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DCS Specialist Audit DivisionWhether it is required by Lloyd’s, the FSA or merely as good business practice, the need for an independent specialist to review the operation of Delegated Authorities or undertake audits of Third Party Administrators is essential. With the increased regulation in the insurance sector comes an increased requirement for insurers who delegate their authority for underwriting, claims administration or both, to ensure the Coverholder acts responsibly and within the terms of the defined authority. In line with both FSA and Lloyd’s requirements, DCS have specialised audit products that address the key requirements of both bodies. To cater for these requirements, DCS has a specialist audit team providing 3 different audit services:
Claims This involves a review of the claims handling criteria, primarily with regard to adherence to the delegated authority, but also encompassing reserving philosophy, use of external service providers (solicitors, adjusters etc) and technical capabilities. In addition, with the introduction of the Compensation Act 2006, to regulate claims managements companies, it is probable some elements of claims management will require to be regulated. DCS will address the issue of whether or not the claims function falls within the Regulatory requirement and if so, will review compliance with these also. Underwriting We have undertaken a number of underwriting audits of Coverholders. In addition to addressing compliance with the terms of the Delegated Authority, our audits also consider adherence to the provisions of the applicable Rating Guide, reviewing such aspects as application of base rates, discounts/loadings, correct risk identification, wordings and endorsements. Our audits also consider the underwriting procedures in terms of the recently introduced Contract certainty requirements. RegulatoryCurrently, the FSA do not have specific guidelines on the auditing requirements of a third party other than to place the onus of responsibility on the insurer to ensure the Coverholder or TPA does not act in breach of their regulations. Specifically for Lloyd’s syndicates, we give consideration to the operation of a Binding Authority under the terms of the Lloyd’s Coverholders Handbook, Appendix 3 – Managing Agents’ code of practice for delegated underwriting. Section 3 of this appendix sets out the requirement for auditing delegated contracts and gives areas for key consideration for audit purposes. We comment specifically on those areas in order that the Syndicate can readily satisfy Lloyd’s of its compliance should that be required. The specific audit review requirements of Lloyds are:
Our Audits address these issues as well as the FSA regulatory issues to ensure that the Delegated Authority operates within these requirements. Specific review criteria include:
These criteria are included in a full report following our audit which will include copy of any appropriate documentation (such as the BCP and PI coverage), together with our general overview of the operation, our conclusions and recommendations we consider should be implemented. ReferencesClients that have used DCS for Audit work include: Beazley Brit Heritage Managing Agents SVB/Novae Ace Lexington W.R Berkley Please feel free to contact any of the above companies if you require further information of the services we provide. If you are interested in talking to DCS further about audit capabilities then please contact Neil Sully. |
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