Unlocking Delegated Authority Debt

FCA Scrutiny
Effective data utilisation in credit control can drive tangible improvements to your bottom line. Michael Delaney outlines how DA Strategy’s expertise transformed the debt management approach of its Managing Agent clients
Written by Michael Delaney
April 29, 2024
DAS Insight

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Key Figures

USD 10 million+ Total predicted debt locked in one leading managing agent’s systems due to data and credit control challenges.
USD 2 millionThe largest single amount recovered from one of the MA’s accounts.
52 Managing Agents at Lloyd’s that need to investigate their data/debt challenge.

Topics covered in this blog:

  • The critical Importance of credit control;
  • Make a choice: Data or Debt;
  • Getting it right: The recommended DA credit control process;
  • Getting to grips with Bordereaux management;
  • A call to action for the DA market.

Key terminology

Difference: The difference between the risk and real payment data, this could be a positive payment figure or a negative debt figure.
Delegated authority credit control: This is a unique form of credit control due to what it is simply defined by: bordereaux. Insurance is bound to bordereaux, and thus bound to its management and quality. DA credit control is therefore defined by the quality and usage of the bordereaux received. 

The context:

Many managing agents (MA) and carriers are realising that DA credit control is not as simple as reconciling written and paid bordereaux. What is the point of bordereaux if they are not managed properly? DA Strategy (DAS) has the right experts and resources to make a real change to your DA credit control position. Our experience delivering results for a top 10 Lloyd’s Syndicate, speaks volumes  about the results we could deliver on your DA credit control position. This blog outlines the processes our expert team has refined to address the market’s data problem, and issues a call to action for the wider market to investigate their interlinked debt and data challenges.  

Scope

In early 2022 DAS embarked on a credit control project. Initially the scope was not credit control but to aid in bringing the MA’s databases up to date, sourcing and updating bordereaux. The update exposed a potential debt problem, sparking a need for a credit control project. DAS began by analysing the extent of the debt position for the entire delegated book. 

After analysis and discussion, the scope of our work was adapted  to focus on:

  • Binding Authorities where the MA was the lead.
  • Accounts from 2020-2022.
  • Accounts with a total difference of circa USD 150,000.

The project was adjusted to focus on debt at section level, this way the most granular analysis could be achieved. The project dialled into just under 600 sections, with an initial possible total debt figure of multiple USD tens of millions. 

Process

At the beginning, we established several key assumptions. These included: 

  • The internal financial system was correct 
  • The coverholders had systems in place that would prohibit overpayment

Therefore, the issue could only be a result of the MA’s data which was (the origin of the problem) or money was really owed. 

Thus, prior to taking action on the debt, we and our client had to address the importance of data management. Each account had to have at least eighteen months of bordereaux, allowing for all possible data to be captured. Then a full YOA analysis could begin. 

To start, a full review of the binder was necessary, checking for any provisions that would allow for a deduction in the total payment/premium. Examples of potential provisions that could have this affect are: 

Contract TypeProvisions affecting the debt/data issue
Binding Authority Agreement (BAA)
  • Portfolio transfers
  • Profit commissions
  • etc..
Endorsement
  • Extensions
  • Updates to signed lines
  • etc..

Our expertise in Delegated Authority (DA) allows us to have a greater understanding of the potential problem at hand. Broker or coverholder bordereaux are the foundation of credit control. They are the coverholder’s or broker’s statement of what should have been paid. In the analysis of bordereaux, the consultants started with the Year-to-date (YTD) bordereaux request, as stated above, or a compilation of all bordereaux if a YTD could not be provided. This data set is then compared directly to the actual paid amounts in the financial system.

The complexities of binders and endorsements needed to be accounted for in all internal processes that dealt with payments and bordereaux. This expanded collaboration was essential to the progress of the project. We worked closely with the underwriters who were gatekeeping endorsements and key information. We also joined forces with the bordereaux team to ensure the updates made their way into the report. Finally, close liaison with finance was necessary to ensure changes within the binder and the endorsements flowed through into the financial systems.

