The Delegated Authorities Data Problem
Delegated authorities (DAs) provide a hugely important part of the insurance distribution chain. They enable managing agents to reach a much wider pool of prospective policyholders than would otherwise be possible, giving substantial benefits from increased reach and expertise. They all provide policyholders with increased choice, driving competition and innovation in products.
However, the mechanisms for reporting and operating delegated authority arrangements remain a massive challenge. The internet age and spread of computing power has seen improvements, but much of the reporting process in delegated authority is still dealt with in a manual way through spreadsheets, weeks or months after risks are underwritten or after claims are adjusted and settled. While portfolios of business and the data associated with them are growing exponentially, as an industry we have not got to grips with how to manage that data.
The two biggest operational issues that are emanating from the current status quo can be broken down into two categories – format and mechanism.
The format of the data is shown in the many different unstructured spreadsheet templates currently submitted by coverholders and TPAs. While efforts have been ongoing through Lloyd’s over the last few years to provide consistent reporting requirements, these have not been widely used by managing agents or adopted by coverholders and TPAs. Only on binders incepting from July of this year are these premium and claims data standards now being mandated, and implementation will take time. Through the LM TOM programme, we’re developing risk data standards as well but adoption of these standards could take years.
The mechanism for data submission is the other significant problem. While some brokers now use portals, the majority of bordereaux are still emailed from the coverholder/TPA to the broker and then on to underwriters. This is often slow and inconsistent, requiring manual intervention from the coverholder, the broker and managing agents to ensure it is produced, sent and filed appropriately multiple times, let alone actually reviewed and used.
By its very nature, the subscription market perpetuates these issues. Managing agents are moving at different speeds to implement their own processes for managing this data, and divergent reporting requirements and formats cause issues for coverholders and TPAs. This process is then being replicated across multiple managing agents using the same data in slightly different ways.
Beyond the operational issues, there are also regulatory challenges. With GDPR on the horizon and the implementation of other data protection regulations, such as the New York Cyber Security Regulations, these issues need to be addressed to ensure that there is strong management of data.
Through the LM TOM programme, we’re building the foundations for managing all these issues. The design of the risk data standards is being incorporated into ACORD messages to sit alongside the already agreed premium and claims standards, and the implementation of the Delegated Authority Submission, Access and Transformation Services (DA SATS) system should give managing agents, coverholders and TPAs a consistent platform to send information into.
But, in addressing the problem, we focus too much on what the potential benefits are for managing agents and insurers, and not enough on what the potential benefits are to all participants in the distribution chain. We need to be clear about what the benefits are to all those stakeholders, as coverholders and TPAs will need to make systems changes – therefore we need to convince them that these changes will be good for them and the competitiveness of their product.
The big benefits to all participants will be in vastly increasing the speed of data consumption:
- Up-to-date management information will be available to managing agents, coverholders and TPAs to manage portfolios of risk, manage claims and identify trends.
- Exposure management information will be up to date, allowing more effective and active allocation of aggregates.
- Capital modelling and allocation will be more efficient, as information will be up to date and stored consistently.
- Claims processes will be more efficient, with accurate reserving, faster payment of claims and easier loss fund management.
Ultimately, all of these benefits boil down to more accurate, up-to-date information, which helps to reduce operating cost and complexity in underwriting through Lloyd’s. Having accurate data held consistently will either allow staff to make decisions more effectively or provide a platform on which to use emerging technologies such as artificial intelligence to automate processes.
In addition, driving effective back-end processes makes the market more attractive to potential insurtech companies looking to operate as a managing general agent (MGA). Driving these changes means that we can continue to be relevant as distribution channels evolve.
Of course, this will all take time to implement, but the building blocks being put in place now mean that we’ll be able to work towards all these goals consistently via straight through processing of DA data. The biggest challenge is the cultural one, and convincing coverholders and TPAs to change how they report is absolutely critical to that.
For more information on straight through processing, please contact firstname.lastname@example.org or visit the LM TOM website to review the Delegated Authorities Initiative.