Lloyd's Minimum Standards - Conduct risk
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1 Disclaimer Lloyd’s minimum standards Ms11 – Conduct Risk July 2014
Transcript of Lloyd's Minimum Standards - Conduct risk
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Lloyd’s minimum standards
Ms12 - Operating at Lloyd’s
July 2014
Disclaimer
Lloyd’s minimum standards
Ms11 – Conduct Risk
July 2014
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Introduction
The Franchise Board is concerned to protect the interests of Lloyd’s Customers. It has therefore issued the following minimum standards (shown in text boxes) that are designed to meet the requirements of the Financial Conduct Authority and to provide practical guidance for their implementation having particular regard to the operation of the Lloyd’s market, the roles of brokers and intermediaries, the roles of leaders and followers in the Lloyd’s market and the roles of coverholders and service companies in the distribution of products.
Defined terms have been capitalised and definitions are set out in the glossary.
Territorial application
The standards set out in CR 1 (Fair Treatment of Lloyd’s Customers) and CR 2 (the Role of the Board, Management and Staff) apply in respect of Lloyd’s Customers wherever they are located worldwide
The standards and guidance set out in CR3 to CR17 apply only in respect of Lloyd’s Customers domiciled or registered within the European Economic Area. Elsewhere, whilst managing agents may wish to give consideration to the matters set out in CR3 to CR 17 as may be appropriate, managing agents must implement effective and proportionate controls and arrangements for the fair treatment of Lloyd’s Customers having careful regard to the conduct requirements and good business practices in the territory in question.
The Financial Conduct Authority
Lloyd’s has been in discussion with FCA regarding the launch of the new Conduct Minimum Standards & Guidance (Conduct Standards). FCA has confirmed that it welcomes Lloyd’s aims to promote conduct standards and enhance consumer protection within the Lloyd’s Market.
The FCA has considered the Conduct Standards and believes that these standards are a practical initiative in enhancing conduct standards within the Lloyd’s Market. Whilst the FCA’s requirements continue to apply in any event, if the operation of these conduct standards is effective in promoting conduct standards and enhancing consumer protection within the Lloyd’s Market the FCA will take them into account when considering its supervisory approach to Lloyd’s managing agents.
More broadly, and in accordance with the FCA-Lloyd’s Co-operation Arrangements, Lloyd’s is developing its approach to conduct oversight with the aim of ensuring that the FCA regard Lloyd’s controls over this risk as being effective allowing the FCA to take into account Lloyd’s systems and controls and adjust its supervisory approach (not underlying rules) accordingly. The FCA considers the Conduct Standards to be a first step as part of that process.
Note on the application of these standards and guidance
The Franchise Board has prescribed these standards and guidance relating to Conduct Risk. Any failure to comply with these standards and guidance shall not call into question any contract or agreement entered into by or on behalf of a managing agent or syndicate. Nor shall failure to comply with these standards and guidance create any right of action, complaint or claim in any third party against a managing agent or syndicate, the authority to enforce compliance being exclusively in the Franchise Board.
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Contents
CR 1: Fair Treatment of Lloyd’s Customers 4
CR 2: Role of the Board, Management and Staff 4
CR 3: Product Oversight Group 5
CR 4: Effective and Proportionate Product Controls 7
CR 5: Assessing and Recording Product Risk 8
CR 6: Product Design - General 11
CR 7: Product Design – High Product Risk 12
CR 8: Obtaining Assurance from Others 17
CR 9: Product Sales 19
CR 10: Product Service 20
CR 11: Product Service – Handling and Determining Claims 20
CR 12: Product Service – Complaints 21
CR 13: Conduct Management Information 22
CR 14: Product Review 30
CR 15: Distributor Appointment, Review and Audit 31
CR 16: TPAs 34
CR 17: Training 34
CR 18: Miscellaneous 35
CR 19: Glossary 37
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CR 1: Fair Treatment of Lloyd’s Customers
CR 1.1
A managing agent must pay due regard to the interests of Lloyd’s Customers and treat them fairly at all times.
CR 1.2
The approach adopted under CR1.1 must be led by the managing agent’s board and be central to the managing agent’s corporate culture whenever decisions need to be made about Conduct Risk and what is acceptable and what is not.
This approach should have careful regard to the conduct requirements and appropriate business practices in the territory in which business is being undertaken and recognising the regulatory expectations and sensitivities in those territories. Reference in this regard should always be had to Lloyd’s ‘Crystal’ database.
CR 2: Role of the Board, Management and Staff
CR 2.1
The board of a managing agent must lead a corporate culture which pays due regard to the interests of Lloyd’s Customers and treats them fairly at all times.
A managing agent’s corporate culture should be one based on winning and maintaining trust and confidence of Lloyd’s Customers. Members of the board should regularly demonstrate their commitment to that corporate culture in their decision making, their management of the business and, in particular, in their presentations and communications to staff and to their Distributors.
The board of a managing agent must demonstrate appropriate support for directors, any Product Oversight Group and for other individuals who provide Customer Challenge.
CR 2.2
The board of a managing agent must consider its approach and strategy to the management of Conduct Risk generally and how that is integrated and is reflected in its approach and framework for the management of risk generally.
CR 2.3
The board of a managing agent should regularly discuss Conduct Risk at its meetings and be able to evidence those discussions.
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Care should be taken in setting agendas for meetings to ensure that all elements of Conduct Risk set out in these standards are discussed from time to time and that these discussions make the best use of the managing agent’s Conduct Management Information. A managing agent should be able to evidence that members of the board ask good questions with regard to Conduct Risk and that any action points are properly followed up by the board.
CR 2.4
The board of a managing agent must provide appropriate Customer Challenge and that should be reflected in its overall business strategy, in syndicate business plans and in its approach to Product Design, distribution and Product Service.
In particular, the board should consider the Conduct Risk, reputational and financial implications of selling Products with a high Product Risk to a large number of Lloyd’s Customers especially where they have little or no experience of selling such Products.
CR 2.5
The board of a managing agent must ensure that appropriate Conduct Risk objectives are set for the managing agent’s directors and staff and ensure that these are assessed.
CR 2.6
The management of a managing agent must support the board in establishing a corporate culture which pays due regard to the interests of Lloyd’s Customers and treats them fairly at all times.
CR 2.7
A managing agent must avoid or effectively manage any conflict of interest which might lead to the unfair treatment of Lloyd’s Customers.
CR 2.8
Issues which may be raised under a managing agent’s whistleblowing or speaking-up policy must include the unfair treatment of Lloyd’s Customers.
CR 3: Product Oversight Group
CR 3.1
The board of a managing agent must decide whether it is appropriate to establish or designate a Product Oversight Group. Where a board decides not to, it must consider and record why not and how Customer Challenge will otherwise be delivered.
