In this section we will give news of the latest developments from ICS.
ICS Coverholders Audit
• Many of the controls required for ensuring coverholders comply with the requirements stem from compliance and operational aspects where often the technical issues arise only in a limited form. Why tie up an underwriter’s time focusing on areas that he or she is often not that interested in when he or she can be focused on writing or retaining more business.
• By using an independent consultant you will get a truly independent audit and at the same time utilize the underwriter’s time to maximize their priorities and their results.
• As regulation gathers pace we have the skills to ensure there is due diligence and controls to meet this and your own business requirements. The comprehensive document can be tailored to your needs and will highlight for you when speedy action is necessary from the centre to eradicate any major concerns.
• Key Performance Indicators can be clearly measured and reported up on with any underlying issues being tackled at an early stage. By using an independent consultancy we can look at sets of arrangements utilizing our Associates around the UK.
• Competency of individual coverholders looking after your facilities will be assessed and fed back to you for further action if this is deemed necessary. Continued development should be a continuous process as arrangements develop and expand with additional people getting involved.
Delegated Binders are important whether the market be soft or hard!
An article by Neil Williams
In a previous life I was brought in as a MD of a brokerage which was in disarray owing to the delegated authority being removed from the broker from both a claims and underwriting perspective. This had a major impact on the overall running of the business for the following 3 years.
How this situation occurred I will never really know as I was not there but the ramifications on the business, my managers and me were dramatic. Renewals had been missed and therefore on occasions we were only made aware two years later at the time of a claim. Incorrect product information had been sent out following the acquisition of the business or terms had not been made clear which made claims handling extremely difficult. Many times the cases had probably been dealt with in the right way but there was no evidence to back this up so you were literally always on the back foot.
When I subsequently joined a specialist in compliance services where the Associates are steeped in insurance good practice and knowledge and are used to seeing “the good, the bad and the ugly” of insurance broking I knew we had the basis of a Binder (Coverholders) Audit service. When we then were given an excellent underwriting document from a friend whose expertise is unsurpassed and then added the intricate compliance aspects, I knew we were ready to roll.
It is the underwriter’s role to put the binder together, build the account and relations with the broker and it is dangerous for the same individual to be responsible for auditing the account. Naturally when companies are of a size where they have sizeable departments focusing on all aspects underwriting, compliance and claims they may well have this taped. It seems that some Underwriters fulfil their responsibilities really well and others never seem to get around to it.
In the circumstance where an underwriter may not get around to it or completes the audit in a very weak way whose responsibility is this going forward, the underwriter or the broke?. In most circumstances one would think the underwriter but when something goes really wrong “who is left holding the baby” as far as a claim that is not covered or if the underwriter from head office is unhappy with the overall running of the facility and takes the authority away.
It has been pleasing to see even where there are adequate resources some companies prefer to have independent auditors in every other year to gain a detached view owing to the fact that too many assumptions can be made when anybody gets too close to something.
It is normally when the market hardens that the underwriter looks more closely at delegated authorities and any removal of such is a disaster to the broker as this is exactly the time when you can maximise the arrangements. Once you have found an underwriter that will write your niche business it normally takes a minimum of setting up such arrangements adequately.
Whether you are an underwriter or a broker it is essential to keep a close eye on your binding arrangements from a business perspective and it looks like “the headlights of the FSA are shining brighter in this area”
Are you comfortable that your facilities are in good order and that you will still have them when the next hard market comes around?
Elementary my dear Holmes
An article by Charles Maddocks, Marketing Manager, ICS
The recent case of Richard Holmes provides a salutary lesson to an authorised firm that has even one Appointed Representative. In particular it highlights the risks to which the Approved Person is exposed.
The fine imposed on Mr Holmes of £20,020 (reduced from £28,600 for early settlement) was for breaches of Approved Persons Principles 6 and 7 in his capacity as CF1 Director.
Principle 6 says
“an approved person performing a significant influence function must exercise due skill, care and diligence in managing the business of the firm for which he is responsible in his controlled function”.
Principle 7 says
“an approved person performing a significant influence function must take reasonable steps to ensure that the business of the firm for which he is responsible in his controlled function complies with the relevant requirements and standards of the regulatory system”.
These however are just the stick with which to beat the wrongdoer. Just what did he do wrong to warrant such financial penalties and public “naming and shaming”?
Two main areas
The first was the appointment of an AR.
Appointment of ARs
- Mr Holmes appointed a firm as an Appointed Representative on the basis of recommendation by two business contacts known to him for over 10 years. He therefore did not carry out a detailed assessment of the AR or its staff’s suitability prior to the AR’s appointment. In fact Mr Holmes had never met two of the 3 Directors of the AR (one of whom resided abroad on a permanent basis).
- The appointment was also made in the face of evidence that the AR was balance sheet insolvent and thereby not meeting the FSA’s minimum requirements.
- Even more damning, Mr Holmes became aware that the FSA had subsequently taken action against the two business contacts that had recommended the AR for serious misconduct but did nothing.
The second was the monitoring of the AR
Monitoring of ARs
Mr Holmes also failed to monitor the AR effectively.
- He said he had communicated with the AR by telephone on a daily basis regarding administrative matters, but only attended the AR’s offices on three occasions to formally discuss the running of the business and compliance issues.
- He relied on the AR to raise specific issues rather than having monitoring systems in place, including regular reporting.
- He also relied on the AR for quality control and to ensure compliance with regulatory standards.
- He also did not have sufficient resources to provide any training for the AR’s staff and the FSA has seen no evidence that training and competence was assessed on a regular basis, or at all.
- In addition there were some serious issues over control of client money, potentially leaving some clients without cover without the firm contributing the premium at their own expense.
In conclusion the FSA felt that whilst they did not consider he deliberately contravened regulatory requirements, they considered his conduct was reckless and fell well below what they considered reasonable in all the circumstances
And picking up on the view of Mr Holmes he said
“I would urge others to make sure, whenever dealing with AR’s, that they do a huge amount of due diligence.”
To avoid any similar issues ICS can provide a range of services to cover the appointment and monitoring of Appointed Representatives. Contact us to discuss your requirements.