DA Credit flow

The diagram above allowed us to identify where possible issues in the chain might arise. As you would expect any link in the chain, from customer to MA has the potential to cause a problem with the flow and reporting of premium. Once the end to end process was completed, an understanding of the root problem was developed and adjustments managed for the future.

If there seemed to be an outstanding difference between the risk and payment position after the data in systems were updated and bordereaux appeared to be adequate, we initiated the debt collection (result of a cash owed position) or ‘data reconciliation’ (result of a cash overpayment position) process.

Although opposite on paper, the processes were rather similar. After peer review by DAS, we escalated the debt amounts to the underwriter. At this stage, many underwriters were confident enough to chase the difference on their own or alternatively the DA Team or we followed up with the broker. Debt chasing and data reconciliation would then involve a string of emails and calls on working through reconciliation and revision of figures on both ends to receive missing data/debt. Root causes were addressed and managed from this point forward.

Problems Faced

After a full analysis or deep dive into all contractual elements, the real problem within each section or facility, could be assessed and mitigated. In reality, many accounts that were initially ‘in debt’ developed into a risk data problem.

Diving into the bordereaux often made it clear that there were elements that had not been accounted for in the original BAA and any endorsements to the BAA. For example, bordereaux would often include risk data from outside of the binder inception period. This means that the risks bound would not actually be attributed to the true figure. Odd inception dates also caused a similar problem, confusing the systems that seem to be forever stuck on 1/1 inception dates.

We could often fix risk data problems with an updated bordereaux from the brokers. These would shine light on money that should have been allocated to this account. The updates in bordereaux also brought about problems. For example, an in-force bordereaux prevented accurate reporting, as risks would often attach and detach from the binder during the period. Updated bordereaux also highlighted breaches in contract. Occasionally, coverholders exceeded the GPIL or overwrote their EPI.

An initial lack of an updated DA data repository and granular reporting systems prevented updates to the overall report. For instance, a mid-term signing change had not been reflected in the correct repository resulting in an underestimation of the risk premium position by over $1.5 million. A simple change to the repository signing eliminated this difference.

Many issues resulted from input mistakes into key systems. For instance, a particular account had not been set up in DCOM (Delegated Contract Oversight Manager). This meant that the broker could not make payment in excess of USD 500,000, into the respective account. Discovery of manual issues such as these did not come easy. It required hours of work and multiple calls, which is why DAS offers a data management solution alongside our credit control and DUA services.

Our largest debt recovery on one account, contributed over USD 2 million to the MA. This was recovered after DAS consultants noticed that smaller signings had not been processed. Upon debt recovery, the broker was holding the smaller amounts to process all in one go. They had decided to do this to prevent additional workload to their team. However, in doing so the MA was missing this cash across two years of account.

Our project adapted once the ‘legacy’ (expired) accounts had been resolved, moving onto an ongoing debt reconciliation on active accounts. We helped develop continuous debt monitoring reports. Without the help of DAS the MA would not have been able to clear legacy debt as well as build tools to manage DA debt for the future and may have been continuously unsure and unable to allocate and retrieve the missing money.

Our Solution

DA Strategy has the correct expertise and experience to aid in building DA debt solutions. Our team of consultants continue to help a number of DA teams across the market. As I hope that we have outlined above a true credit control project does not deliver instant results! It takes time to establish the root cause or causes of the problems and develop key processes and capabilities. Our experience, time and time again, has shown that credit control is truly a data quality project with debt recovery.

These solutions inevitably require data reconciliation and thus a debt collection process as further issues are brought to the surface. Our work with a top 10 Syndicate client, demonstrated that these issues are not exclusive to any one MA. All MA’s deal with the same data, so all MA’s are likely to have similar issues.

A call to action for the DA market

Debt exists in all businesses and thus a credit control process must also exist. It is time for managing agents to build or enhance their DA credit control solutions. All delegated underwriting teams rely on broker bordereaux, yet the management of the same bordereaux can define the extent of and ease of resolution for their data/debt problem.

Credit control is a core capability that, in our view, should be implemented within every delegated authority team. We are currently implementing data strategy and risk management solutions with a number of clients.

Get in touch to find out how we can help unlock millions languishing in data/debt by implementing effective credit controls.

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