We trialled the new Lloyd’s audit scope across 25 binders, placed through 5 entities, and found it to be far more focused on the risks of transaction business via Binding Authorities.
Lloyd’s Coverholders vary widely around the world. From multinational brokers servicing a wide range of classes, to small firms offering specialist coverage. All must pass a rigorous audit and compliance process to retain their coveted ‘Coverholder at Lloyd’s’ status. But up until recently, this process has tended to be something of a one-size-fits-all approach, until now….
Making London more attractive for Coverholders and taking a more ‘risk based’ approach is at the heart of a new Lloyd’s Audit Scope.
Intended to replace the 2014 V2 Coverholder Audit Scope, this new system has been over a year in the planning, having been piloted in 2017. It’s a big step change and due for roll-out in early 2018.
The earlier Audit Scope was essentially a question set - 288 to be precise - that did not change year-on-year and were not all necessarily relevant for each Coverholder’s business. Many considered this approach to not only be repetitive, but also onerous; whilst Managing Agents did not necessarily gain the information needed to manage their delegated underwriting, as evidenced by an increase in supplementary information being submitted.
A more focussed approach
Here at Pro, we trialled the new Audit Scope on a coordinated audit of a London broker across 25 binders placed through 5 entities. This audit was conducted in phases over a 6-week period and we found it to be a far more focussed approach.
The new Scope is a more purposeful investigation of a Coverholder’s control environments and risk assessments, with an emphasis on the auditor gaining evidence and delivering a detailed gap analysis.
Instead of being presented with the same list of questions each year, this Scope allows the Managing Agent (and the Auditor) to refine their focus between audits, leverage their expertise to target specific areas that were flagged for improvement or understand any issues that maybe a cause for concern. Additionally, the new Scope encourages a mindset of investigation, encourages auditors to ‘follow their noses’ and use instinct to delve further into the business.
This updated approach is also good news for carriers seeking increased oversight on Coverholder risk. It represents a truly fit-for-purpose audit that is as applicable to large multinational Coverholders as it is to the smallest operations where insurance may not even be the primary focus of their business.
Retaining London’s attractiveness
The London market needs to retain and increase its attractiveness to international Coverholders. A large part of this involves cutting out duplicative, time-consuming compliance processes and replacing them with a more refined approach that delivers value to both principal and agent.
As the global regulatory environment tightens and becomes more standardised - it requires a more agile, proactive approach to compliance and audits. Watch this space for further analysis of its implications for our market.