Please don’t misunderstand me. Lineslips are extremely useful for placing tiny or medium-sized businesses in Lloyd’s at a low cost. Transaction costs would be greater without them, and our market would lose business. By looking at one leader, a broker can put a piece of business with an agreed market. Second, and probably more importantly, they serve as a critical stepping stone or catalyst for a small intermediary to build their portfolio and relationships in preparation for becoming a full-fledged coverholder. I’ve seen a lot of cases like this.
A lineslip is a contract that permits a lead syndicate (or insurance business) to quote and bind risks on behalf of follow syndicates and/or insurance firms. Each lineslip specifies the parameters, which are generally broken down by class of business, territory, and other factors, as well as limits and coverage terms and conditions. Following the leaders’ agreement, the lineslip broker can either issue an MRC contract by adding the agreed-upon wordings to the slip signed by the leader, or have the leader sign the final policy before delivering it to the customer. A lineslip is a delegation agreement between the lead and follow underwriters, not the broker, when handled appropriately.
What is a Lloyds Lineslip?
Lineslip is defined as All Lloyd’s lineslip agreements will be affected by the new regulations. Definition of the “An arrangement by which a managing agent delegate[s] its authority to enter into. contracts of insurance to be underwritten by the members of a syndicate,” according to the bylaw.
What is a bulking Lineslip in insurance?
The issues raised by Lloyd’s new restrictions on the delegated authority market were discussed in an earlier Thinking space piece titled Forced reform of delegated authorities. Delegated authority occurs when insurers agree to delegate authority to third parties, who subsequently perform obligations on their behalf that would normally be performed by insurers, most typically underwriting. It is critical to appropriately supervise Coverholders, the party to whom authority has been delegated, while assigning authority, as new rules in the field of delegated authority will continue to emerge for the foreseeable future.
Lineslips are a type of delegated authority and one of the most recent areas to be impacted by Lloyd’s new minimum criteria. An insurance broker creates a lineslip, which is a contract. The broker will approach several insurers who write similar types of business and invite them to participate in the lineslip. A slip leader has been delegated authority from the other participating insurers, known as followers, within a lineslip. By signing the lineslip, followers consent to the leader writing risks on their behalf. The benefit for the broker is that once the lineslip is in place, they will just have to go to the slip leader, who will agree on behalf of the followers, rather than having to go to a number of different insurers when wanting to cover a customer. Because the followers do not have a direct relationship with the broker, this is also advantageous to them. The leader will benefit as well because they often write the majority of the risk, have a close relationship with the broker, and have more control.
- When a lineslip bulks up, it’s called a bulking lineslip “For presentation and settlement to underwriters, premiums for individual declarations (risks) are merged.”
- When a lineslip does not bulk up, it is called a non-bulking lineslip “Each declaration (risk) must be provided independently.” As a result, a non-bulking lineslip takes longer to dry.
Following the completion of a research on Market Lineslips by Lloyd’s in April 2016, a number of issues that managing agents of syndicates must solve were noted. Lloyd’s Minimum Standards MS-1.3 and Bulletin Y4991 detail these requirements. The necessity of following the “MRC standard for lineslips (as issued by the London Market Group) and ensuring that the contract contains all necessary words” has been emphasised by Lloyd’s.
In terms of lineslips, Lloyd’s has been concerned about five primary areas.
- The scope of authority granted to the leader under a lineslip must be explicit, with “the conditions, scope, and limit” of authority clearly stated in the lineslip.
- The slip leader must also “be satisfied that they are provided with enough information” for individual lineslip declarations.
- For risks related to the lineslip, the lineslip must also “clearly explain the process for issuing contractual agreements.”
- Lloyd’s also wants to make sure that fans are given enough information to “understand how the lineslip is managed”;
- “Changes to the lineslip must be stated and adequately recorded,” says the final paragraph.
Before the end of 2016, another modification to the delegated authority Code of Practice is likely, and there may be in-depth Pre-Bind Quality Assurance (PBQA) tests to complete to ensure that lineslips are of an acceptable standard. The checks are growing more stringent, and the implementation of these new standards will result in a lot of lineslips that will require care.
