated authority arrangements will improve their profitability.

Before you start the underwriting audits, you have been asked by FT plc's Underwriting Director to attend a
meeting to discuss the framework of these audits.

A) Identify, with justification, five key elements of the audit framework that you will need to raise in your
meeting with FT plc's Underwriting Director.
B) Explain, with justification, two significant elements of the audit framework that you have identified in
(a) above, to improve the profitability of FT plc.

Answer

One of the main mechanisms still used to monitor performance is the audit process (CII Study Text M66
Delegated Authority 23/24). Here, we are a specialist independent auditor that has been instructed to audit
the delegated authority agreements that FT Plc, whom are a UK-based general insurer has in place with several
coverholder-MGA’s.

A) There are various elements within the audit framework that will need to be raised during our meeting
with FT Plc’s underwriting director and the most important are discussed further below.

(i) The first key element of the audit framework that will need to be raised is that surrounding the
actual coverholder-MGA’s which hold the delegated authority of FT Plc. Prior to the contract of
delegation coming in to force, FT Plc would have done their due diligence on the coverholder-
MGA’s to ensure that they meet the necessary requirements needed to be granted coverholder
status.

Although this would have been done at the start of the contract, it would be prudent of FT Plc to
continuously monitor the coverholder-MGA’s to ensure that they continue to maintain the
standards and ability held at the beginning of the contact. For example, this may include ensuring
 the company have retained the staff that were originally noted within the delegated authority
agreement, ensuring that staff are subject to continuous training as to avoid any errors or
omissions and also checking that the coverholder-MGA’s are not subject to any investigations
from regulators.

(ii) The second key element of the audit framework that will need to be raised is that surrounding
the accounting processes of the coverholder-MGA’s. Within the delegated authority contracts, it
should be clearly stated how often and in what format FT Plc will want information submitted in
respect of the coverholder-MGA’s business and this is normally on a monthly bordereaux basis.
FT Plc will want to see that the coverholder-MGA’s are providing information on a regular basis,
both to ensure they are complying with necessary regulations, but also to ensure that their funds
are accounted for.

As the coverholder-MGA’s may hold various different delegated authority agreements with
different insurers, FT Plc will also want to ensure that any funds they have provided to the
coverholder-MGA’s, or funds which are owed to FT Plc are held both securely and independently
from others. Furthermore, should any of the coverholder-MGA’s also have claims authority, then
it is possible that they will also have a loss fund, which is provided by FT Plc. By having regular
accounting reports, FT Plc can monitor how efficiently clients claims are being paid and ensure
they are complying with ICOBS.

(iii) The third key element of the audit framework that will need to be raised is that surrounding the
compliance procedures that the coverholder-MGA’s have in place. Within a delegated authority
arrangement, the principal is seen to be responsible for the actions of the coverholder-MGA and
therefore, it is imperative that FT Plc continuously monitor the coverholder-MGA’s compliance
procedures. This is to be ensure that the coverholder-MGA’s are not exposing them to potential
breaches but to also ensure that they themselves remain compliant with the necessary
requirements.

Examples of items that the auditor should check are branding and marketing material, knowledge
of fair treatment and conduct risks, complaints handling and how information is shared
throughout the company (CII Study Text M66 Delegated Authority 23/24). Should FT Plc or the
coverholder-MGA’s not remain compliant then they are exposing themselves to potential
financial losses, reputational damage and penalties from regulators.

(iv) The fourth key element of the audit framework that will need to be raised is that surrounding the
I.T systems that the coverholder-MGA’s have in place. In a world where the internet is so readily
accessible, there is an ever increasing risk of companies being targeted by cyber criminals to
access sensitive data with the intent of either profiting from its sale, or by holding a company
ransom, which once a monetary amount is paid, the data is released back to its owner.

