960 Coursework assignment 1 answer template
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Top tips for answering coursework assignments
Read the 960 Specimen coursework assignment and answer, available on the unit webpage.
Read the assignments carefully and ensure you answer all parts of the assignments.
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insufficiently comprehensive.
To be completed before submission:
Word count: 2869
Start typing your answer here:
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960
Brief Context
Coursework assignment 1 answer template
AXIS Insurance are a leading global insurer and reinsurer, that provide expertise in speciality
lines of insurance business.
With over $30.3 billion in total assets and $6.6 billion in total capital, AXIS is well-positioned
to meet the complex needs of its clients across the world. Furthermore, the company holds
an "A" rating from A.M. Best and an “A+” rating from Standard and Poors, reflecting its
financial strength and stability (https://www.axiscapital.com/who-we-are/financial-strength-
ratings).
AXIS prides itself on its cultural diversity and international expertise, with a team of 2,000
employees representing more than 25 nationalities and speaking over 50 languages
(https://www.axiscapital.com/londonmarket/who-we-are).
Although headquartered in Bermuda, AXIS have offices in various countries across the
globe, for example, Singapore, Canada, USA and Europe. With this vast global reach, AXIS
are well positioned to serve a diverse range of clients with their specialised insurance
products, such as Property, Liability, Marine, Aviation and Cyber insurance.
One class of business currently underwritten whereby authority is delegated.
Firstly, delegated authority arrangements can take several forms, namely binding authorities,
lineslips, coverholders, consortia, group/affinity programmes and master covers (CII 960
Advanced Underwriting 23/24). These arrangements are normally between an insurer, being
the principal and then the coverholder who “hold the pen” of the insurer. This means that
depending on the authority given, the coverholder can bind cover, set premium rates or
terms according to specific guidelines provided.
This assignment will focus on the delegated authority relationship between AXIS Insurance
and All Medical Professionals Limited (Also known as All Med Pro), and more specifically on
Medical Malpractice insurance for dentists. Medical Malpractice insurance is a form of
Professional Indemnity insurance for clinical medical professionals. This type of insurance is
in itself a sub-class of Liability insurance.
For clarity, a definition of Medical Malpractice insurance provided by Jensten Insurance
states “Medical Malpractice Insurance or Medical Liability Insurance, helps to protect
healthcare professionals against claims arising as a result of malpractice or negligence”
(https://jensteninsurance.co.uk/business-insurance/health-and-beauty-insurance/medical-
malpractice-insurance/).
Since 2019, All Medical Professionals Limited have held a delegated authority scheme with
AXIS Insurance for Dental Indemnity insurance on a full binding authority basis. Within the
remit of authority given, All Med Pro are able to underwrite policies, set premium rates and
apply any relevant terms independently provided the risk criteria are within certain
parameters. There is no independent claims handling authority included, and this is
outsourced to a specialist team of legal professionals.
Within the UK, it is a legal requirement of the General Dental Council (GDC) that dentists
hold Medical Malpractice insurance. This is to ensure that should there be a case of clinical
negligence, patients are able to obtain compensation for the clinicians wrongdoings and any
subsequent pain, suffering or financial loss.
Traditionally, it has been common place for dental professionals to purchase their indemnity
coverage from medical defence organisations, such as Dental Defence Union (DDU) or
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960 Coursework assignment 1 answer template
Medical and Dental Defence Union of Scotland (MDDUS). It was reported in 2019 by the
British Dental Journal that “over 90% of dental professional indemnity in the UK is currently
provided by mutual discretionary organisations” (Indemnity in the spotlight | British Dental
Journal (nature.com).
In recent years, and more so following on from the COVID-19 pandemic, there has been a
surge in dental negligence claims against dentists following treatment provided. Although the
majority of these dentists have purchased their membership from the aforementioned
medical defence organisations, they have found that the cover provided has been on a
discretionary basis and not contractually certain, therefore meaning that there is no
obligation from the defence organisation to pay claims received. The result of this is that
dentists could be found liable for negligence and have no protection in place to pay any
resulting claims.
With this in mind, many dental professionals around the country are now opting to purchase
an insurance backed product that provides them piece of mind that should they be
unfortunate enough to receive a claim, their indemnity providers are contractually bound to
respond, provided the claim falls within the scope of coverage within the insurers policy.
This shift in mentality has played its part in a significant increase in the size of the
professional indemnity insurance market in the UK. It was reported that “The UK
professional indemnity insurance market was estimated to be worth £3.3 billion in 2023. This
represented a 13.8% rise in value from 2021, when the market was worth £2.9 billion.”
