Risk and Compliance
Seven simple checks to carry out a due diligence review on your insurer panel

27th November 2019

Seven simple checks to carry out a due diligence review on your insurer panel

This month, we have a guest feature from Barry Holmes, Head of Risk and Compliance at Iris Insurance Brokers of whom Blink Intermediary Solutions is a division.

As a responsible regulated broker, we aim to ensure we do the best for our clients, from pre-inception and throughout the life cycle of the policy, one area that has had much focus in the recent years and does not appear to be going away is the broker’s selection of the market it places their risks (the Customer) with.

As an insurance broker the FCA does expect firms to have systems and controls in place to ensure that all markets used are appropriate and have had a relevant risk assessment/due diligence completed for them.

The level of risk assessment/due diligence your firm undertakes will differ and is for your senior management and/or compliance functions to decide.

The common areas are:

1. Company Accounts

The first simple check is Companies House. Note if any red alerts are present and then a simple assessment of the accounts to ensure no red flags is key. A good idea is to talk to your accounts team or accountant about what to look out for.

With the implementation of Solvency II in the EU, insurers must comply with various requirements and the information available may provide a more detailed picture of a market.

A best practice option is to sign up for Companies House alerts for the company you’re dealing with alerting you to key events.

2. Regulatory Check

Make sure you review all elements of the FCA register record for the market, check for any disciplinary history, appropriate permissions, etc.

If you are placing Employers’ Liability insurance with the market, make sure they are listed on the FCA EL register, they are required to register and must do annual reporting.

3. Ratings

These are usually a simple self-registration with the top providers, then you search for free to ensure the ratings are acceptable to your firm.

You should assess the rating agency criteria and decide for your firm what is (a) acceptable (b) acceptable with additional controls (c) not acceptable/do not use.

4. Public Data

You can check the FCA register for certain management information relating to insurers or the insurer’s website because, if they have over a certain number of complaints, they must publish complaints data on their website.

Also consider looking at the Financial Ombudsman Service website for any reference to the insurer and historic complaints.

5Your own Questionnaire

Design your own questionnaire for common items you would expect them to have (eg BCP).

6. Advance Internet Search

This all comes down to your search criteria and there are various free online training courses that explain how to do advance searches.

You are looking for adverse information, other broker issues, customer complaints or regulatory investigations.

7. If not UK-based

If the market is not based in the UK, you will need to consider the country risk profile and assess different elements for this eg the Corruption Perception Index (CPI) or AM Best country ratings.

The key with all the due diligence your firm undertakes is to be able to evidence it. “If it is not written down or able to be produced in a durable medium, it did not occur” is what an auditor or regulator might say!

What is the risk?

What is the risk you are trying to mitigate or at least assess? In simple terms, the risk that the market will fail and put your customers at risk and, due to the nature of insurance, pay claims.

Who are you dealing with?

A common oversight is a broker not understanding who they are actually dealing with. Are they

(a) an insurer rated by one of the top agencies and ‘the money’ or

(b) a Managing General Agent or Underwriter (MGA/MGU) regulated by the FCA, but not ‘the money’. Its capacity is from insurers, who may or may not be rated.

If you are dealing with an MGA, your firm should consider enhanced due diligence (EDD) for this type of business flow.

Enhanced due diligence (EDD)
Although up to your firm to decide, a common approach is to get evidence in the form of a letter of authority from the insurer via the MGU on the insurer’s company headed paper, dated and signed by an authorised person and providing a summary of what the MGU can do. You can assess that they are not operating outside of this by the risk you will be placing with them. It should also provide confirmation that the insurer will honour all risks placed with the MGU.

This is not a ‘one off’ task as authorities expire, so you should review regularly.

Make sure MGUs have the relevant permissions as required by the FCA (check PERG in the handbook) and ensure that your client is aware and wants to proceed with the market selected.

Your firm will have clear procedures to ensure all markets information is shared clearly with the client. Again, this is not a ‘one off’ task and they should be advised of any material changes during your regular review of the market.

This is only a snapshot of some elements of dealing with markets, your firm should consider its own risk profile and business flow to ensure you undertake all required activities.

The FCA has a section on their website called ‘Insurance brokers due diligence on insurers’ and provides some examples.

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