If lineslips have not been examined since April, when MS1.3 and Bulletin Y4991 were issued, there is a substantial risk that thousands of lineslips will need to be evaluated when Lloyd’s issues its new minimum requirements. In order to meet Lloyd’s standards, these will need to be properly reviewed and updated. This will entail making wording changes, double-checking that all of the necessary fields are filled in, and ensuring that procedures are well-documented. Before the problem spirals out of control, it’s critical to check lineslips as soon as possible.
Diploma in Insurance April 2015 Study text, The Chartered Insurance Institute 2015 Delegated authority P66
What is an insurance line slip?
With the release of the Lloyd’s Thematic Review – Line slips and Consortia this month, it’s time to bring out the Camel and the Chair once more…
Philosophers have spent ages debating the enticingly simple, yet tantalizingly difficult topic of why a chair is a chair. In the dark and distant mists of my memory, I recall being asked the same question by my English Tutor.
“The answer is that it has four legs and I can sit on it,” I said with the audacity of youth.
I recall my English Tutor’s scarcely hidden joy as I stumbled into his mental ambush with toe-curling clarity: “So, Daniel, a table can do it… and so can a camel!”
I promised never again – never, ever again – to fall prey to such an innocent question, so simple and pure in construction yet so devilishly complicated to answer as I wallowed in the swamp of the ridiculousness of this quandary…
You’d think that answering the question of “when is a line slip a line slip?” would be simple.
As with the current Code of Practice, any review should begin by reiterating the definition of what constitutes a line slip as specified in the Definitions Byelaw. ‘What does the byelaw state, exactly?’ I understand what you’re asking. This is what it says:
A+ “A line slip is an agreement in which a managing agent delegated its authority to engage into insurance contracts… to another managing agent or authorised insurance firm in respect of business brought by the agreement’s Lloyd’s broker.
The issue is that the market (managing agents, Xchanging, Lloyd’s, the LMA, LIIBA, Lloyd’s brokers, and everyone else) does not distinguish between the definition of a line slip and a plethora of other types of facilities that work in a similar manner. They’re all referred to as line slips… You have yours, my buddies “cameleon”…
I believe it would be better for you to pivot the topic and instead ask: “When is a ‘line slip’ not a line slip?” you could wonder.
…
It’s easier to say what isn’t a line slip than it is to say what is. A camel, for example, is not a chair since it is clearly alive, is extremely aggressive, and smells like a rotting egg wrapped in a three-day-old, stale jockstrap.
Similarly, if there is no delegation of authority from one managing agent to another, a line slip is not a line slip: “It is not a line slip if it is written 100 percent by one managing agent’s syndicate for a broker and the agreement permits the broker to bulk settle many risks by bordereaux.
Let’s name it a ‘Bulk Settlement Facility,’ shall we? Within the MRC, it may appear and feel like a line slip, but let’s change its name! Hopefully, it will not be included in every managing agent’s 2019 DA line slip business evaluation. After all, there is no delegation of underwriting authority here.
It’s worth mentioning that such a streamlined approach to business operations will nevertheless impose some additional obligations on both brokers and managing agents: There are constraints for the broker, who is the Insured’s agent, in demonstrating a reasonable market analysis. It will also be necessary to report in accordance with the Lloyd’s Coverholder Reporting Standards. Aside from the difficulties in gathering the proper degree of information for tax and regulatory reporting requirements, the managing agent may find it entertaining to justify profit or contingent commissions (Market Bulletin Y4864).
How many of you are aware that the main difference between a line slip and a Consortium Agreement, according to Lloyd’s, is that a Consortium Agreement “will underwrite and bind specified classes of business generated by more than one Lloyd’s Broker”… ‘But we’ve all heard of market line slips that accept business from multiple brokers!’ I hear you wailing in unison, dejected.
Would you like to see these market line slips become caught up in the consortia registration process? Do you want to see market line slips, which were created to make it easier to place business in a subscription market, become full-fledged Consortium Agreements? What if the line slip only has one market writing the business to several brokers 100 percent?
