On 9 September 2009 Lloyd's issued Market Bulletin Y4311 (click here to see a copy of the bulletin), informing the market that Lloyd's has published a Service Companies Code of Practice. Codes of practice are issued by Lloyd's under provisions in the Underwriting Byelaw and offer more detailed guidance to market participants on the standards Lloyd's requires them to meet.
Service companies are companies within the same group as a managing agent to which the managing agent grants a binding authority to enter into contracts of insurance under a service company agreement. A model service company agreement (LMA3078) was released in November 2008, although there is no requirement for managing agents to use that form.
The Code of Practice contains details of the application process and Lloyd's requirements for risk management, underwriting and claims management and reputation and brand issues. It also highlights the risk of financial crime where the policyholder deals through a service company rather than directly with the managing agent. Managing agents are expected to maintain a procedures document setting out the overall approach to managing and monitoring their service companies. The Code of Practice also requires a clear audit plan for all service companies.
The Code of Practice also contains clear guidelines on branding and regulatory issues, including the disclosures which services companies are required to make in policy and general corporate documentation, as well as on any website.
Lloyd's says that it intends to visit each managing agent that uses service companies during 2009 (and at regular intervals after that) to understand and discuss how the service companies, and the delegated authorities, are being managed.