Conflicts of interest

Key definitions

Conflict of interest: When an organisation or an individual has competing interests, which might impair its or their ability to make objective, unbiased decisions.

Why guidance is needed

Third parties such as coverholders, Delegated Claims Administrators (DCAs), service companies and brokers acting for Lloyd's in overseas territories are subject to all relevant local laws and regulations, including those regarding conflicts of interest, which this guidance does not alter. Therefore, these third parties must understand and comply with all applicable conflict of interest laws in their home and any other operating jurisdiction.

Lloyd’s requirements

Third parties that are required to sign the standard Lloyd’s Undertaking are required, through their undertaking to Lloyd’s, to "manage any conflicts of interest between ourselves, our customers, and Lloyd’s Managing Agents in a fair and open way”. Key considerations include:

• How actual, potential, or perceived conflicts are identified, declared, recorded, and monitored.
• How conflicts are managed including segregation of duties
• How often are staff trained and reminded to declare conflicts.

Coverholders are required to declare to Managing Agents of any conflicts of interest they have identified internally.

Lloyd’s expectations for managing agent oversight

Third parties are required to identify and disclose any real or perceived conflicts of interest and must have appropriate policies and procedures in place to identify, monitor and manage them.  Managing Agents must ensure third parties have controls in place to support this. Managing agents must also ensure that the binding authority doesn’t create any additional conflicts of interest. Where this might be the case, a plan must be implemented and compliance with the plan monitored by the managing agent.

Examples of where conflicts of interest may arise when dealing with third parties, include but are not limited to:

• Lack of segregation of underwriting, claims and complaints staff
• Broker and coverholder activities performed by the same entity
• Insurer owning or part owning a third party
• Multiple contracts of delegation for same product

Other contractual considerations

Managing agents may want to include some language into the contract of delegation of underwriting to cover how conflicts of interest may be managed.