Perhaps a revision of definitions and a new classification scale for such facilities within the Code of Practice and the Definitions Byelaw is in order following the Thematic Review? I believe you should categorize the level of authority assigned to a Consortium lead/manager similarly to how you categorize the level of authority delegated to a Coverholder. If all the market facilities out there are written as line slips and open to more than one Lloyd’s broker to place business under them (as they should be), please use this opportunity to provide clear categorisation, with each category of consortia requiring a different level of governance and oversight from already stretched-to-breaking-point managing agent DA teams. Lloyd’s, assist the DA Teams in assisting you!
To avoid embarrassing a particular underwriter who was conversing with me on the cobblestone and bustling pavement outside a certain institution near Lloyd’s, I will not identify names here.
‘Mr Z’ claimed he was renewing a line slip for a certain broking house, where the broker may agree on renewal pricing ‘within certain, pre-agreed limits.’ I urged that he run this with his DA team because it sounded suspiciously like a binding authority (pre-determined rates). Mr Z was sure that this was a mistake on his part.
Any delegated underwriting authority will automatically push your line slide into the harsh regions of MSR 1.3 and into the grip of your DA team, who will be ripping out the heart and soul of this firm and insisting on a DA audit from the broker-who-must-not-be-named. Your nascent company, a heroic and flaming meteor of possibility, will perish, a falling comet, flashing to ground, no match for the thick, impenetrable atmosphere of overbearing governance and DA scrutiny.
So, if you want your company to shine brighter in the Lloyd’s night sky, don’t build a perfectly reasonable line slip arrangement (streamlined and efficient for all) Because the broker intended to push the frontiers of efficiency to the point of delegated authority oblivion, he became a dry-crust-husk of a binding authority… On a line slip, do not delegate underwriting authority.
As a result of the Thematic Review, we should anticipate Lloyd’s to be very explicit with us all in 2019 regarding what is and is not a line slip.
In due course, I shall share my thoughts on the Review’s major highlights. The Review recognizes the importance of the broker’s role in the process of placing the veritable smorgasbord of market facilities we have in front of us (on Page 11). In their Good Review paper, Lloyd’s goes even further to emphasize the importance of engaging with the broking community in relation to any recommended changes to the use of such services. It’s a shame Lloyd’s didn’t expand the scope of their inquiry to include interviews with selected brokers for the Review, as this would have provided valuable context and color to the rationale for some of the more unusual placements (think drop-down and alternative leads)… Perhaps Lloyd’s did not want to disturb the broker community unduly while undertaking such a significant study outside the Lloyd’s Looking Glass. After all, we brokers can be extremely valuable! Simply put, I don’t think they wanted us to go over the hump.
What is a Lloyd’s binder?
1.1Binding authorities and line slips are not insurance or reinsurance contracts in and of themselves. 1 They’re both arrangements in which underwriters authorize a third party to accept risks on their behalf, i.e. insurance or reinsurance contracts. 2 Despite the fact that both terms are defined in Lloyd’s rules (see paragraphs 1.24 and 1.80 below), a binding authority or “binder” is a term commonly used to describe a document evidencing a grant of authority by insurance companies or Lloyd’s syndicates to a “coverholder,” who will not be a fellow insurer but a broker or other intermediary. Typically, the binder authorizes the coverholder to accept specific classes of risks on behalf of the insurers up to certain limitations, usually without consulting the insurers beforehand. The coverholder may also be authorized by the binder to perform other responsibilities on behalf of the insurers, such as issuing insurance contracts and resolving claims. At Lloyd’s, the binder will be negotiated by a Lloyd’s broker using a “slip” that will be presented to underwriters for approval. The coverholder may be the Lloyd’s broker, or the broker may be negotiating the grant of the binder on behalf of a non-broker Lloyd’s or intermediary. Binding authorities are also a type of outsourcing, which implies they are subject to FSA, Solvency II, and TUPE regulations and guidelines governing outsourcing.
What is a binder in insurance?
Insurance binders are interim insurance contracts that are issued until the issuing of a formal policy or the insurer’s lawful rejection of the application. Until a permanent policy is created, the binder acts merely as a temporary or interim policy.