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In November 2013, Lloyd’s released a market bulletin to inform the market of proposed changes to the coverholder approval process, including the removal of the restricted coverholder approval process, and the enhanced requirements to control consumer business written through binders.


To provide Lloyd’s with more assurances as to the way business is written through coverholders where there is consumer business. The Lloyd’s coverholder approval process was first introduced in 2004.


The Code of Practice applies to Lloyd’s Managing Agents, brokers and coverholders.


The plan is for Lloyd’s to pilot Consumer Product Binding Authority (CPB) questionnaires from January 2014. A CPB is a binding authority under which a consumer product is distributed by a coverholder. From mid-2014 the plan is to make the Lloyd’s new arrangements mandatory. A market meeting is scheduled to discuss proposals on 19th November 2013.


The new proposals are:

  1. The removal of the restricted coverholder category of coverholders. The proposal is to introduce a new tiered approach to coverholder approval. This means coverholders with full underwriting authority will be subject to the full coverholder approval process, while coverholders with reduced levels of authority will be approved based on the lower level of underwriting authority.
  2. Managing agents with CPBs are required to evidence their due diligence of the conduct risk.
  3. The introduction of a new minimum standard to address the conduct risk.

In the future, all coverholders will have to be approved by Lloyd’s. Previously classified restricted coverholders will be subject to a more rigorous approval process, but this will be tailored to the level of underwriting authority granted to the coverholder. The level of coverholder authority will be classified as follows: full authority, pre- determined rates, no discretion and prior submit.

All existing restricted coverholders will be grandfathered onto the register of approved coverholders and their details included on ATLAS (the online market system of managing coverholders).

In adopting a new approach to coverholder approval, Lloyd’s has considered its approach to the management of “conduct risk”, where the coverholder is writing consumer business. Lloyd’s is concerned that this is a risk that is properly managed, and it is proposed that managing agents should demonstrate appropriate due diligence with regard to CPBs.

To assist managing agents in evidencing their assessment of conduct risk, Lloyd’s has prepared a model CPB Questionnaire to be completed by managing agents each time a CPB is entered into with a coverholder. The use of the questionnaire is not compulsory, and managing agents may adopt their own risk assessment processes to review the coverholder’s conduct standard, at least on an annual basis. Lloyd’s may request a copy of a managing agent’s questionnaire for a CPB, but will always expect a copy of the questionnaire (or its equivalent) for new coverholder applications, and business underwritten by coverholders under CPBs.

For further details, please refer to Lloyd’s Market Bulletin Y4739(8 November 2013)

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David Coupe, Senior Partner at EC3 Legal, said of the union: “The focus of EC3 Legal has always been on serving our clients' businesses. Following the merger with Birketts, I am confident that our clients will continue to be the biggest beneficiaries, as the two practices will be able to expand and develop the range of services on offer to new and existing clients.”


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