- Is The Underwriting Manager Really Conflicted?
- November 8, 2012
- Law Firm: Norton Rose Canada LLP - Montreal Office
What the underwriting manager is and does, is still misunderstood in the insurance industry. Although an underwriting manager is an intermediary it does not perform functions that a broker would on behalf of an insured. Crucially, the underwriting manager is an agent of the insurer only. Other intermediaries may perform a dual agency role when performing intermediary services. They are an agent of the insured and when they provide binder activities they are the agent of the insurer. This in itself may create a conflict.
The underwriting manager has always operated as an extension of the insurer. Although they are separate legal entity, they usually perform the functions in relation to a specific risk that an insurer would normally perform internally. The insurer decides to enter into this agency relationship because it does not have the internal technical expertise to perform the insurance functions necessary for that specific risk. The outsourcing to the underwriting manager is also considered more cost efficient. The insurer does not need to spend capital on developing systems, underwriting and claims processes in specialised areas.
The underwriting manager never sells policies to the public. It only receives business through an independent intermediary which is not an associate or from the actual insurer. Although it performs all its functions for the benefit of the insurer this is done within a specified mandate. All its actions are binding on the insurer. If there is any dispute relating to a policy, the insurer is responsible for all the consequences relating to providing policy benefits and to settling or rejecting of a claim. The insurer therefore gives a detailed mandate with the underwriting manager. In return for the underwriting manager can share in the underwriting profits.
When the underwriting manager does not perform in terms of its mandate there are consequences. Either the mandate is terminated or it may forego receiving profits. The policyholder however is never prejudiced because the insurer is always bound to perform in terms of the policy regardless of whether the underwriting manager has performed in terms of its mandate.
Although an underwriting manager is able to earn a profit from underwriting, profit share should not be determined by the rejection of claims. It is a function of good underwriting, reduced operation costs etc. The binder regulations illustrate how the regulator itself does not permit the underwriting manager to be conflicted and therefore it is allowed to earn a profit from underwriting. Other intermediaries may not share profits because of their broking role creates the conflict. The underwriting manager should never place itself in a conflict position and purport to represent the policyholder or charge the policyholder a fee.
The distinction between underwriting manager and independent intermediary will become clearer and everyone can come to understand the valuable role the underwriting manager plays as an important intermediary in the insurance industry.