(https://www.money.co.uk/business/business-insurance-statistics#:~:text=The%20UK
%20professional%20indemnity%20insurance,%25%20of%20the%20market%2C
%20combined.).
In addition to the shift in mentality, since 2021 the Professional Indemnity market had been
in a hard phase owing to decreased capacity and increasing premiums. We are now seeing
this move in to a soft phase meaning that dentists are now benefitting from better premiums
and enhanced covers therefore reinforcing their choice to move to a contract certain product.
One result of the above has been an increase in the variety of distribution channels that are
providing Medical Malpractice insurance. According to one AXIS Medical Malpractice
underwriter, AXIS now have a UK Medical Malpractice book that is worth circa $40m
whereby 80% of this business is provided from delegated authority arrangements and the
remaining 20% from open market sources.
Three significant challenges of delegated authority
Having delegated authority arrangements in place can certainly be of benefit to an insurer as
it may allow them to access potentially profitable revenue streams which they may not
otherwise see. This could be owing to the insurers own lack of experience in a particular
niche area or due to the individual risks relatively small nature. The potential unlocked by the
utilisation of delegated authority arrangements is evidenced in the “FCA’s Thematic Review
on Delegated Authority, Outsourcing in the general insurance market” in 2015, whereby it
states “We are aware, for example, that the Lloyds market received circa 30% of its
premium income in 2013 through firms that held underwriting authority on behalf of Lloyds
syndicates”.
With that being said and despite the obvious potential benefits to an insurer of these
arrangements, there are also various risks and challenges that are involved by granting the
delegation of their authority to any third party organisations, some of which are discussed
below.
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960 Coursework assignment 1 answer template
1) One significant challenge for an insurer looking to enter in to a delegated authority
arrangement will be around the conduct of the third party organisation for which they
grant the authority. Conduct risk is a wide topic that covers various matters such as
product design and distribution, pricing, conflicts of interest and claims handling and
more specifically how these issues may impact the customer.
The Financial Conduct Authority, whom are the regulator of insurers for conduct
related issues have made it clear that principals are still responsible for the actions of
firms to which they have delegated their authority. They have also stressed that
principals should have relevant measures in place to ensure that customers are
treated fairly, do not receive poor outcomes and there are no inherent risks to the
stability of the market as a whole.
Conduct risk is of significant interest to the FCA and there is particular scrutiny
around this topic at present, in particular the behaviour of insurers, their employees
or intermediaries which may result in customer detriment.
This was outlined In 2015 when the FCA issued their thematic review named
“Delegated authority: Outsourcing in the general insurance market” which primarily
investigated issues around conduct risk within delegated authority arrangements.
Within this review, the FCA “aimed to asses whether firms had robust systems and
controls in place surrounding the decision to outsource functions to other parties,
whether there was adequate oversight of outsourced functions, whether firms
understood and fulfilled their responsibilities to customers where they had
outsourced functions to another party and whether they had understood and fulfilled
the responsibilities they have to customers for related functions they perform under
their own regulatory permissions.” (FCA’s Thematic Review on Delegated Authority
TR15/7).
The FCA then went on to mention that “all of these factors are important and, without
appropriate consideration of them, outsourcing and the division of relation functions
can give rise to an increased risk of customers not being treated fairly and receiving
poor outcomes”.
The conduct of any third party organisation is a serious matter that needs intense
prior investigation by any principal that is looking to provide any form of authority and
it should be high on the agenda when performing their due diligence checks.
Previous failings within the insurance sector have shown that the FCA do not take
these matters lightly and this is evidenced in the case of Liberty Mutual Insurance
Europe SE.
In this case, Liberty Mutual Insurance had entered in to a relationship with a third
party provider enabling them to provide mobile phone insurance to retail customers.
The third party also undertook all administrative functions which included claims and
complaints handling. Although these tasks were delegated, Liberty Mutual Insurance
remained responsible for regulatory oversight and ensuring that the claims and
complaints were handled fairly. Subsequently, the FCA found that this was not the
case and fined Liberty Mutual Insurance nearly £4 million.
(https://www.fca.org.uk/news/press-releases/liberty-mutual-insurance-europe-se-
fined).
The above case clearly stipulates the importance of continuous monitoring of conduct
risk issues and the need for principals to maintain robust systems and controls,
without which, there is a potential for customer detriment. This is also a clear
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960 Coursework assignment 1 answer template
reminder for firms that failure to abide by the FCA’s rules could have serious
consequences.
