Binding Authority Agreements
Posted On April 8, 2021
(a) Overall, all new hedging agreements, with a few exceptions, must be approved by Lloyd`s Franchise Board with a new standard application form. A binding authority can only be approved by Lloyd`s if the policyholder confirms its conditions in writing. In addition, significant obligations and responsibilities are imposed on those involved in Lloyd`s hedging agreements, all of which are intended to correct them. The day-to-day burden of supervising the policyholder is clearly placed on the shoulders of the union`s competent directors, particularly the leading union`s agencies, who must assess the suitability of an insurance taker, set potential limits on coverage authority and monitor the coverage contract, but also impose burdens on Lloyd`s broccoli community. The contract relating to the scope and conditions of the policyholder`s delegated authority is referred to as the liaison authority. The context of this case is not simple. Euro International Underwriting Ltd (“EIU”) obtained insurance power from Sphere Drake in early 1997. Sphere Drake expected the EIU to take a break from the traditional personal accident business. In fact, they wrote a large amount of reinsurance for “workers` allowances,” a product developed in the late 1980s and 1990s, which allowed much of the exposure because of the risk of compensation for American workers, traditionally written in the property and accidental damage market, signed by the life and accident markets. While for insurance agents and their contractors in general, the case highlights (perhaps extremely) the considerable damage that can be caused in a very short time when an agent does not act in the best interests of his sponsor in relation to a binding authority, and how brokers can be sued in the end, even if they do not have the “pen” for the insurer. the case is also interesting from a legal point of view, as arguments about lack of authority and knowledge in brokerage have been used to support findings that no reinsurance contact has been legally established. Clearly, similar results in each brushing scenario almost automatically trigger a broker`s e/S exposure.
The authorities must comply with Lloyd`s requirements. For more details, see the Code for Delegated Underwriting. The LMA establishes standard agreements that the market can use and that are tailored to these requirements.