Creating an appetite statement with your Conduct Risk MI

FCA Scrutiny
In my last blog I, talked about involving the Coverholder in setting a workable appetite statement for Conduct Risk MI. I would actually go further, and this, I think, is where the next challenge in the MI collation stage is.
Written by Marcus Elwes
November 1, 2017
DAS Insight

Reading Progress:

Reading Progress:

Rather than Managing Agents simply seeking the data, consolidating it into a workable reporting format and then creating reports, including measurements against the appetite statement, for their Board, Risk Committee, Regulator etc., should they not be liaising closely with the Coverholder to report to them on the same basis?

Is that too much to ask?

Both Managing Agents and Coverholders should seek to be aligned in taking the time to understand the key, non-underwriting, performance indicators of their own book of business, as well as the (all important) underwriting performance.

In addition to the raw data (which it is accepted underwriters will need for their own reporting purposes), I would like to see a report from each Coverholder showing, on a periodic basis, at least the following;

  • actual policyholder numbers against estimated policy holder numbers – plus analysis of any variances;
  • levels of cancellation within cooling off period, against expected levels – plus analysis of any variances;
  • levels of cancellations outside of the cooling off period, against expected levels – plus analysis of any variances;
  • levels of retention/lapsing at renewal against expected levels– plus analysis of any variances;
  • levels of complaints against expected levels– plus analysis of any variances.

Importantly, this should be on a per product basis, rather than all facilities or classes of business being lumped into one. This, I suspect, is another mistake Managing Agents may be making at the moment, and can make the MI of little practical use. MI reporting should only be consolidated across Coverholders or facility operators if the product is fundamentally the same, otherwise I think you risk losing sight of the issues in amongst irrelevant data reporting.

Obviously, if the Coverholder or facility operator has claims handling authority, then I would want to see similar reports on claims handling, turnaround times, response times, claims declinature, policy interpretation disputes etc – all against expected levels. If the claims are handled by a TPA, then I would want to see this type of reporting from them (perhaps some are already doing this?). This will be the subject of a further blog from us in due course.

It is essential to establish ‘Expected levels’ at the inception of the facility as, without these, you are left with another subjective test – does that look about right? I am not sure this would give sufficient comfort to any of us, including regulators, about oversight of customer’s best interests!

Setting appetite statements around the ‘norms’ and or expected levels of activity is, I think, key to answering the question about what to do with MI. In many ways, our market set the cart off without the horse when they started asking their Coverholders for MI, without necessarily actually knowing why or what they were going to do with it once they had it…

As always, I would be interested to hear your thoughts. If you wish to discuss setting appetite statements around MI or any other aspect of the management of high conduct risk of delegated facilities, please contact us.

Marcus Elwes

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