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A managing agent which underwrites a large number or a high proportion of Products with a high Product Risk (see CR 5) should generally establish or designate a Product Oversight Group in order to support the board with regard to the management of Conduct Risk and to contribute to –
the delivery of appropriate Customer Challenge when judgements need to be made about Conduct Risk generally and, in particular, (a) the managing agent’s business model, syndicate business plan and overall business strategy particularly with regard to Products with a high Product Risk and (b) whether a particular Product should be sold and, if so, what Product Controls are appropriate throughout the Product’s Lifecycle;
the analysis of and reporting on Conduct Management Information and, in particular, (a) extracting key information and trends about the managing agent’s Conduct Risk, (b) preparing or agreeing reports to the board which readily illustrate and explain that information and trends and (c) making recommendations to the board for improving the effectiveness of the Product Controls; and
reviewing regulatory developments with regard to Conduct Risk and, in particular, (a) preparing or agreeing reports to the board which readily illustrate and explain the impact that those developments may have on the managing agent’s Conduct Risk, and (b) making recommendations to the board for improving the effectiveness of the Product Controls having regard to those developments.
CR 3.2
A Product Oversight Group must include appropriate individuals who can provide Customer Challenge.
A Product Oversight Group should generally include individuals who have experience of –
maintaining successful long-term underwriting relationships;
preparing clear and fair Product Documentation;
handling and determining claims from consumers;
handling policyholder complaints, analysing complaints data and dealing with the Financial Ombudsman Service; and
ensuring compliance with the Financial Conduct Authority’s requirements and with similar requirements overseas.
There is no need for every member of a Product Oversight Group to be an insurance professional, expert or specialist and often it may be helpful to have members who are not. Members may therefore be drawn from any part of the managing agent’s operations.
A Product Oversight Group may integrate its work and activities with other existing groups, committees and activities (for example, underwriting peer review) as may be appropriate to provide Customer Challenge effectively and efficiently.
It may be useful to include underwriters as members of the Product Oversight Group but an underwriter should not be directly involved in providing Customer Challenge for a Product which he or she designed or helped to design.
Any questions or disagreements between the Product Oversight Group and those involved in the Product’s Design (particularly questions of policy) should be referred to the managing agent’s board or other relevant committee for consideration.
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CR 3.3
A Product Oversight Group must meet regularly and as and when required. A group must also establish effective working arrangements between its members so that it can continue to fulfil its functions outside of formal meetings effectively.
CR 3.4
Where a Product Oversight Group is established or designated its existence, the names of its members and its terms of reference should be made available to the managing agent’s staff generally and, where appropriate, to its Distributors.
The submission of questions, comments and suggestions to the Group with regard to Conduct Risk should be encouraged by the Group and by the board of the managing agent.
CR 4: Effective and Proportionate Product Controls
Effective and Proportionate Product Controls
CR 4.1
A managing agent must have effective Product Controls which are proportionate to the Product Risk of each Product and form part of a coherent framework of controls.
Initial assessment of Product Risk
CR 4.2
A managing agent must make an assessment of the Product Risk of each Product prior to underwriting that Product and decide whether or not it is appropriate to sell that Product having regard to its Product Risk.
Where a managing agent intends to sell a Product in substantially the same form and manner to a number of Lloyd’s Customers the assessment of the Product Risk will be an integral part of Product Design. In respect of an Open Market Placement the assessments may ordinarily be undertaken by each underwriter as part of the normal underwriting process (see CR 8.1).
Assessment of Product Risk to be kept under review
CR 4.3
A managing agent must keep the assessment of its Product Risk under review throughout the Product’s Lifecycle and adjust the Product Design and Product Controls as may be appropriate.
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CR 5: Assessing and Recording Product Risk
Assessing Product Risk
CR 5.1
The assessment of the Product Risk of a Product shall be made having careful regard to –
Customer Risk;
Product Complexity;
Sales Risk and having particular regard to how the Product will be sold;
Service Risk; and
any other relevant factors or criteria set by the managing agent’s board,
as described below.
Each factor does not necessarily need to carry the same weighting in the assessment of Product Risk and they may overlap. Customer Risk may often carry the largest weighting.
It may be convenient and efficient to perform a preliminary assessment of Product Risk by reference to a risk code or a risk type but this must not obscure the underlying purpose of the assessment which is to understand properly the Conduct Risk associated with the Product in question.
CR 5.2
The assessment of the Customer Risk of a Product shall be made having careful regard to the financial sophistication and expertise of the Lloyd’s Customer to whom it is intended the Product will be sold.
This should take into account –
the ability of the Lloyd’s Customer to assess the Product and whether it will meet their needs and reasonable expectations. The lower the financial sophistication of the Lloyd’s Customer the higher the Customer Risk (as illustrated below). The Customer Risk of a Lloyd’s Customer who is an individual is likely to be high. The Customer Risk of a Lloyd’s Customer who is an insurer or reinsurer is likely to be very low.
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whether the Lloyd’s Customer is considered to be a ‘consumer’ having regard to the regulatory definition of consumer (or the equivalent term) in the territory in which the Product will be sold. A consumer will generally have a high Customer Risk; and
whether the Lloyd’s Customer will be advised on the Product by an insurance broker or other suitably qualified adviser. Receipt of advice will significantly lower the Customer Risk.
Assessing Product Risk – Product Complexity
CR 5.3
The assessment of Product Complexity shall be made having careful regard to –
the complexity of the Product Documentation (including when compared with the documentation for products of a similar type from competitors where this is available);
the novelty of the Product;
the familiarity that the Lloyd’s Customer might be expected to have with the words and expressions used in the Product Documentation; and
the time that the Lloyd’s Customer might be expected to give to considering the Product Documentation.
Assessing Product Risk – Sales Risk
CR 5.4
The assessment of Sales Risk shall be made having careful regard to –
the number of Products planned to be sold;
the number of Distributors planned to be appointed (especially where they are located in more than one country);
how the Product Controls will be implemented by the Distributors and overseen; and
the alignment between Sales Risk and Sales Incentives for each Distributor.
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CR 5.5
Careful regard should be had to the Sales Risk associated with selling the Product –
if it is an Add-on Product
via a call centre; or
via the internet including via a price comparison site.
Assessing Product Risk – Service Risk
CR 5.6
The assessment of Service Risk shall be made having careful regard to the likely demands of the Lloyd’s Customer to require Product Service.
Generally, it may be expected that the Service Risk of a Product placed by a Lloyd’s broker will be low.
Recording Product Risk
CR 5.7
The assessment of the Product Risk of each Product must be recorded by the managing agent in such a way that –
would enable a person who was not involved in the assessment to understand, in broad terms, how the assessment was made;
supports a consistent approach within each managing agent to the assessment of Product Risk generally; and
allows simple comparisons to be made between the Product Risk of different Products.
The level of information recorded under CR 5.7 should be proportionate to the assessed Product Risk. In respect of a Product that is individually negotiated with a broker, the recording of Product Risk may be undertaken by the underwriter as part of the normal underwriting process.
