Proactive Audits and Delegated Authority: the Next Wave of Market Risk

At Pro Global, we recognise that while delegated authority business offers considerable potential – by enabling syndicates to diversify portfolios, expand distribution networks, and access niche markets – its management presents unique challenges. There are some areas of concern about risk selection, pricing accuracy, and real-time data quality highlight the importance of proactive oversight. It’s not enough to respond when problems arise; insurers must get ahead of potential issues through regular and thorough audits. 

Delegated Authority: A Double-Edged Sword 

Delegated authority business has long been a key growth engine for the Lloyd’s market. As Rachel Turk, Chief Underwriting Officer at Lloyd’s, emphasised during the recent market briefing, approximately 39% of the market’s gross written premium comes through delegated arrangements, excluding service companies. However, this scale of business requires effective oversight in order to be properly managed. 

In the past, inappropriate risk selection, unrealistic pricing, and inadequate terms and conditions have plagued poorly managed delegated authority relationships. These shortcomings not only threaten profitability but also erode trust in the market’s ability to maintain underwriting discipline. The risks of mismanagement are magnified in periods of economic or environmental uncertainty, where even slight missteps can cascade into significant losses. 

The lesson from 2013-2019 is clear: failure to rigorously monitor delegated business leads to deteriorating loss ratios. To prevent history from repeating itself, Lloyd’s has placed a renewed emphasis on selecting the right delegated authority providers and ensuring continuous oversight. This is where proactive audits become indispensable, combined with other forward-thinking oversight tools including ongoing due diligence and pre-inception auditing – the latter is particularly critical for establishing a new delegated authority relationship on the right footing with full oversight and compliance factored in from the outset. The key is to avoid a situation where insurers a forced to react to issues that they had not spotted.  

Proactive Audits: Identifying Issues Before They Snowball 

At Pro Global, our approach to delegated authority business is built around the principle of proactive audits. We understand that waiting for issues to surface is not an option in today’s fast-paced and data-driven environment. Instead, we advocate for a robust audit framework that focuses on identifying and addressing potential issues early, before they snowball into regulatory headaches or financial losses. 

The emphasis Lloyd’s is placing on real-time performance data is particularly noteworthy. Historically, the provision of out-of-date bordereaux data has been a persistent issue. It is unacceptable, for instance, that in 2024, syndicates are still receiving data that is not current. This delay undermines dynamic portfolio management and leads to decisions being made based on incomplete or outdated information. 

Pro Global’s audit solutions are designed to tackle this very challenge. We have developed methodologies that enable insurers to assess data quality in real time, ensuring that they have the information necessary to make informed decisions about their portfolios. By focusing on the timeliness and accuracy of data, we help clients stay ahead of the curve, enabling dynamic adjustments to risk selection and pricing as market conditions evolve. 

Data Quality and Real-Time Oversight 

A central theme in Lloyd’s renewed focus on delegated authority is the demand for high-quality, real-time performance data. The insurance market has seen a surge in data availability, but the challenge lies in ensuring that this data is accurate, relevant, and delivered on time. 

Out-of-date data has been cited as a key pain point for syndicates trying to manage delegated portfolios. Poor data not only hampers decision-making but also obscures the true performance of delegated authority arrangements. At Pro Global, we understand that data is the lifeblood of effective portfolio management. That’s why our audits place a strong emphasis on data integrity—ensuring that our clients have access to timely and accurate information that allows for real-time course corrections. 

The goal is not simply to tick boxes during audits but to deliver actionable insights that can improve business outcomes. By integrating real-time data into the audit process, we help insurers identify underperforming providers quickly and exit them before they cause further damage to the portfolio. This proactive approach aligns with Lloyd’s call for syndicates to maintain clear strategies for selecting, overseeing, and managing their delegated authority providers. 

Managing Risk, Maximising Opportunity 

Delegated authority business, when well-managed, can be a powerful tool for innovation and growth. It is true that thoughtful delegation can bring greater efficiencies, enhanced modelling, and alternative access to business. MGAs and coverholders have long been a source of innovation, allowing new ideas to reach the market faster and with lower risk for insurers. 

However, this innovation must be balanced with stringent oversight. As the market continues to evolve, the regulatory landscape is becoming more complex, with increased scrutiny on governance, data quality, and performance management. Insurers that fail to adapt to these changes risk falling behind. 

Staying Ahead of the Curve 

Lloyd’s renewed focus on delegated authority oversight is a clear signal to the market that complacency is not an option. While the market is currently enjoying strong performance, history has shown that poor oversight of delegated authority business can quickly erode profitability. At Pro Global, we are committed to helping insurers navigate these risks through proactive audits, real-time data quality assessments, and robust performance management strategies.  

Our experience in auditing and advisory services has given us unique insights into the challenges of managing these relationships, and we are committed to helping our clients stay ahead of the curve. 

By getting ahead of potential issues and addressing them before they escalate, insurers can safeguard their portfolios and maintain the trust of regulators and stakeholders alike. In a market where performance oversight is increasingly scrutinised, staying proactive is not just a best practice – it’s a necessity.