Given this, it is vital that FT Plc continuously check the systems, processes and controls in place
surrounding the security that the coverholder-MGA’s have in place to counteract these risks. It
would be prudent to check the coverholder-MGA’s data protection policies, if they are trading
online, what anti-virus software is being used, where data is being held and if there has been any
data breaches (CII Study Text M66 Delegated Authority 23/24).

(v) The fifth and final key element of the audit framework that will need to be raised is that
surrounding financial crime. According to the National Crime Agency there were 3.7 million
incidents of fraud in England and Wales in the year ending December 2022. Furthermore, they
report that 86% of fraud instances go unreported. With this in mind, FT Plc should make it a
priority that they monitor the processes and procedures in place by the coverholder-MGA’s in
respect of financial crime.

Given that the coverholder-MGA’s could be a target for financial crime, it is imperative that FT Plc
ensure their staff are well trained on how to identify financial crime triggers, what to do once
they have identified triggers and whom within their organisation they need to report to.
 Furthermore, FT Plc should stipulate that anyone named within the delegated authority
agreement are subject to compulsory annual training around sanctions, bribery and corruption
and money laundering.

B) There are many different aspects of the audit framework that will assist with the profitability of FT Plc
and the two main points are as below.

(i) The first significant element of the audit framework that will help to improve the profitability of
FT Plc is surrounding the accounting processes of the coverholder-MGA’s. As noted in our answer
above, the accounting processes are a vital piece of work that subsequently provide FT PLC with
detailed information that will allow them to monitor the business being written by the
coverholder-MGA’s. This is normally received in a standard format on a bordereaux basis.

By having such detailed information being supplied by the coverholder-MGA’s, FT Plc will be able
to continuously monitor their current book of business and what the coverholder-MGA’s are
adding to the binder. Furthermore, this will also allow FT Plc to tailor their underwriting criteria
and product design to ensure that they are only accepting risks that they deem to be profitable
and fit within this criteria. Likewise, should FT Plc identify risks from coverholder-MGA’s that are
causing them losses, they can tighten their underwriting criteria to exclude this business moving
forward.

(ii) The second significant element of the audit framework that will help to improve the profitability
of FT Plc is regarding the actual coverholder-MGA’s in which they have provided a delegated
authority to. As already mentioned, FT Plc would have already done their due diligence on the
companies with which they are dealing. However, FT Plc should ensure that the coverholder-
MGA’s staff in particular are well trained and kept up to date with the latest policies.

By ensuring that the coverholder-MGA’s staff are well trained, this will provide them with the
tools necessary to retain as much business as possible. Furthermore, this should also assist the
staff in winning new business from competitors. Not only this, but by ensuring that the
coverholder-MGA’s staff are well trained on risk appetite and pricing decisions, FT Plc can also
have an extra element of control over the risks that are being placed on the binder and ultimately
enhance the profitability of the business.

To conclude, the audit framework is still an important tool that can be used by principals to monitor their
agents. Not only is it a useful tool in respect of regulatory monitoring, but it also allows the principal to
enhance their profitability by the use of regular reporting.

Question 9

You are the Chief Executive Officer (CEO) of ER Ltd, a coverholder-MGA specialising in cyber liability insurance.
ER Ltd has a binding authority agreement with DB plc, a UK-based insurer, including claims handling authority.

The market for cyber liability insurance has softened in the last 12 months. DB plc's appetite to underwrite
cyber liability insurance has increased and continues to do so, despite the market conditions.

The binding authority agreement with ER Ltd is coming to the end of the first 12 months and is now due to be
reviewed by DB plc.

Within ER Ltd's business plan, target premium income for the first year was £120 million with a loss ratio of
50%. In the next 12 months the target premium income for ER Ltd's binding authority agreement is £150
million with no change to the loss ratio target.

In preparation for the annual review meeting, ER Ltd have provided DB plc with the following management
information:

 Premium income - £100 million.

  Claims reserves - £40 million.
 Claims paid - £10 million.

DB plc has undertaken an independent review of the claims reserves and has concluded that ER Ltd is
significantly under reserved.