Examples of Products with a high Product Risk
5.8
Without prejudice to the analysis required above, the following non-exhaustive list of Products will generally have a high Product Risk.
motor
household
accident and health
legal expenses
payment protection insurance
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extended warranty Products;
mobile phone or gadget insurance;
travel insurance;
pet insurance;
Add-on Products;
home emergency cover;
guaranteed asset protection.
CR 6: Product Design - General
Identify the prospective Lloyd’s Customers
CR 6.1
When a managing agent (or its agent) is involved in the development of a new Product to be sold to Lloyd’s Customers (or making a material change to an existing Product) it shall first identify the Lloyd’s Customers to whom it is intended the Product will be sold and consider what their needs and reasonable expectations are likely to be and how those needs and expectations may properly be addressed.
A material change to an existing Product might include a material change to the terms and conditions of the Product (for example, the inclusion of a significant exclusion clause) or a material change to how the Product is to be sold.
CR 6.2
A managing agent must give careful consideration, in that context, to –
preparing appropriate Product Documentation;
determining how the product should be sold and, if appropriate, identifying suitable Distributors; and
determining what Product Service will be required and how this will be provided.
Regard may be had to the further guidance set out in CR 7 as may be appropriate to any particular aspect of the Product.
Sales Incentives
CR 6.3
When establishing or agreeing Sale Incentives for Distributors a managing agent must seek to ensure that they will not incentivise the Distributor to sell the Product to Lloyd’s Customers for whom they were not designed or will not meet their needs and expectations.
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The importance of considering and managing any risks arising from Sales Incentives is demonstrated by the Financial Conduct Authority’s Final Notice in a case against Lloyds TSB Bank plc -
“Remuneration schemes play an important role in setting the sales culture of a firm, influencing how and what staff sell to customers. They can create a culture of mis-selling and may undermine a firm’s positive efforts to treat customers fairly in other areas. While the Authority recognises that firms may want to incentivise staff to sell particular products, firms must ensure that their systems and controls are sufficiently robust and sophisticated to mitigate effectively the risk of any adverse impact the incentives may have on staff behaviour. This should include appropriately focused risk-based monitoring.”
Consideration should always be given to the question, “If I was selling this Product how would the Sales Incentives affect my approach to sales ?”
Effective Product Controls
CR 6.4
A managing agent must then design and integrate effective Product Controls which are proportionate to the Product Risk of the Product in question.
CR 7: Product Design – High Product Risk
CR 7.1
A managing agent must take the following additional steps set out below in respect of Product Design of Products with a high Product Risk. Where a service company, coverholder or other intermediary or Distributor has designed a new Product on behalf of a managing agent, the managing agent must nonetheless satisfy itself by conducting adequate due diligence that the Product Design meets these standards and guidance.
Assessing customer needs – high Product Risk
CR 7.2
When assessing Lloyd’s Customers’ needs and reasonable expectations, a managing agent must give careful consideration to –
using qualitative research and quantitative data;
working with proposed Distributors to use their experience of dealing with the potential customers; and
where proportionate and appropriate, using a ‘focus group’ to assess the suitability of the Product and of the Product Documentation.
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Providing ‘valuable’ cover – high Product Risk
CR 7.3
A managing agent must take reasonable care to ensure that the Product will provide the Lloyd’s Customer with insurance cover which meets their needs and reasonable expectations on which they can realistically claim.
This may include consideration of –
whether there is a reasonable prospect that the insurance cover is already generally provided to the Lloyd’s Customer in some other way and if so, to ensure appropriate disclosure is made to the Lloyd’s Customer to enable them to make an informed decision about whether to proceed.
whether the events covered by the Product are aligned with the needs of the Lloyd’s Customers. In particular, consideration may need to be given as to the impact of any exclusions of cover included in the Product. Whilst exclusions can ensure that a Product is priced competitively and provides value for money, care needs to be taken to ensure that this is not at the expense of meeting the Lloyd’s Customers’ needs and reasonable expectations;
whether the benefit following a successful claim is likely to meet the needs of Lloyd’s Customers. In particular, consideration may need to be given where limits of liability are placed on the level of cover that a Product provides; and
whether the Product disadvantages any particularly vulnerable group and whether it meets all applicable obligations under the Equality Act 2010.
Add-on Products – high Product Risk
CR 7.4
A managing agent must take particular care when designing an Add-on Product especially when it will be sold as an add-on to a more engaging product (for example a holiday, a car or a theatre ticket) to ensure that –
the Product will provide cover on which they can realistically claim;
there is clarity around the price of the cover; and
opt-out selling (i.e. a Lloyd’s Customer must deselect Add-On Products which are automatically included in quotes if he or she does not wish to purchase an Add-on Product) is not used.
Product Documentation – high Product Risk
CR 7.5
When preparing the Product Documentation, a managing agent must take particular care to ensure that it is clear, fair and not misleading.
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Particular care should be taken with regard to –
the content of financial promotions and other marketing materials;
the content of any policy summary;
explaining the main benefits of the Product and what is covered;
explaining what is not covered or is excluded (having particular regard to the application of the Unfair Terms in Consumer Contracts Regulations 1999);
how claims may be made;
providing examples of claims that will be acceptable under the Product and those that will not;
how complaints may be made;
how the Product may be renewed, switched or cancelled (including refund rights) and any fees that may be charged in this respect;
which law the Product is subject to; and
setting out which syndicate or syndicates have underwritten the Product.
It should be appreciated that standard terms and conditions which are entirely appropriate for Products with lower Product Risk may not be appropriate for Products with a high Product Risk especially where they use terms and expressions primarily used within the insurance industry.
Selection of appropriate Distributors – high Product Risk
CR 7.6
When selecting appropriate Distributors for the Product, care must be taken to ensure that they are each capable of –
implementing the proposed Product Controls having regard to their own experience and systems and controls. Particular regard should be given to their sales monitoring, sales training, sales administration and any complaints or claims handling authority;
providing appropriate Conduct Management Information to the managing agent; and
giving any appropriate advice to the Lloyd’s Customer in the context in which the Product will be sold.
In this regard, consideration may need to be given to the Consumer Product Binding Authority Questionnaire.
Providing Distributors with adequate information- high Product Risk
CR 7.7
When preparing information for Distributors, a managing agent must take care to ensure that they will be provided with –
adequate information to properly understand and sell the Product; and
appropriate Product Documentation, including point of sale materials.
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Where appropriate, managing agents should consider the adequacy of any sales scripts or website content to be used in the sales process.
Sales Incentives – high Product Risk
CR 7.8
A managing agent must give particular consideration to the design of the Distributor’s Sales Incentives for its own sales personnel especially where they could lead to a pressurised sales environment and consequent mis-selling of Products.
