Time to raise the bar on claims

Richard Foulger, Head of Claims — AEGIS London.

To the outside world, Lloyd’s is viewed as one entity. But we don’t behave as one. With nearly half of Lloyd’s business (40%) now conducted via delegated authority, it’s about time we ensured that our claims processes meet the same high performance standard right across the Lloyd’s platform – wherever and however we do business.

The Lloyd’s market is no exception to the norm. There is more interest in expansion and growth than there is in back office process, which in part explains the rapid increase in MGA market participation in the last few years. This was fine in the boom time as multiple MGAs established, but less good now the market is normalising and a greater volume of claims need to be paid through this channel.

The fact is that claims in the delegated space tend to pay more slowly. The reasons behind this are numerous, but at the root of many is poor communication, which has paved the way for myriad problems.

In co-lead arrangements, for example, brokers may find they require authority from all binder leaders to pay a claim. This is slow and cumbersome and can lead to uncertain and unpredictable outcomes.

Alternatively, the terms of delegation may be unclear in that they may not include adequate provision around authority levels, loss fund arrangements, service levels or sub-delegation, another cause of friction and delay.

In other instances, it appears that third parties may not be well managed, resulting in insufficient information for managing agents making it hard to judge suitability and performance. What’s more, managing agents themselves may be unprepared to receive and manage large volumes of information to support informed decision making and ensure they can deliver to agreed service standards.

Whatever the complication, when syndicates run multiple contracts on different KPIs, and brokers are chasing multiple syndicates for answers, it becomes inevitable that the resulting claims payment experience is not uniform across the market.

The net result of issues such as these is that delegated claims feel over-engineered, brokers struggle to add value and claims routinely pay more slowly than in the direct domestic market, which weakens the Lloyd’s market proposition.

In our view, if Lloyd’s is to continue to compete as an attractive platform for specialist brokers seeking to leverage the Lloyd’s brand, then the market needs to become less parochial and more collegiate.

Shooting for improvements in time for the 1/1 renewal

Progress is under way. Aegis has been working closely with the LMA to develop a new Co-Lead Claims Agreement (CLCA) which we hope will be in place in time for the 1/1 renewal and which will offer better service both to market participants and to insureds.

Designed for situations where a Lloyd’s cover holder underwrites on a co-insurance basis across multiple binding authorities, the intention is that the agreement will enable syndicates to settle promptly and efficiently by offering a mechanism for choosing a single claims lead with authority to bind all co-insurers to any claims decision.

It is hoped that the CLCA, which is still in development, will also serve to encourage binders to consider how processes will work at different authority levels if a third-party administrator (TPA) is appointed to handle claims under the binding authority agreements. This is important as if different levels of authority are granted to the TPA, this may cause complexity in establishing who is the lead insurer.

We believe that if the CLCA can be agreed, then the market should see immediate benefit, namely the removal of burdensome requirements on TPAs, cover-holders and brokers that add no value to the process or the customer during the claims lifecycle. It will also signal the introduction of a single performance standard across all market entities that should underpin better management of claims.

That sounds like a way to help us behave like one entity as well as to look like one, which would be a win for syndicates, MGAs, brokers and insureds.

First published in Insurance Day on 03 August 2018.