Delegated Claims Oversight Strategy 

In collaboration with the LMACC & Lloyd’s claims team, the LMA has put together a delegated claims model, encompassing a long term delegated claims strategy addressing both business process and underlying systems to support that change. A program of work has been designed to help to address both of these and in response to the Lloyd’s delegated authority (DA) claims thematic review undertaken in 2017.

The objectives of the program are to:

• provide an improved and more consistent DA experience for TPAs
• improve service for customers
• increase indemnity accuracy

This will be achieved by providing the market with guidance, tools, model wordings and frameworks to assist in moving towards a common market approach in managing delegated claims.

The second release of the deliverables, being the new TPA agreement (DCA agreement), the core SLA measures, and the claims audit framework and scope will be published in early August and follow the initial delivery of the Co-Lead Claims Agreement. An update on each of the deliverables and sign posting the purpose of each is provided below. 

Where we are looking to provide these deliverables to the market as output, we understand that some managing agencies will have their own views on tools, for example TPA agreements. that they have developed and want to use going forward. In some scenarios and for certain areas of the deliverables, we have designed in a way that managing agents can incorporate elements of this work into their own tools to drive consistency on areas where we know there are pain points for delegated claims agents and a common and consistent approach meets the programmes and markets objectives.

Delegated Claims Administrator Agreement

The DCA Agreement has been drafted to replace the LMA9008B as the LMA’s core model agreement for delegating claims authority. The structure of the agreement is threefold - the 'Agreement' containing the standard clauses applying to all operations of any delegated entity and forming the core of the overall agreement, the 'Schedule' which contains requirements that would apply to all operations of the entity on behalf of the managing agent, and the 'Declaration(s)' which would cover specifics for one or more binding authority agreements (or risks). We’ve used our model binding authority wording (with agreement from the BASCG on our approach) as the basis to the new agreement to try to create consistency across all delegated arrangements.

One of the key design principles here has been to align requirements around delegated claims, irrespective of whether the entity is a coverholder or a TPA. As such the agreement is currently drafted in that it could apply to either a TPA as a TPA agreement, or to a coverholder as a separate agreement to sit alongside their binding authority. We will also be looking to build the language into updated model binding authority agreements as well if managing agents would prefer to have one integrated contract for delegating underwriting and claims, rather than separate agreements.

In either event, the intent is that the core of the requirements for either coverholders or TPAs will align in areas that cover outsource as a whole. This would include areas such as bank accounts, financial crime, confidentiality and conflicts of interest – anything that would apply to an outsource entity irrespective of the functions that they are undertaking.

We’ll be working with the Binding Authority Wordings Group to ensure that these areas align, and updated binding authority agreements will follow in due course.

Market Standard SLA Measures

The programme of work has looked at what appropriate contracted terms should be included in any agreement with a TPA or coverholder, what data is contained in the mandatory Lloyd’s Coverholder Reporting Standards to evidence the compliance against those terms, how to extract that performance data, what gaps this leaves, and the most appropriate way to get that additional oversight where performance can not be derived from the Lloyd’s Coverholder Reporting Standards. A key driver here is to standardise the markets approach, which in turn makes it easier for coverholders and TPAs to work for Lloyd’s whilst also delivering a high standard of oversight that is easier for MAs to deliver. It is also worth stating that these standards have been developed to be universal in application, so no matter whether the delegated claims entity is a TPA or a coverholder, the same expectations will be set, and the same level of oversight will be deployed. The SLA measures are comprised of 13 mandatory SLAs and 10 conditional SLAs, which can be varied depending on the claims to be handled. It is also envisaged that the required measurement (Service Level Expectation) against the specific measure (Service Level Agreement) would vary depending on the circumstances or individual managing agency risk appetite, but by standardising the measures should provide for a more consistent framework – making it easier for TPAs to engage with differing requirements from managing agents within that framework. The development of these common SLA measures will allow an MA to have suitable oversight of key performance indicators of delegated claims entities; • 13 mandatory SLAs • 10 conditional SLAs • Each SLA links back to a specific category of oversight, covering the various areas where the market should be setting SLAs and reviewing oversight of performance. • The identification of whether the SLAs are reportable based on data contained in the Lloyd’s Coverholders Reporting Standard (V5.1), or whether the delivery against the agreed SLA can not be extracted from the claims bordereau, and thus should be checked as part of the claims audit process.

TPA & Coverholder Audit Framework & Scope

Work in this area has focused on creating a standard audit scope for TPA audits, that is closely aligned to the 2018 coverholder audit scope, and that delivers the same benefits for TPA audits as the 2018 scope did for coverholders.

In essence, those key focus areas that relate to those activities undertaken by a TPA have been retained, and the claims content has been refreshed to ensure there is adequate guidance to the auditor, and where risks were missing in the coverholder audit scope (loss fund management and bordereau reporting), these have been added in. The claims testing template has also been overhauled to facilitate a robust technical file audit is undertaken, which was an area of focus identified in Lloyd’s Thematic Review of Delegated Underwriting Claims Management.

Where changes have been made when developing the new TPA audit scope, those enhancements have been copied in to the coverholder audit scope, so no matter whether the delegated claims entity is a TPA or a coverholder, the same audit approach will be followed.

• TPA specific audit scope – will allow MAs to propose some or all of the scope components, depending on previous audits and risk appetite; 
• a guidance document to support the auditors use of the TPA audit scope, with much greater clarity on expectation of the claims controls expected 
• an updated claims testing sheet for use as a technical file audit question set (from 38 questions to 61 questions), including an aggregation and reporting tool to group and analyse audit findings
• an updated coverholder audit scope and guidance document, refreshed to include any new material developed as part of the TPA audit scope creation

Co-Lead Claims

Co-Lead Claims Agreement: Delivery of a model agreement that will wrap around a number of co-lead arrangements to a specific coverholder, replicating the processes within the Lloyd’s Claims scheme to ensure efficient claims agreement processes. This has now been published as LMA9157, and can be found in LMA Bulletin LMA18-046-TH.

Due Diligence & Compliance

The due diligence workstream was looking at enhancements and consistency within oversight processes. Subsequent to this workstream commencing, Lloyd’s have started their own programme of work in this space, so it is now being run by the Corporation.

As part of this process Lloyd’s have consulted on bringing TPAs is in line with their oversight requirements for Coverholders as part of their ‘Risk Based Oversight’ proposals – firstly in the summer of 2018 and secondly in a more formal capacity in H1 2019. These proposals have met with broad approval through the consultations and are being put into force.

This will occur through changes to the Intermediaries bylaw to enact high level change, followed by enhancements to the Delegated Authorities Code of Practice later in the year with much more detail to the proposals. It is likely that changes will take effect during 2020 with the implementation of the Chorus system.

Here you can find both the high level strategy and detail regarding the proposed output from the programme.

Should you have any questions on the consultation or want to understand more about the context of these deliverables, please get in touch with either Lee Elliston or Tim Bowling.