Consideration should be given to industry requirements and practices in the territory in question but factors that may suggest such an environment include –
where the incentives are wholly or materially based on personnel achieving pre-determined sales or profit targets;
where sales personnel are predominately paid by way of commission rather than non-variable salary;
where a salary increase is guaranteed solely by reason of reaching a sales target during a defined period;
if the incentive includes any element of a “retrospective accelerator” where passing a target increases the level of incentive earned for all sales over a period, rather than just those sales above the target;
where the incentives include disproportionate or unusual rewards including, for example, (a) awarding significant prizes to personnel for exceeding sales targets, (b) running a “first past the post” competition where the first sales personnel to exceed a target receives a reward, (c) having time bound “accelerator periods” where personnel only receive an additional reward if they exceed a target within a limited period of time, (d) awarding personnel higher rewards for selling one product rather than another substitutable product, or (e) where incentives can be paid early during a period subject to sales personnel maintaining sales targets;
where the incentive schemes are overly complex or where the Distributor does not have enough information about the incentive scheme such that the Distributor cannot understand the effect the scheme is having on sales; and
where the Distributor relies only on routine monitoring of its personnel rather than taking into account the specific features of the incentive scheme.
Good incentive schemes and arrangements should generally include –
incentives that reward sales personnel by reference to sales quality. This may include incentives for personnel who sell products with a low cancellation or complaints rates. Accordingly payment of incentives may need to be deferred for a suitable period in order to establish the sales quality;
penalties or full claw-back provisions of incentives where it is subsequently discovered that there have been inappropriate sales even if the individual has exceeded other targets or performance metrics. Monitoring and controls might therefore focus on sales personnel who (a) achieve the highest numbers of sales, (b) cause the highest numbers of cancellations or complaints; and (c) are close to being promoted or demoted; and
the Distributor’s managers’ bonuses are not solely based on the sales performance of the sales team they are overseeing.
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Product Service – high Product Risk
CR 7.9
When considering what Product Service will be required, a managing agent must take particular care to ensure that the Product can be properly serviced having regard to the adequacy of proposed resources and systems and Lloyd’s Customers’ likely demand for service generally and, where appropriate, from time to time and from day to day.
Post sales barriers – high Product Risk
CR 7.10
When considering how the Product will operate in practice, a managing agent must take particular care to ensure that there will be no unreasonable post-sales barriers for the Lloyd’s Customer to –
changing or switching the Product;
cancelling the Product;
obtaining a refund;
making a claim; or
making a complaint.
Design of effective Product Controls – high Product Risk
CR 7.11
A managing agent must then design and integrate effective Product Controls which are proportionate to the Product Risk of the Product in question.
Stress testing of the Product and the Product Controls – high Product Risk
CR 7.12
A managing agent should conduct stress testing of the Product and the Product Controls to assess how they would perform in likely scenarios, including stressed scenarios, to ensure that the Product is likely to meet Lloyd’s Customers’ needs and reasonable expectations and they will be treated fairly through the Product’s Lifecycle.
Stressed scenarios might include a large numbers of Lloyd’s Customers requiring Product Service (including claims and complaints) following a catastrophe, the insolvency of a Distributor or an intermediary or a large number of claims being made where it is difficult to determine whether cover is provided under the Product.
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Providing Customer Challenge
7.13
In providing Customer Challenge consideration might be given to the following questions –
With regard to Product Design
“Imagine that the Product was designed to be sold to a loved member of your family. Would you personally recommend that he or she buys it ?”;
With regard to Product Documentation
“Having read the Product Documentation, would you personally be able to explain the key aspect of the Product to the proposed Lloyd’s Customer”;
With regard to ‘valuable’ cover
“Is it expected that the Product will be so highly profitable that it calls into question the value for money for Lloyd’s Customers ?”; and
“Would you expect to be content to explain performance of the Product on a consumer programme on primetime television ?”
CR 8: Obtaining Assurance from Others
In the Lloyd’s market, Product Design may often involve an insurance broker acting on behalf of the Lloyd’s Customer, a lead managing agent (acting on behalf of the lead syndicate), a number of following managing agents (acting on behalf of the following syndicates) and one or more service companies or coverholders. This part of the Lloyd’s minimum standards is to ensure that there is no unnecessary duplication of work in order to address Conduct Risk.
Open Market Placement
CR 8.1
Where a managing agent is presented with a contract of insurance (or reinsurance) by a broker regulated by the Financial Conduct Authority acting as the agent of a Lloyd’s Customer in the placement of that contract, the managing agent may (unless the contract has a high Product Risk) assume that contract will meet the needs and reasonable expectations of the broker’s client.
The managing agent must nonetheless –
make an assessment of the Product Risk of the contract as part of the normal underwriting
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process at the underwriting box or elsewhere; and
consider the Customer Risk of any person other than the policyholder who may make a claim on the contract of insurance (for example, employer purchased travel insurance on which employees may claim).
For the avoidance of doubt, nothing in these standards is intended to make a managing agent responsible for the conduct of a broker (regulated by the Financial Conduct Authority or otherwise) in his capacity as agent of a Lloyd’s Customer.
Lloyd’s Customer is a managing agent, insurer or reinsurer
CR 8.2
Where the Lloyd’s Customer is a managing agent or an insurance or reinsurance company, the managing agent selling the Product may assume that it will meet the needs and reasonable expectation of that customer if the customer chooses to purchase the Product.
Intermediary acting on behalf of a managing agent
CR 8.3
Where a service company, a coverholder or other intermediary has designed a new Product on behalf of a managing agent, the managing agent must nonetheless satisfy itself by conducting adequate due diligence that the Product Design meets these standards and guidance (see CR 6 and CR 7).
Leader and followers
CR 8.4
Where a lead managing agent has designed a new Product (or has undertaken due diligence of the work of a service company, coverholder or other intermediary) it may provide such information as it decides in connection with that Product to following managing agents to assist them in meeting these standards. Provided that the information has been provided in good faith the managing agent shall bear no liability in damages or otherwise to the following managing agents or to any other person in that regard.
Managing agents are encouraged to share their assessment of Product Risk (and to request others assessment of Product Risk) and to discuss the reasons for any variation in their assessments.
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Market Wordings
CR 8.5
In undertaking Product Design, a managing agent may place reasonable reliance on –
wordings that have been specifically formulated by the Lloyd’s Market Association for use in Products with a high Product Risk; and
wordings that have been approved by the regulator in the territory in question for the purpose in question.
CR 9: Product Sales
Giving of advice or personal recommendations
CR 9.1
A managing agent must carefully consider the implications of appointing an agent to give advice or make personal recommendations with regard to a Product before any such advice or recommendations are given.
Provision of information regarding Products with a high Product Risk
CR 9.2
A managing agent must ensure that it takes reasonable steps to ensure that a Lloyd’s Custom
er is given appropriate information about a Product with a high Product Risk in good time so that the Lloyd’s Customer can make an informed decision about the Product.