In preparation for this annual review meeting, you are preparing a presentation for DB plc.

A) Explain, with justification, three actions you would take to reach the premium income target for the
next year, whilst maintaining the target loss ratio.
B) Explain, with justification, three actions you would take to reach the loss ratio target for the next year,
whilst maintaining the premium income target.

Answer

In this scenario, we are the CEO of ER Ltd, a specialist coverholder-MGA within the Cyber Liability market. As
part of the annual review process, we are preparing a presentation for DB Plc, who is the backing insurer.
Within this presentation, we will provide three actions that need to be taken in order for us to reach our
income target, whilst maintaining or loss ratio target.

A) The three actions that we would take to reach our premium income target, whilst maintaining the loss
ratio are discussed below.

(i) The first action that should be taken by ER Ltd in order for them to reach their premium income
target is to develop a comprehensive marketing strategy, which is built in to their overall business
plan. The strategy should outline how the company will promote its products and services to
obtain maximum exposure. There are a number of ways this can be done as listed below.

ER Ltd should firstly conduct a thorough market research exercise to understand its customers
needs, preferences and any current trends. Furthermore, they should identify their competitors
and identify any strengths, weaknesses, opportunities or threats. By doing this, they may spot an
opportunity to enhance their own products and distribution channels to enhance their efficiency.

Furthermore, ER Ltd should also, as part of their market research, identify their target audience.
Once they have done this, they can then understand the needs of their customers and how to
market to them effectively.

Lastly, as part of their marketing strategy, ER Ltd could look to collaborate with partners for joint
marketing activities for them to utilise each other’s strengths and market presence. By doing this,
ER Ltd would potentially be able to engage with customers that they previously did not have
access to.

It would be prudent of ER Ltd to ensure that they are marketing their products correctly so that
they remain compliant with the relevant regulations. Further to this, there should be continuous
monitoring of marketing activities so that performance can be measured and the strategy can be
adapted if required.

(ii) The second action that should be taken by ER Ltd in order for them to reach their premium
income target is to request an enhanced geographical coverage. It is essential that ER Ltd
continue to identify new markets and regions to tap into.

Again, ER Ltd should ensure that they have performed their market research to identify any
regions that could be expanded into. Cyber Liability insurance is a relatively new concept and in
developing countries it is likely that there is not much uptake and understanding of this. By
opening themselves up to different geographical locations, ER Ltd have the potential to obtain a
new customer base, which could be fruitful.
 One thing to consider with this action is the relevant compliance and regulations of any local
authority in to which ER Ltd would emerge. It is highly likely that a different geographical location
will have its own set of regulations, laws and taxes. Therefore, ER Ltd should ensure that they
fully understand the necessary requirements so that they are not exposed to any financial or legal
complications.

(iii) The third and final action that should be taken by ER Ltd in order for them to reach their premium
income target is to discuss the possibility of an expansion of their underwriting authority, the
possibility of any new delegated authorities for different classes of business and enhancing their
current product offerings.

Should ER Ltd be successful in obtaining an expansion in their authority of the current binding
agreement, they would be able to provide quicker turnaround times for their clients as they
would cut out the need for frequent referrals. This would not only enhance the customer
experience but would also streamline their processes making them more efficient to focus on
other areas, like cross selling.

This leads in to the possibility of obtaining another binder for a different class of business. ER Ltd
already have a portfolio of clients that have purchased Cyber Liability insurance and should they
be successful in obtaining a new binder, they have a pool of clients that they can target to cross-
sell products to.

Lastly, ER Ltd should invest in their understanding of the cyber insurance market to ensure that
they are continuously reviewing their product offerings and actively looking at ways to enhance
their products so that they are meeting the needs of an ever changing market. By doing this, they
can offer quality products and stay ahead of the curve.

B) The three actions that we would take to reach our loss ratio target, whilst maintaining our premium
income target are discussed below.

