Operating in the Lloyd’s market brings many benefits to an insurance business. It also brings with it some extra elements of regulatory control. As with so many of the different regulations affecting insurance organisations, the level of detail and expectations in terms of operational processes can make staying on top of the changes almost a full-time task in itself.

Lloyd’s Minimum Standards MS9 – Customer is being updated with effect from 1 January 2019, consolidating a number of previous standards covering Claims, Conduct Risk, Complaints and Delegated Authority. Managing Agents need to be aware of the changes and consider them in the context of Lloyd’s stated aim to “to promote managing agents’ ability to deliver fair outcomes for Customers.”

The primary focus of the Standard is to ensure customers, wherever they are in the world, receive fair outcomes. The Standard talks about the need “to design and implement effective and efficient processes and controls to meet the Minimum Standards and requirements (as well as any other regulatory requirements); and ensure that their effectiveness is regularly reviewed.”

In our opinion, one specific benefit of the new Minimum Standards applies to those firms which operate in both the Lloyd’s and non-Lloyd’s market. The new outcomes-based approach provides more flexibility for firms and they should now be able to adopt more aligned processes across both parts of their business, thereby reducing the cost of compliance.

What is now covered by MS9?

Minimum Standard 9 covers 8 key areas that Managing Agents need to adhere to. These are:

1. Culture and strategy
2. Performance management and monitoring
3. Operational Management
4. Case Reserving
5. Product Assessment and Review
6. Customer Experience – Sales
7. Customer Experience – Post Sales
8. Third Parties and Outsourcing

With worldwide application, Lloyd’s has acknowledged the need for the Standards to be adapted to reflect ‘local regulatory requirements’, although it is no surprise that the structure closely reflects the UK regulatory environment.

What has changed?

This is an evolutionary change from Lloyd’s. There are no material new requirements and those changes that are introduced are sensible in our view, in that they drop certain specific requirements in favour of more general, broader principles and thus allow for a wider variety of possible processes to satisfy compliance.

Looking at the changes in detail, a few that caught our attention were:

• The requirement to maintain a specific Claims Business Plan has been removed in favour of more general objective and target setting that assesses business performance across claims, delegated authority, conduct risk and complaints.
• The requirement to ensure a Board commitment to use claims information as part of the business planning process has been replaced with a requirement that Managing Agents “have in place a suite of meaningful Management Information and Operational Reports” they can use to assess specific outcomes.
• There is a change to the language on staff remuneration. Previously, the requirement was only to ensure that complaints personnel were remunerated in a way that “incentivises them to treat all complaints fairly.” The requirement is now to ensure the remuneration of all staff “incentivises them to treat all customers fairly.”. Perhaps a change to discuss with your HR teams.
• A specific focus on data security and safekeeping of customer data has been introduced. This was previously covered under the more general Business Continuity Planning section.
• Specific requirements dealing with training, development and resourcing needs have been replaced with a more general expectation that appropriate training and development is a core element of delivering many of the new requirements. This is an aspect to discuss with your HR teams.

Lloyd’s have provided a full mapping of the old and new requirements to help Managing Agents understand what has changed.

The replacement of specific requirements with general principles should not be interpreted as a softening of the regime. Quite the opposite since this increases the difficulty of compliance by removing opportunities for a tick-box approach and ensuring the onus is ever more firmly on the firm to demonstrate (e.g. through management information) how its processes deliver effectively on these principles. It also widens the opportunity for enforcement by Lloyd’s. Managing Agents will need to reflect these changes in their procedural documents and regularly review the effectiveness of their processes against the backdrop of the updated Minimum Standard.

Alongside this continued strong focus on delivering fair outcomes for customers, it’s also worth noting that there has been a recent update to the Consumer Wordings Guidance issued by the Lloyd’s Market Association. It addresses the new terminology being used elsewhere in the regulatory landscape. One to be aware of when updating your own wordings, processes and guides.

If you would like to understand the implications of the updated Lloyd’s Minimum Standards for your business, please speak with Kenneth Underhill or Jason Jones in confidence.