Provision of contract documentation
CR 9.3
Contract documentation must be sent to the insured (or the insured’s agent) promptly and, in any event, within 7 working days for consumers and 30 calendar days for other Lloyd’s Customers in accordance with the Contract Certainty Code of Practice, Principles and Guidance issued by Lloyd’s and the market associations from time to time.
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Cold calling
CR 9.4
A managing agent must take particular care that any agent appointed by it follows all of the laws and regulations with regard to ‘cold calling’ in the territory in question.
CR 10: Product Service
Effective arrangements and adequate resources
CR 10.1
A managing agent must ensure that it and its Distributors have in place effective arrangements and adequate resources to properly provide Product Service to Lloyd’s Customers having regard to Lloyd’s Customers’ likely demand for service generally and, where appropriate, from time to time and from day to day.
Product Service – high Product Risk
CR 10.2
A managing agent must ensure that, in respect of a Product with a high Product Risk, that it does not impose unreasonable barriers (including by way of fees or charges) to requests or instructions from Lloyd’s Customers –
for information relating to a Product;
to cancel, terminate or switch Product; or
to amend a Product as may be appropriate;
and that responses are provided in a timely way.
CR 11: Product Service – Handling and Determining Claims
CR 11.1
A managing agent must have effective Product Controls which ensure that it handles claims from Lloyd’s Customers fairly. This must include –
ensuring that there are no unreasonable barriers to a Lloyd’s Customer making a claim;
handling claims promptly and fairly and in the way that the managing agent has led them to expect and, in particular (a) not unreasonably rejecting a claim, (b) not unreasonably terminating or avoiding a contract of insurance so as to unreasonably reject a claim or (c) settling claims promptly (either to the Lloyd’s Customer or to its agent) once settlement
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terms have been agreed; and
providing reasonable guidance to a Lloyd’s Customer (or its agent) about how to make a claim and then appropriate information on the progress of any claim made.
In so doing, a managing agent should have regard to the Customer Risk of the Lloyd’s Customer in question and adapt its claims handling approach accordingly.
Claims should always be fully investigated before any decision is made to reject a claim. A two stage claims process (i.e. one where claims are initially routinely rejected) must never be adopted.
CR 11.2
The delegation by a managing agent of the handling of a claim to another entity must have no adverse effect on a Lloyd’s Customer. Accordingly the managing agent must ensure that the entity –
is provided with sufficient information as to the managing agent’s expectations and requirements for the handling of claims; and
is properly managed and monitored by the managing agent.
Managing agents must comply with Lloyd’s standards for the management of external service providers as set out in the Claims Management Principles and Minimum Standards in this regard.
CR 12: Product Service – Complaints
CR 12.1
A managing agent must have effective and proportionate Product Controls to ensure that it handles complaints from a Lloyd’s Customer fairly having regard to their needs and reasonable expectations. This must include –
ensuring that that there are no unreasonable barriers to a Lloyd’s Customer making a complaint;
ensuring that a Lloyd’s Customer can make a complaint by any reasonable means and that this is made clear to those customers;
recording all complaints from Lloyd’s Customers accurately and consistently;
providing reasonable information upon request to the Lloyd’s Customer about the progress of a complaint;
ensuring that complaints are investigated competently, impartially and in a timely way and that underlying reasons for similar complaints (the root cause) are identified and addressed);
explaining decisions about complaints clearly to the Lloyd’s Customer having regard to the Customer Risk of the Lloyd’s Customer;
making fair offers of redress where a complaint is upheld; and
reporting complaints to Lloyd’s.
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In determining what does and what does not constitute a complaint, the managing agent shall have regard to the definition of complaint (or the equivalent term) in the territory in which the complainant is domiciled.
CR 12.2
The delegation by a managing agent of the handling of a complaint to another entity must have no adverse effect on a Lloyd’s Customer. The managing agent must ensure that the entity is –
provided with sufficient information as to the managing agent’s expectations and requirements for the handling of complaints; and
properly managed and monitored by the managing agent.
CR 12.3
A managing agent must ensure that complaints personnel are remunerated in a way which incentivises them to treat all complaints fairly.
CR 12.4
A managing agent must comply with Lloyd’s Code for Underwriting Agents: UK Personal Lines Claims and Complaints Handling and any other country specific complaints handling requirements which Lloyd’s may issue from time to time.
CR 13: Conduct Management Information
Managing agents may not currently be able or entitled to collect all of the elements of Conduct Management Information from Distributors that they may require to fully meet CR 13. Until 1.1.2016, managing agents must therefore use their best endeavours to comply with CR 13 using information that they are able or entitled to collect.
CR 13.1
A managing agent must be able to compile adequate Conduct Management Information for it to determine whether it is treating Lloyd’s Customers fairly at all times and, if it is not, what action needs to be taken by whom and by when.
CR 13.2
A managing agent’s Conduct Management Information must enable it to make good decisions with regard to Conduct Risk. The information must therefore be –
accurate, both with regard to quantitative and qualitative information;
timely and available sufficiently quickly after relevant business activity to enable the managing agent to take appropriate action where that is required;
relevant and proportionate to the Product Risks in question and focussed on outcomes for Lloyd’s Customers rather than process; and
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compiled on a consistent basis to enable the managing agent to spot trends and patterns over time.
CR 13.3
A managing agent’s Conduct Management Information must be –
available to and seen by all appropriate levels of management and, in particular, the board and any Product Oversight Group;
challenged by all appropriate levels of management;
analysed and monitored and where issues or problems are identified particularly with regard to a Product or a Product Review that has been undertaken; and
recorded, particularly to be able to provide evidence that actions have been taken to resolve problems and that those actions have been successful.
CR 13.4
With effect from 1.1.2016 a managing agent must ensure that a record of the names and addresses of the policyholders named in each Product (including Products underwritten through coverholders and service companies) is maintained which it can independently access at all times.
CR 13.5
A managing agent’s Conduct Management Information must enable it to assess the effectiveness of –
its Product Controls and their proportionality to Product Risk;
its Product Design;
its approach to sales and the provision of advice; and
its approach to Product Service including claims and complaints
and to assess its approach to strategy and establishing an appropriate corporate culture with regard to Conduct Risk generally.
It is essential that a managing agent carefully considers what Conduct Management Information will enable it to make good decisions with regard to Conduct Risk.
Table 1 provides examples of Conduct Management Information indicators that might be collected for Products with a high Product Risk in order to assess and analyse whether conduct outcomes have been achieved with regard to Product Design, Product Sales, providing ‘valuable’ cover, Product Service, claims and complaints. The term ‘leading indicator’ is used for forward looking information and ‘lagging indicator’ for information that looks back on events. Questions that the board, any Product Oversight Group and others might ask of these indicators are also set out.
Table 2 provides examples of Conduct Management Information indicators that the board and any Product Oversight Group might collect relating to the managing agent’s strategy and corporate culture with regard to Conduct Risk generally.