(i) The first action that should be taken by ER Ltd in order for them to reach their loss ratio target,
whilst maintaining their premium income target is the development of a robust companywide
claims process, which will allow ER Ltd to optimize the handling of claims, reducing costs and
proving quicker turn around and customer satisfaction. Examples of improvements within the
claim process are detailed below.

 The implementation of new technologies to ensure that the movement of quality

information is seamless, therefore speeding up the handling of claims.
 Following on from this is the setting and monitoring of key performance indicators
against things like the speed of claims handling, response times and client
communications. By having these benchmarks in place, ER Ltd can continually optimize
their claims processes.
 Requesting a loss fund from DB Plc, whilst also obtaining extended authority to settle
claims within certain factual and financial limits. This will allow ER Ltd to speed up claims
settlement and therefore not incur any needless costs.
 Engaging loss adjustors and claims experts to ensure that accurate claims assessments
are made and settlements are fair. Their expertise will also help verify any fraudulent
claims and avoid any errors or disputes.
 Ensuring that ER Ltd proactively engage in internal audits to ensure that they are
regularly reviewing their claims processes and ensuring they identify any areas that
require improvement.

Further to this, ER Ltd should also reevaluate their current claims reserves to ensure that they are
adequate and align with the actual cost of settlements.

By having these processes in place, ER Ltd will speed up their handling of claims, whilst ensuring
that the quality of work is maintained, all of which will save costs and help towards improving
 their loss ratio. This should also lead to better customer satisfaction and ensuring they are
adhering to ICOBS 8, which states that amongst other things companies should handle claims
promptly and fairly and settle claims promptly once settlement terms are agreed (CII Study Text
M66 Delegated Authority 23/24).

(ii) The second action that should be taken by ER Ltd in order for them to reach their loss ratio
target, whilst maintaining their premium income target is the enhancement of their underwriting
practices.

Firstly, ER Ltd should undertake a thorough pricing review to discover any areas in which there
are inconsistencies within their current underwriting guidelines. By doing this, they will ensure
that they are accurately rating risks and addressing any areas which are currently being
overlooked.

Secondly as part of the review of their underwriting practices, ER Ltd should discuss their current
underwriting guidelines and policy wordings based on current market conditions with DB Plc. By
regularly reviewing these, they will ensure that they are managing risks effectively and reducing
the frequency and severity of claims and creating a more resilient risk management framework.

Lastly, as part of their underwriting guidelines, ER Ltd should implement a solid peer review
system. By having a peer review system in place, ER Ltd can ensure that their underwriters are
accurately assessing risks and applying the correct premium to reflect this. Further to this, the
underwriters will be able to discuss risks and identify any areas for concern, which can then be
fed back to senior management.

By continuously enhancing their underwriting guidelines, ER Ltd can ensure that they are actively
looking to mitigate risks and improve their overall loss ratio, albeit whilst maintaining premium
income.

(iii) The third action that should be taken by ER Ltd in order for them to reach their loss ratio target,
whilst maintaining their premium income target is the implementation of a comprehensive cyber
security strategy.

Within this strategy, ER Ltd should ensure that they are continuously monitoring any
developments in technologies and any advancements in cyber threats. The capturing of this data
will allow them to stay ahead of the curve with any potential cyber vulnerabilities and react
accordingly by either enhancing their cover or excluding particular claims.

Further to this, ER Ltd should look to offer their clients tailored annual cyber training which will
allow them to identify any risks within their own security systems and address them accordingly.
ER Ltd could also look to offer expert cyber security assessments as part of their policies as
standard. By having this additional benefit, ER Ltd can actively assist clients in improving their
cyber security, which in turn will minimize the potential for any cyber incidents.

To conclude, by taking these steps, ER Ltd should be able to improve both their loss ratio and premium
income, whilst also providing an enhanced customer experience.

Question 10
You are the Delegated Authority Manager for OP plc, a Lloyd's Managing Agent, specialising in commercial
property insurance.

