On Monday 28th
July we held a market briefing in Lloyds with the tracing office of
ELTO. The briefing looked specifically at the situation of ERN tracing.
Whilst FCA have accepted that the 99% capture rate is unrealistic they
will be looking for “best endeavours”. This position was explained by
the tracing office executives of ELTO at the briefing. Slides of the
briefing are available on our website.
meeting we have obtained the links for the relevant guides that you may
find of use. Included is a link to the Broker Guide should you wish to
pass that on as well as the Employers guide for the end customer.
ELTO often get
asked what format the Employer Reference Number (ERN) takes. From their
discussions with HMRC they can confirm that each ERN is unique to the
employer and will not be replicated. On PAYE records the format for most
numbers allocated since 2001 is ‘nnn/aznnnnn’. ‘nnn’ is the 3 digit
number for the tax office whose catchment area the employer falls into.
‘aznnnnn’ is the ERN, where ‘n’ is numeric and ‘a’ and ‘z’ are letters.
For numbers allocated prior to 2001, the format is ‘nnn/annnnn’ in the
majority of cases.
As previously mentioned the ELTO guides to give further information on the ERN and ELTO in general. ELTO have also produced a guide which can be issued to policyholders to explain why the industry is now collecting the ERN. For added information click here for the ELTO newsletter should you wish to subscribe.
Many of you will be aware of the FCA’s consultation paper CP14/8.
ELTO have responded to the current FCA consultation confirming that at
the close of 2013 the Employers’ Liability Database (ELD) contained some
12 million policy records covering the equivalent of more than 22
million policy years. Though there are still issues with this data
reaching insurers, most of which is captured by insurance brokers, these
figures demonstrate the industry’s determination to make policy data
available for potential claimants to access.
Delegated underwriting in a regulated environment
As has been
identified in our regulatory newsletter there is increased scrutiny over
delegated underwriting from both a prudential risk and conduct risk
perspective. Lloyd’s of London issued their new code of practice for
delegated underwriting in October last year and members will recall
Peter Montanaro’s market briefing in February 2014 [available on
continued its emphasis on strengthening the supervision and management
of all of its cover holders which will include MGAs with Lloyd’s paper.
Areas of FCA concern
director of supervision at the Financial Conduct Authority (FCA),
highlighted four key areas of concern regulators have about delegated
insurers not performing effective due diligence or oversight of coverholders;
coverholders acting ultra vires or in a manner contrary to insurers’ expectations and instructions;
writing business their principals would not or could not write due to
that business being contrary to the principals’ underwriting philosophy;
coverholders not having the requisite ability, expertise, facilities or systems to write the business they are handling.
“insurers must consider whether those to whom they have delegated
authority for underwriting or claims handling are capable of acting in
the manner they expect and have adequate information to ensure that
their agents are acting properly."
So what should MGAs do?
answer is to behave like any other risk carrier working in today's
regulated environment. Being an underwriter, irrespective of whose
balance sheet they are working from, they should be reporting to the
management or board and communicating to their principals on all
significant underwriting MI. This will allow the MGA to demonstrate they
know, understand and are in control of the risks they are writing.
FCA raises conflict of interest concerns
The FCA has
published its thematic review: ‘Commercial insurance intermediaries –
conflicts of interest and intermediary remuneration’. The review focused
on seven large intermediary groups operating in the SME insurance
market and was supplemented by a survey of over 1,000 SME businesses.
Key findings of the review included:
in business models where intermediaries carried out more than one role
in the distribution chain, often exacerbated by lack of segregation
Insufficient control mechanisms and management information on conflicts
A lack of customer understanding on the nature of the service being provided
from the FCA include direct engagement with the intermediary sector, to
enhance understanding of its rules and expectations on conflicts
management, and the provision of further information to SME customers
about their right to receive full commission disclosure on request.
European Insurance and Occupational Pensions Authority
EIOPA issued a
discussion paper in May 2014 looking at conflicts of interest and
proposed amendments to IMD II. Whilst this is nothing new in relation to
conflict management it does seem that the UK market is well ahead of
our European colleagues. However we believe that it is wise to be aware
of what is happening on the European front. This affects our sector of
the market as the discussion paper specifically mentions proposed
amendments to the IMD around Insurers agents being required to act in
the best interest of policyholders.
discussion paper does not mention commission disclosure as it falls
outside the scope there are concerns following the German U-Turn on
We will follow
this as it progresses through the European discussion and keep members
apprised of the progress. If you would like to review the discussion
document please contact Peter Staddon firstname.lastname@example.org
FATCA [Foreign Account Tax Compliance Act]
This issue has been raised by a member who trades in US$. Our Associate partners Grant Thornton have prepared a short article and further information can be found on our website (click here).
Our friends at the
ABI have advised that Brendan McCafferty has been appointed Chief
Executive Officer of Flood Re. Brendan will begin his new role in the
fourth quarter of 2014 and his appointment will be subject to further
regulatory approval as part of Flood Re’s authorisation.
Brendan has over
28 years’ industry experience across insurance, broking and consulting
and has worked for leading brands including Aviva and RSA. He was
formerly UK President of global insurance broker, Willis. Our
relationship with ABI in regard to Flood Re continues.
The Law Commission
Many of you will
have seen that there is currently a paper going through the House of
Lords regarding Insurance contract law. At the MGAA Board meeting in
March we were joined by the Law Commissioner, David Hertzell. David
outlined his view on the Commercial Insurances Bill which was similar to
the Consumer Insurance Act passed last year. Further details are below
Report on Insurance Contract Law
The Law Commissions have published their second report on this project, Insurance Contract Law: Business Disclosure; Warranties; Insurers’ Remedies for Fraudulent Claims; and Late Payment(Law
Com No 353; Scot Law Com No 238). The report includes a draft Bill
which would implement the recommendations. Further information is
available at: http://lawcommission.justice.gov.uk/areas/insurance-contract-law.htm.
majority of the Commissions' recommendations are included in the
Insurance Bill presented by Government to Parliament under the special
procedure for Law Commission Bills. The Bill also makes amendments to
the Third Parties (Rights against Insurers) Act 2010, so that that Act
can be brought into force.
The Insurance Bill and accompanying Explanatory Notes will be made available on: http://services.parliament.uk/bills/.
The Bill does not
include our recommendations on late payment, or those concerning
warranties or other terms relating to particular descriptions of loss.
The Government did not consider these provisions to be sufficiently
uncontroversial for the procedure at this time, but has asked the
commission to continue to work on solutions to be introduced at the next
The executive summary of the Commissions' report identifies how our recommendations are included in the Insurance Bill currently before Parliament.
Law Commission | http://www.lawcom.gov.uk
Scottish Law Commission | http://www.scotlawcom.gov.uk