These tables are intended to provide a useful starting point when a managing agent is considering what information to acquire, record and analyse. However, the tables are not
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intended to be comprehensive or definitive. Consideration should always be given to the advantages and disadvantages associated with collecting and assessing each indicator in the context of a particular case.
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Table 1 – Example Conduct
Management Information
High Product Risk with a large
number of sales
Conduct outcomes
Management information indicators
What are the indicators telling us ?
Product Design
The needs and reasonable
expectations of Lloyd’s Customers
have been assessed and the
Product has been designed
accordingly
Leading indicators
To what extent was the input of
experienced Distributors
obtained and used in the design
of the Product ?
To what extent was market
research commissioned or focus
groups established in the design
of the Product ?
Was the Product referred to any
Product Oversight Group ?
Lagging indicators
Number and percentage of
Products ‘not taken up’ or
terminated during ‘cooling off
periods’
Review of customer feedback
Number and percentage of
Product complaints relating to
Product Design
Number and percentage of such
complaints upheld
Number and percentage of such
complaints referred to the
Financial Ombudsman Service
(or the equivalent overseas)
Number and percentage of such
complaints upheld
Number and percentage of
Product withdrawals relating to
Product Design
Estimate of resolution costs
relating to poor Product Design
including redress and
compensation payments, fines,
management time and external
costs
When was the last Product
Review
Do we have evidence of what
Lloyd’s Customers really value
and require of the Product ?
Has our market research given
us valuable insights into the
design of the Product ?
Are we sure that the lessons
learned from previous Products
are being used in the design of
this Product ?
Have we got the resources to
manage this Product ?
Is our Product Design effective
?
Did the output of our Product
stress testing match reality ?
Overall, what effect has any
poor Product Design had on
Lloyd’s Customers ?
How much has any poor
Product Design cost financially
?
Overall, how much has any
poor Product Design affected
our reputation ?
Product Sales
The Product is only being sold to the
Leading indicators
Number of Product sales
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Lloyd’s Customers for whom it was
designed
planned (by appropriate periods)
Number of Distributors (and
individual sales personnel) to be
authorised to sell the Product
Lagging indicators
Number of Products sold
(assessed against plan)
Reports of ‘mystery shoppers’
Reports of telephone monitoring
for telephone sales
Review of customer feedback
Review of Distributor audits
Number of complaints relating to
sales
Number of such complaints
upheld
Number of such complaints
referred to the Financial
Ombudsman Service (or the
equivalent overseas)
Number of such complaints
upheld
Number of Distributors de-
authorised to sell the Product
Imposition of penalties and claw-
back provisions with regard to
Sales Incentives
Do we really know how well our
Distributors are selling our
Products ?
Do we really know that our
Products are only being sold to
those for whom they were
designed ?
Providing ‘valuable’ cover
The Product will provide Lloyd’s
Customers with insurance cover on
which they can realistically claim
Leading indicators
Planned loss ratio for the
Product has been set which has
regard to the requirement to
provide ‘valuable’ cover
Lagging indicators
Actual Product loss ratio (and
compared to planned loss ratio)
Number of claims
Number and percentage of
claims initially denied
Number and percentage of claim
subsequently paid on escalation
Total claim payments compared
to commissions paid to
Distributors
Is this Product so highly
profitable that it calls into
question the value for money
for Lloyd’s Customers ?
Having reviewed these
indicators, would you still
personally recommend the
Product to a loved member of
your family ?
Would you still be content to
explain the performance of this
Product on a consumer
programme on primetime
television ?
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Product Service (information,
cancellation, amendment etc)
Lagging indicators
Number of requests for
information and correlation with
complaints
Number of requests to cancel or
terminate
Number of requests to switch
product
Average time taken to respond
Outlier times taken to respond
Review of quality of responses
Is the Product Documentation
clear ?
Is there a problem with the
Product’s Design ?
Do we have effective
arrangements and adequate
resources to provide Product
Service ?
Claims
Claims are handled promptly and
fairly and as Lloyd’s Customers have
been led to expect
Claims are not unreasonably
rejected
Contracts have not been
unreasonably terminated or avoided
Claims are settled promptly once
settlement terms have been agreed
Leading indicators
Planned level of claims
resources for a Product set
during Product Design
Planned timeframes (and other
service levels) for the
determination of claims set
during Product Design
Lagging indicators
Number of claims
Average time taken to determine
claims (and compared to
planned timeframes)
Outlier times taken to determine
claims
Average time taken to determine
claims by distributor or TPA
Level of call abandonment to call
centres
Number and percentage of
claims initially denied
Number and percentage of
claims subsequently paid on
escalation (including by
Distributor or TPA)
Number of contracts terminated
or avoided
Average time taken to settle
once settlement terms have
been agreed
Outlier times taken to settle
Reports of ‘mystery shoppers’
Reports of telephone monitoring
for telephone sales
Review of customer feedback
Review of quality of claims
Do we have enough trained
resource to determine claims in
respect of this Product ?
Paying valid claims is the
service we provide to Lloyd’s
Customers. Are we good at it ?
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correspondence and
communication
Complaints
There are no unreasonable barriers
to making a complaint
Complaints are investigated
competently, impartially and in a
timely way
Decisions about complaints are
communicated clearly
Fair offers of redress are made when
complaints are upheld
Leading indicators
Planned level of complaints
resources for a Product set
during Product Design
Planned timeframes (and other
service levels) for the
determination of complaints set
during Product Design
Lagging indicators
Number of complaints
Number of complaints per
Distributor
Number of complaints per
terrritory
Number of complaints upheld
Number of complaints referred
to the Financial Ombudsman
Service (or equivalent overseas)
Number of such complaints
upheld
Average time taken to determine
complaints (and compared to
planned timeframes)
Outlier times taken to determine
complaints
Root cause analysis of
complaints to determine
underlying reasons for
complaints
Time taken to adjust Product
Design to address root cause
analysis output
Estimates of resolution costs
relating to complaints
Number of arbitrations or court
proceedings brought by Lloyd’s
customers
Number of complaints
overturned by Lloyd’s
Policyholder and Market
Assistance Department at stage
2 of the Lloyd’s complaints
process
Do we have enough trained
resources to determine
complaints in respect of this
Product ?
What are we getting right and
what are we getting wrong (and
how can we use this in Product
Design) ?
How effective are we at
addressing customer
complaints ? Are we getting
better or worse ?
How effective are each of our
agents at addressing customer
complaints ? Should any of
them be de-authorised ?
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Table 2 – Example Conduct
Management Information
Strategy and culture
Conduct outcomes
Management information indicators
What are the indicators telling us ?
