Are carriers really making the most out of delegated authority audits ?

Scoping out best practice

The London Market started conducting coverholder audits in earnest in 2003. Since then, the volume and detail of the audit process has increased with each carrier developing their own scopes initially, before Lloyd’s and the Lloyd’s Market Association (LMA) supported the development of a more consistent approach, in 2010, 2014 and more recently in 2018.

While these coverholder audit scope documents have brought much needed consistency to the approach, the frequency of new Lloyd’s / LMA scopes over the years have led many carriers to blanket cover everything. Subsequently, this has prevented a more targeted approach to auditing becoming embedded in the process.  Thus, the same audit scope is used across nearly all coverholders and MGAs, no matter how good their previous audit, the volume of risks written, or the issues raised in other, recent reviews.

Audit fatigue amongst many participants has also become an issue, particularly among underwriters, brokers and coverholders. We believe this needs to be challenged in order to make the most out of these important annual reviews and to find additional pockets of opportunity.

So, what is potentially being missed? 

As with any audit, any number of things could be missed depending on the level of engagement with the auditor. At DA Strategy, we’ve picked up on the following areas where things are potentially being missed:

• Culture: The culture of a coverholder, whether it is underwriting or distribution led, needs more focus. Operational morale and management approach are difficult to record in an audit report – not least because the reports are often shared with the coverholder, MGA and claims TPA post audit.
• Connectivity: Doing more to link knowledge across the business is an especially important consideration, particularly in larger entities. Delays in reporting risks on bordereaux (audit), poor reconciliation of claims loss funds (claims) and delays in payment (underwriting) are all really good examples of the sort of knowledge that should actively be shared. The more joined-up the approach, the better and more efficient the solutions.
• Underwriting: Underwriters should be more aware, for example, that while a coverholder’s operation is currently running fine, if it was to grow by 30% it would struggle. Knowing this, in turn, gives additional perspective on a proposed underwriting growth plan and likely better underwriting objectives.
• Claims: Morale, expertise and workloads are key factors which may be limited in the way that they are documented in a report.
• Conduct: Some stakeholders may not be aware of an IT project that the coverholder is undertaking. If shared this is an opportunity data sharing and hence better claims service, for example.

How do all stakeholders ensure they’re making the most out of their coverholder and claims TPA audit spend?

Engagement with the auditor shouldn’t go cold simply once the audit report has been submitted. By making some simple changes to the overall process, more information can be gathered and shared by a call with the auditor and key stakeholders. This will improve business decisions by delivering a more holistic view for underwriters, claims and others.

Post audit triage calls are one method which has been particularly effective in our experience. Communication is at the centre of this and it’s simply about getting everyone talking to each other, including the auditor. This is how we see this working in practice.