In summary, although delegated authority arrangements can provide access to
profitable markets, principals need to be aware of the considerable regulatory
expectations placed upon them. Failure to do so could lead to significant regulator
intervention and potential fines.
2) The next significant challenge for any organisation looking to delegate their authority
to a third party will be around the potential for that third party to exceed their given
authority limits and expose the insurer to significant risk of financial loss.
Within a binder agreement, it is normal practice for an insurer to set out strict
guidelines for the coverholder/MGA which clearly stipulate the maximum limit of
cover they are willing to provide, the types of risks acceptable and an aggregate limit
of business that triggers referral from the coverholder advising the insurer that this
limit has been reached. For example, within the binder agreement between AXIS and
All Med Pro, there is a maximum limit of indemnity per policy of £10m, a maximum
cover period per policy of 18 months and a maximum overall aggregate limit of
premium on the binder. Once All Med Pro have placed a certain amount of business,
they are required to hold a review with AXIS to ensure that any further exposure is
managed accordingly.
Having these guidelines in place are of particular importance for any insurer as not
only do they need to ensure that they are not exposing themselves to major losses
from risks that are not in appetite, but they also need to ensure that they are not
exceeding any limits stated within their own reinsurance arrangements making it
inadequate. Further to this, it is also possible that by unknowingly accepting risks
which have not been in appetite, the insurer may not have accurately calculated their
capital requirements and therefore they may be in breach of the requirements of
Solvency II and the Minimum Capital Requirements.
An example of a coverholder exceeding the limits of their authority can be found in
the case of “Sphere Drake Insurance & Anr v Euro International Underwriting Ltd
2003”. In this case, Euro International Underwriting were granted delegated authority
from Sphere Drake Insurance to underwrite traditional personal accident business.
Instead, Euro International Underwriting Ltd wrote large volumes of workers
compensation insurance. Although outside of the risk appetite, Sphere Drake were
bound to pay claims under the contracts and this led to losses of up to $250m
(www.insurance.times.co.uk/fraud-ruling-blames-lack-of-agent-control/
1342571.article).
Having previously worked in various insurance brokers, I am aware that one broker
had acted outside the scope of their delegated authority arrangement, whereby they
had accepted numerous risks that the insurer had deemed to be unacceptable due to
set rating criteria. This eventually led to the insurer removing the delegated authority
agreement.
As a summary, when giving delegated authority, an insurer is essentially passing the
underwriting pen to a third party. Although they have contracts in place, the insurer
does lose control of the risks that are being written on their behalf.
3) The next significant challenge for any organisation looking to delegate their authority
to a third party will be ensuring that they receive regular management information
and reports to enable them to monitor the performance of the binder.
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960 Coursework assignment 1 answer template
For example, within All Med Pro’s binder agreement with AXIS insurance, there is a
clear requirement for All Med Pro to submit monthly bordereau for both risks that
have been written along with the premiums that have been paid. It also stipulates that
this information should be provided promptly, in an electronic format and submitted
directly to the slip leader.
It is imperative for AXIS that they receive their monthly bordereau and that this
information is accurate as this is the only time, with the exception of an annual audit
that they will be able to monitor risks that have been written and the total premium
that has been charged. Not only this, it is a requirement of Lloyds that “Lloyd’s
syndicates request and collect data consistent with the requirements in Lloyd’s
Coverholder Reporting Standards where these apply for any risks and claims
attached to any binding authority agreements, or coverholder appointment
agreements, incepting or renewing from July 2017 onwards. Lloyd’s has not
mandated that a particular format is used for reporting.”
(https://assets.lloyds.com/assets/pdf-reporting-standards-lloyds-coverholder-
reporting-standards-user-guide-v52/1/pdf-reporting-standards-lloyds-coverholder-
reporting-standards-user-guide-V52.pdf)
By having a regular bordereau arrangement in place, AXIS insurance will be in a
position to identify any situations where the coverholder are either breaching their
authority or are not performing as expected. Should this be the case then AXIS will
be able to implement corrective measures to ensure that they remain in control of the
risks being placed on the binder.
Further to this, it is of vital importance that the information received from the
coverholder is accurate as AXIS will heavily rely on this information to set their
premium rates, understand the volume and types of risks that they are exposed too
and ensure that they have adequate reinsurance protection and sufficient capital in
place.
In summary, it is of vital importance that AXIS receive accurate management
information in a timely manner, not only to ensure they are monitoring the binder
agreement, but also to adhere to regulatory requirements.
Recommendations that would manage these challenges in delegating its underwriting
authority.