The fair treatment of Lloyd’s
Customers is central to the managing
agent’s corporate culture
Leading indicators
Examples where the commitment
to that culture has been set out in
presentations and
communications to employees
and to Distributors
Examples of where non-
executive directors have had
meetings with Complaints or
Claims department or visited
Distributors or made calls to call
centres
Lagging indicators
Examples where the board has
reviewed a failing Product and
withdrawn or amended that
Product due to Conduct Risk
issues
Would the Chief Executive Officer
be prepared to attest that the fair
treatment of Lloyd’s Customers is
at the heart of the managing
agent’s business ?
The managing agent provides
proportionate and fair Customer
Challenge with regard to the
managing agent’s business model
and syndicate business plans
Leading indicators
Evidence of Customer Challenge
in the agendas and minutes of
any Product Oversight Group and
the board with appropriate
evidence of follow up
Would the Chief Executive Officer
be prepared to attest that the fair
treatment of Lloyd’s Customers is
at the heart of the managing
agent’s business ?
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CR 14: Product Review
CR 14.1
A managing agent must conduct regular Product Reviews of all of its Products as may be appropriate having regard to their Product Risk.
With regard to Products with a high Product Risk, Product Reviews should be undertaken in accordance with the periods set as part of the Product’s Design. In addition, consideration may be given to conducting a post-launch Product Review.
CR 14.2
A managing agent must promptly conduct a Product Review where a material issue or problem has been identified relating to a Product.
In addition, a managing agent should consider whether a Product Review should be conducted where a material issue or problem has been identified relating to products of a similar type or there have been relevant regulatory or legal developments relating to the Product.
CR 14.3
Prior to commencing a Product Review, the managing agent must give careful consideration as to the appropriate scope of the review.
The scope should include whether or not –
the Product is meeting the needs and reasonable expectations of Lloyd’s Customers to whom it has been sold; and
Lloyd’s Customers have been treated fairly at all times. For a Product with a high Product Risk, the scope should generally also include –
a reassessment of the Product Risk of the Product;
consideration of the effectiveness of the Product Controls having regard to the Conduct Management Information relating to the Product;
deciding whether or not it is still appropriate to sell the Product and, if not, consideration as to what steps should be taken with regard to Lloyd’s Customers who have already purchased the Product;
deciding whether or not to change the Product Design;
considering what instructions or feedback should be given to Distributors of the Product; and
considering what information relating to the Product Review should be escalated to any Product Oversight Group or to the board.
Where a material issue or problem has been identified relating to a Product, the Product Review should generally include an analysis of the root cause of the issue or problem and set out what action needs to be taken by whom and by when to address the cause of the issue or problem.
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CR 14.4
The output of a Product Review must accurately and concisely set out any action that needs to be taken, by whom and by when.
CR 14.5
The output of a Product Review must be acted upon and any failure to act must be escalated appropriately within the managing agent.
CR 14.6
The scope and the output of a Product Review must be recorded in such a way that would enable a person who was not involved in the Product Review to understand, in broad terms, how the Product Review was conducted.
CR 14.7
The output of Product Reviews must be used as an input into the managing agent’s Product Design process so as be part of an effective feedback cycle.
CR 15: Distributor Appointment, Review and Audit
The term ‘Distributor’ includes coverholders and service companies. Distributors must be subject to appropriate due diligence before appointment and to subsequent review and audit after appointment. Guidance on effective due diligence and audit is contained in the Code for Delegated Underwriting and the Lloyd’s Model Audit Scope (see Lloyd’s Bulletin Y4770).
Due diligence before appointing a Distributor with regard to Conduct Risk
CR 15.1
A managing agent’s Product Controls must include appropriate and effective use of due diligence in respect of a proposed Distributor prior to their appointment in order to seek to ensure that they will pay due regard to the interests of Lloyd’s Customers and treat them fairly at all times.
CR 15.2
A managing agent must set and record an appropriate scope for the due diligence of a proposed Distributor having regard to the Product Risk of the Products that the Distributor will be selling.
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Consideration should be given, where relevant, to the Consumer Product Binding Authority Questionnaire (see Lloyd’s bulletin Y4770).
CR 15.3
A managing agent must ensure that the person selected to undertake the due diligence of a proposed Distributor has the necessary skills, competence and experience to do so.
In selecting the person to undertake a due diligence review of a proposed Distributor who will sell Products with a high Product Risk, specific consideration should be given to their –
experience of undertaking reviews of Distributors who will sell Products with a high Product Risk;
knowledge and application of these conduct risk standards; and
knowledge and application of the other regulatory requirements that apply to the Distributor and to the Products in the territory in question.
CR 15.4
The output of the due diligence should generally be a written report that provides the managing agent with an objective and evidence based assessment of the proposed Distributor with regard to Conduct Risk. Where the proposed Distributor will sell a Product with a high Product Risk, the report should also include –
the relevant matters in the Consumer Product Binding Authority Questionnaire;
the matters referred to in CR 7, 6; and
observations on the corporate culture of the Distributor with regard to Conduct Risk.
CR 15.5
A managing agent must give careful consideration to the due diligence report prior to appointing a Distributor. Where the proposed Distributor will sell a Product with a high Product Risk, the decision to appoint the Distributor should be taken by or in conjunction with any Product Oversight Group or with a person who is able to provide appropriate Customer Challenge.
Audit of a Distributor after appointment with regard to Conduct Risk
CR 15.6
A managing agent must establish and keep under review a programme for the audit of Distributors with regard to Conduct Risk. This programme should be reviewed at least annually and must seek to ensure that all Distributors are subject to regular and adequate audit.
The frequency of audit for any Distributor should have regard to –
the Product Risk of the Products sold by the Distributor;
the number of Products the Distributor sells;
the materiality of the Distributor to the managing agent; and
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an analysis of the Conduct Management Information relating to that Distributor.
CR 15.7
A managing agent must set and record an appropriate scope for the audit of a proposed Distributor having regard to the Product Risk of the Products that the Distributor will be selling.
CR 15.8
A managing agent must ensure that the person selected to undertake an audit of a Distributor has the necessary skills, competence and experience to do so.
Generally, an audit firm that was engaged to perform due diligence in respect of a Distributor or who has performed non-audit services for that Distributor should not be appointed to conduct an audit. Consideration should be given to rotating audit firms for a particular Distributor.
CR 15.9
A managing agent must provide the person selected to undertake an audit of a Distributor with all information necessary to conduct that audit.
The information is likely to include –
copies of any relevant previous audit reports;
copies of the relevant binding authorities;
information taken from the ATLAS system;
copies of the Distributor’s latest financial reports, licenses, CVs and example bordereaux; and
relevant Conduct Management Information relating to the Distributor.
CR 15.10
The output of the audit should generally be a written report that provides the managing agent with an objective and evidence based assessment of the Distributor with regard to Conduct Risk. Where the Distributor has sold Products with a high Product Risk, the report should also include observations on the corporate culture of the Distributor with regard to Conduct Risk.
CR 15.11
Where a managing agent maintains a panel of audit firms for Distributors it must regularly consider the suitability and effectiveness of each firm on that panel.