OP plc is planning to expand its business by entering into delegated authority agreements with additional
coverholder-MGAs.

AZ Ltd is a Lloyd's approved coverholder-MGA with no previous relationship with OP plc.

You have recently been introduced to AZ Ltd and are keen to enter into a delegated authority arrangement
with them.

Before OP plc enter into a delegated authority agreement with AZ Ltd, you have been tasked with conducting
due diligence as to the suitability of a delegated authority arrangement between AZ Ltd and OP plc.

In preparation for the due diligence process, you have been made aware that AZ Ltd has previously received a
high number of customer complaints, which is a cause for concern.

A) Explain, with justification, five significant issues to be addressed during your due diligence process.
B) Explain, with justification, two significant issues you would monitor to assess the performance of the
delegated authority agreement between OP plc and AZ Ltd, once it has commenced.

Answer

In this scenario, we are the Delegated Authority Manager for OP Plc, who are a Lloyds Managing Agent that
specialise in commercial property insurance. OP Plc are looking to enter in to a Delegated Authority Agreement
with AZ Ltd, an approved coverholder-MGA. Whilst going through the due diligence process, it has been noted
that AZ Ltd had previously received a high number of customer complaints.

A) Given this, there are a number of issues that will need to be addressed and the five most significant
areas are as follows.

(i) The first significant issue that OP Plc will need to address within their due diligence process is the
high number of customer complaints that have previously been received by AZ Ltd. Firstly, OP Plc
should ask for full and complete details of the nature of these complaints. This is necessary so
that they can gain an understanding of any ongoing issues and identify if there is a common
theme throughout, which may indicate a bigger problem elsewhere that needs to be addressed.

Furthermore, understanding how AZ Ltd takes corrective actions based on customer complaints is
pivotal. OP Plc should seek insights into the company's strategies for addressing the root causes
of complaints and implementing measures to prevent similar issues from arising in the future.
This aspect of the due diligence process will provide OP Plc with valuable insights into the
proactive measures taken by AZ Ltd to enhance customer satisfaction and maintain regulatory
compliance.

(ii) The second significant issue that OP Plc will need to address within their due diligence process is
the processes that AZ Ltd have in respect of their quality management. This also follows on from
the complaints received and OP Plc will want to know what procedures AZ Ltd have in place to
ensure that they are setting high standards of work across the company.

With this in mind, OP Plc will want to ensure that they are only delegating authority to companies
that set the same high level of standards and share the same ethos as they have themselves.
Therefore, as part of their due diligence process, OP Plc should request information relating to
various areas within AZ Ltd, for example their record keeping, data protection procedures, staff
caseloads and I.T security. It would also be prudent to check with AZ Ltd how they plan on
reporting data to OP Plc.
 OP Plc may also want to check if AZ Ltd have any Key Performance Indicators in place in relation
to the above, which will also feed in to any Service Level Agreements being adhered to.

(iii) The third significant issue that OP Plc will need to address within their due diligence process is
surrounding the financial stability of AZ Ltd. As already mentioned, OP Plc will want to ensure
that they are only delegating authority to companies that have a sound financial background and
are operationally resilient.

Further to this, OP Plc will also want to ensure that they are delegating authority to a company
that has strong financial stability and are capable of surviving potential catastrophe events,
should they ever occur, for example the Covid-19 pandemic in 2020.

Within their due diligence process, OP Plc should request information from AZ Ltd in respect of
their finances, for example management accounts which will forecast future projections and
financial accounts, which will look at their current financial position. Having this information will
ensure that OP Plc are protecting themselves from potential financial losses, whilst also adhering
to the necessary solvency regulations.

(iv) The fourth significant issue that OP Plc will need to address within their due diligence process is
whether AZ Ltd have the necessary experience within the particular line of business for which
they are seeking delegated authority.

