The 18-month long review of binding authority agreements in the Lloyd’s insurance market has concluded with the publication of three new model agreements by the Lloyd’s Market Association (LMA), thereby reducing the number of wordings from nine.
The new model agreements – US, Canada, and Rest of the World – apply to both the marine and non-marine markets, the first time binding authority wordings have done so for over 20 years.
The LMA is suggesting that the new agreements be used for binding authorities incepting with effect from 1 November 2013, or earlier if agreed by all parties.
Drafted to take account of both technological and regulatory changes such as online trading, the new agreements have been streamlined and reflect current market practice. In addition, many of the standard endorsements brokers had to attach to the old agreements have been included in the wordings.
The agreements are intended to be more user friendly with the order of the clauses rearranged so that commercial clauses are at the front of the agreements and regulatory, compliance and legal clauses at the rear. There is a new default claims section and the requirement for lead underwriters to countersign agreements has been removed.
Neil Smith, the LMA’s head of underwriting, said: “The new agreements were drafted following a major cross-market consultation exercise and have been well received. 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.
“It was necessary to have specific wordings for both the US and Canada because of regulation and tax legislation in those countries.
To help with the introduction, we’re 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.
A binding authority is an agreement which 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.
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