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CR 16: tpas
Managing agents are reminded that they must have regard to the provisions set out in CR 11.2 regarding the delegation of the handling of claims to a TPA.
CR 16.1
A managing agent’s Product Controls must include appropriate and effective use of due diligence in respect of proposed TPAs prior to their appointment in order to seek to ensure that they will pay due regard to the interests of Lloyd’s Customers and treat them fairly at all times especially with regard to Products with a high Product Risk.
A managing agent’s corporate culture must be based on winning and maintaining the trust and confidence of Lloyd’s Customers. A managing agent must ensure that that culture is supported by and reflected in the approach of its TPAs and accordingly, from time to time, the board should specifically consider all aspects of its use of TPAs.
CR 16.2
A managing agent must establish and keep under review a programme for the audit of TPAs with regard to Conduct Risk. This programme should be reviewed at least annually and must seek to ensure that TPAs are subject to appropriate audit having careful regard to Conduct Management Information relating to their performance especially with regard to Products with a high Product Risk.
CR 17: Training
CR 17.1
A managing agent must provide appropriate training about Conduct Risk and its approach to Conduct Risk to all of its officers and staff as they may each require. Particular consideration must be given to the training needs of –
the board and those undertaking controlled functions;
any Product Oversight Group and those involved in Product Design;
underwriters;
those involved in the handling and determination of claims and complaints; and
Distributors.
Consideration should be given to the following areas of training especially in connection with Products with a high Product Risk –
The board
industry best practice on establishing and maintaining a corporate culture which pays due regard to the interests of Lloyd’s Customers and treats them fairly at all time;
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regulatory trends and developments with regard to Conduct Risk wherever the managing agent conducts business worldwide;
the financial and reputational risks associated with conduct issues; and
case studies on Products that have caused material issues and problems.
Product design
regulatory trends and developments with regard to Conduct Risk wherever the managing agent conducts business worldwide; and
the regulatory and legal requirements for dealing with claims from consumers (for example, the Consumer Insurance (Disclosure and Representations) Act 2012 and the Unfair Terms in Consumer Contracts Regulations 1999.
Underwriters
training from those that handle and determine claims, complaints and litigation on Products that underwriters have underwritten;
the managing agent’s approach to the provision of Customer Challenge; and
regulatory trends and developments with regard to Conduct Risk worldwide.
Claims and complaints
the regulatory and legal requirements for dealing with claims and complaints from consumers;
decisions and information provided by Lloyd’s PAMA team; and
decisions, guidance and information provided by the Financial Ombudsman Service, the Financial Conduct Authority or other equivalent regulatory bodies.
CR 18: Miscellaneous
Contract certainty
CR 18.1
Each managing agent shall comply (and be able to demonstrate compliance) with the Contract Certainty Code of Practice, Principles and Guidance issued by Lloyd’s and the market associations from time to time.
Competition law and BIPAR principles
CR 18.2
Each managing agent shall comply with competition law and, in particular, with the BIPAR High Level Principles for the placement of a risk with multiple insurers.
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Business continuity
CR 18.3
Each managing agent must have in place adequate business continuity arrangements in order to undertake time critical aspects of Product Service should business systems, business premises or key personnel be unavailable for any material period.
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CR 19: Glossary
Add-on Product means a Product sold to Lloyd’s Customers as an add-on to a primary purchase;
Conduct Management Information means the information compiled by a managing agent in order for it to determine whether it is treating Lloyd’s Customers fairly at all times and, if it is not, what action needs to be taken by whom and by when;
Conduct Risk means the risk that a managing agent (or its agents) will fail to pay due regard to the interests of Lloyd’s Customers or will fail to treat them fairly at all times;
Customer Challenge means, with regard to a Product, providing proportionate and fair challenge and input from the perspective of a Lloyd’s Customer;
Customer Risk means the risks associated with the financial sophistication of a Lloyd’s Customer;
Distributor means an entity and the individual authorised (directly or indirectly) by a managing agent to enter into a contract of insurance or reinsurance on behalf of a syndicate (including the managing agent’s own underwriters where a Product is sold directly to Lloyd’s Customers and service companies and coverholders);
Lloyd’s Customer means a person who may make a claim on a contract of insurance underwritten in whole or in part by a Lloyd’s syndicate (or, as the context requires, a prospective Lloyd’s Customer);
Open Market Placement means where a managing agent is presented with a contract of insurance (or reinsurance) by a broker regulated by the Financial Conduct Authority acting as the agent (either directly or indirectly) of a Lloyd’s Customer in the placement of that contract;
Product Controls means the systems and controls that a managing agent has in place (both internally and at each Distributor) in respect of each Product that it sells in order to seek to ensure that due regard is given to the interests of Lloyd’s Customers and that they are treated fairly throughout the Product Life Cycle;
Product means, as the context requires, a contract of (re)insurance that is to be (or has been) underwritten by a syndicate managed by the managing agent in question or all such contracts to be underwritten in substantially the same form and manner;
Product Complexity means the risks associated with the intrinsic and relative complexity of a Product;
Product Design means in respect of a Product, identifying the type or group of Lloyd’s Customers to whom it will be sold and considering what their needs and reasonable expectations are likely to be and then, in that context, preparing an appropriate Product Documentation, determining how the Product will be sold, identifying suitable Distributors, determining what Product Service will be required and how this will be provided and designing effective Product Controls in respect of that Product which are proportionate to the Product Risk;
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Product Documentation means, in respect of a Product, the policy (including the relevant terms and conditions (wordings) and any supporting contractual documents) and sales and promotional documents;
Product Lifecycle means in respect of a Product, its Product Design, Product Distribution and Product Service;
Product Oversight Group means a group or committee established or designated by the board of a managing agent in order to contribute to the delivery of appropriate Customer Challenge, the analysis and reporting on Conduct Management Information and the review of regulatory developments with regard to Conduct Risk;
Product Review means, in respect of a Product, the reassessment from time to time of the appropriateness of the assessment of the Product Risk, the Product Design and the Product Controls having particular regard to the Conduct Management Information relating to that Product;
Product Risk means the Conduct Risk associated with a Product having regard to its Customer Risk, Product Complexity, Sales Risk and Service Risk;
Product Service means in respect of a product, how all post-sales interaction with the Lloyd’s Customer will be handled including handling requests for information, handling requests to amend, change or terminate the Product, making claims, making complaints and renewing the Product;
Sales Incentives means any remuneration or reward that Distributors (and their personnel) can earn from the sale of the Product in their capacity as agents of the managing agent;
Sales Risk means the risks of selling a Product to a Lloyd’s Customer to whom it was not intended to be sold or where it is unlikely to meet the Lloyd’s Customer’s needs and reasonable expectations;
Service Risk means the risks associated with not being able properly to provide a Lloyd’s Customer with adequate post-sales service; and
TPA means a third party (claims) adjustor.