We are already aware that AZ Ltd have experience of managing delegated authority business
given that they are already an approved Lloyds coverholder-MGA, however OP Plc should ensure
that they are taking the necessary steps to understand how AZ Ltd will manage a commercial
property binder and what, if any previous experience they have within this sector.

Therefore, it would be sensible of OP Plc to obtain information from AZ Ltd in respect of their
staff experience and qualifications by way of requesting CV’s. This is especially important given
that there will normally be named personnel within the Delegated Authority Agreement who
have responsibility over certain areas, for example underwriting, issuing of documents and
responsibility of the book as a whole.

(v) The final significant issue that OP Plc will need to address within their due diligence process is
whether AZ Ltd have the necessary processes in place themselves that allow their staff to identify
any suspicions of financial crime and what would need to be done should this be identified.

Given that the market has changed significantly within the last decade due to ongoing
technological advancements, there is an ever increasing risk of financial crime arising from
various different avenues within the insurance industry. For example, cybercrime, money
laundering and various acts of fraud. Furthermore, given the current events in the world, it is of
the upmost importance that AZ Ltd do not engage with sanctioned individuals or companies.

Therefore, it is of the upmost importance that AZ Ltd have the processes in place that enable
their staff to identify the key indicators of financial crime. It would be prudent of OP Plc to
request details of how AZ Ltd are ensuring that their staff, especially those noted within the
Delegated Authority Agreement are continuously maintaining their awareness of financial crime
issues, whether that be through relevant online courses or internal training programmes.

To conclude, whilst there are various other issues that will need to be addressed by OP Plc, by addressing the
significant issues as above, this will help them better understand AZ Ltd and assist with their decision on
whether to delegated authority.

B) There are several areas which OP Plc could monitor to assess the performance of the Delegated
Authority Agreement with AZ Ltd, two of which are detailed below.
(i) The first significant issue that OP Plc would need to monitor to assess the performance of the
delegated authority agreement with AZ Ltd is the amount of complaints received and how these
are being continuously managed, responded to and what resolution mechanisms AZ Ltd have in
place.

To have a full understanding of this, OP Plc should request regular detailed reports from AZ Ltd
that not only quantify the number of complaints, but also provide insight in to the specific nature
of each issue. By having this information, OP Plc can ensure that AZ Ltd have robust processes in
place to categorise complaints by severity and the type of issue so that they can highlight areas
that need urgent attention. Furthermore, by having this information, OP Plc can regularly review
and analyse the data to identify any trends and patterns in customer dissatisfaction.

In addition to the reliance of detailed reports from AZ Ltd, OP Plc should ensure that they are
conducting regular audits, either themselves or with the use of a specialist third party auditor.
These audits can then form part of the continuous engagement between the two companies to
raise standards and ultimately improve customer satisfaction.

It is essential that the audit findings are regularly communicated between AZ Ltd and OP Plc so
that any areas of concern can be quickly addressed and rectified which will ultimately lead to a
better performing agreement.

(ii) The second significant issue that OP Plc would need to monitor to assess the performance of the
delegated authority agreement with AZ Ltd is the agreements ongoing financial performance and
profitability.

In relation to the financial performance, it is likely that at the start of the agreement with AZ Ltd
that OP Plc would have discussed and agreed particular targets in relation to the overall
performance of the binder along with any predicted income projections. Given this, OP Plc should
ensure that they are receiving regular financial reports from AZ Ltd that clearly state their current
performance levels against the targets set. In addition to this, OP Plc should encourage AZ Ltd to
provide regular forecasts for future income projections on an ongoing basis.

Furthermore, it is key that OP Plc obtain information surrounding the underwriting and claims
functions. This will give them an overview of the risks that are being written on to the binder,
along with the relevant claims ratios for said risks. Once OP Plc have this information, they will be
able to assess it and reevaluate any underwriting guidelines to enhance their profitability should
there be a need.

Ultimately, it is in both companies interests to ensure that the binder is profitable, therefore,
regular communication between OP Plc and AZ Ltd is essential.