As we have already established above, there are various challenges for an insurer when
they delegate their authority to a third party. An insurer will need to ensure that they are
proactively monitoring the delegated authority agreement and that they have robust
procedures in place to effectively manage these challenges and mitigate any potential
consequences.
There are several recommendations that I would make to the insurer to assist with these
challenges and these are discussed below.
The first recommendation that I would make would be for the insurer to develop a
precise underwriting guide that clearly defines the insurers risk appetite, coverage
conditions, pricing matrix and sets precise parameters which detail the third party’s
limit of authority. This underwriting guide should be consistent with the standards of
the insurer if they were underwriting the risks themselves and also detail and referral
triggers.
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960
Coursework assignment 1 answer template
The next recommendation that I would make would be for the insurer to have specific
staff members from the third party noted within the binder agreement and obtain their
CV’s. This will allow them to assess the experience and qualifications they hold and
will reassure them that the staff underwriting the risks on their behalf are suitable.
The next recommendation that I would make would be for the insurer to ensure that
the third party are regularly reporting on risks that have been underwritten along with
the premiums charged via monthly bordereaux. Further to this, I would recommend
that the insurer conduct an annual audit on the third party as a minimum. Should the
findings from the bordereaux or audit be of concern, the insurer can increase the
frequency of the audits.
The next recommendation that I would make would be ensure that it is noted within
the binder agreement that all staff who underwrite risks have their performance
regularly reviewed and that any cases over a certain level of premium are peer
reviewed and evidence of this is kept on file. By having peer reviews in place, not
only will this enhance consistency, it will assist the insurer in identifying any issues at
the earliest opportunity.
The next recommendation that I would make would be for the insurers underwriting
management and the third party’s in house underwriting team to hold weekly
meetings online to discuss the risks that have been written, any irregularities in
pricing or to answer any queries that the in house underwriters may have. These
meetings could also be followed up quarterly face to face. By having these meetings,
it would strengthen the relationship between the two parties and instil a culture of
trust and openness.
To summarise, by implementing the above recommendations the insurer will ensure they are
actively managing and monitoring the delegated authority agreement allowing them to
promptly address any deviations, maintain regulatory compliance and maintain control of
who would be writing risks on their behalf.
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960 Coursework assignment 1 answer template
Referencing must be completed before submission
All sources must be referenced in the body of your answer as well as in your reference list. See
the 960 Specimen coursework assignment and answer for examples of how to reference
correctly in text and in your reference list.
References
Books
Course Book – M66 Delegated Authority
Course Book – M80 Underwriting Practice
Course Book – 960 Advanced Underwriting
Websites + Articles
https://www.axiscapital.com/who-we-are/financial-strength-ratings
https://www.axiscapital.com/londonmarket/who-we-are
https://jensteninsurance.co.uk/business-insurance/health-and-beauty-insurance/medical-
malpractice-insurance/
Indemnity in the spotlight | British Dental Journal (nature.com)
https://www.money.co.uk/business/business-insurance-statistics#:~:text=The%20UK
%20professional%20indemnity%20insurance,%25%20of%20the%20market%2C%20combined
https://www.fca.org.uk/news/press-releases/liberty-mutual-insurance-europe-se-fined
www.insurance.times.co.uk/fraud-ruling-blames-lack-of-agent-control/1342571.article
https://assets.lloyds.com/assets/pdf-reporting-standards-lloyds-coverholder-reporting-
standards-user-guide-v52/1/pdf-reporting-standards-lloyds-coverholder-reporting-standards-
user-guide-V52.pdf
One reference direct from an AXIS underwriter (Rawnie McManus – AXIS Underwriting)
FCA’s Thematic Review on Delegated Authority TR15/7
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960 Coursework assignment 1 answer template
Glossary of key words
Analyse
Find the relevant facts and examine these in depth. Examine the relationship between
various facts and make conclusions or recommendations.
Construct
To build or make something; construct a table.
Describe
Give an account in words (someone or something) including all relevant characteristics,
qualities or events.
Devise
To plan or create a method, procedure or system.
Discuss
To consider something in detail; examining the different ideas and opinions about
something, for example to weigh up alternative views.
Evaluate
Make an appraisal of the worth of something.
Explain
To make something clear and easy to understand with reasoning and/or justification.
Identify
Recognise and name.
Justify
Support an argument or conclusion. Prove or show grounds for a decision.
Outline
Give a general description briefly showing the essential features.
Recommend with reasons
Provide reasons in favour.
State
Express main points in brief, clear form.
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