To: All Broker Contacts All Company Contacts Lloyd s Managing Agents Software Providers Date: 12 February 2010 market communication Reference: 2010/031 Enquiries to: Xchanging Enquire Team, Chatham Tel: +44 (0)1634 887899 Email: enquire@xchanging.com RE: DEFERRED ACCOUNT SCHEME AVOIDING FUNDING OF INSTALMENTS The payment of premium in instalments is a concession by underwriters and only allowed with their agreement. Premium payable by instalments is normally processed under the Deferred Account Scheme as part of bureau processing services provided by Xchanging. Once a premium has been signed under the Scheme and the broker has committed to payment of the first instalment, the second and subsequent premium instalments are automatically debited from the broker s bank account on their due dates. The debiting occurs regardless of whether the (re)insured has paid the broker, thus on occasions forcing the broker into a funding scenario. This feature is unique to the London Market. The Boards of the IUA, LMA and LIIBA have reached agreement to amend the operation of the Market s Deferred Account Scheme. For risks attaching from 1 January 2010 and processed under the Deferred Account Scheme, a broker may instruct Xchanging to take action to delay payment of a second or subsequent premium instalment from the Scheme if they have not received funds from their client. Prior agreement from Underwriters is not required, but the broker is expected to confirm their action to the leading underwriter. Once the broker instruction is processed by Xchanging, all affected bureau underwriters will be advised of the revised (delayed) instalment payment date through the signing message or reports provided by Xchanging the morning after the broker instruction has been processed (as detailed on page 4 of this communication). Assuming the broker is in-funds by the revised payment date, no further action is required. Requests to delay funding of any instalment on risks attaching prior to 2010 will only be processed by Xchanging if evidence of the agreement of all underwriters is provided by the broker. Xchanging will also provide a monthly report to each market association listing those instalments which have been changed/delayed by individual brokers. The IUA, LMA and LIIBA, under the auspices of the London Market Group (LMG), will review these reports during the third quarter of 2010 to assess the operation of the revised arrangements. Xchanging Limited Registered Office 34 Leadenhall Street London EC3A 1AX UK Registered in England and Wales No. 3616858
Where instalments are paid by additional premium outside of the Deferred Account Scheme, underwriters agreement will still be required for any change, as per current market practice. Page 2 How Does a Broker Avoid Funding an Instalment Premium? The broker should endorse the Market Reform Contract (MRC) to the effect that the payment of the instalment is delayed by nominating a revised, later instalment settlement due date (SDD). This endorsement does not require underwriter agreement and the wording should also include a declaration to the effect that the broker confirms no part of their organisation in the UK or overseas is in possession of funds (refer to the requirement detailed in the IUA, LMA and LIIBA communications issued in November). The broker should submit the MRC endorsement to Xchanging for processing as a correction to the original transaction. The submission should be made electronically using the Insurers Market Repository (IMR) and follow standard A&S IMR procedures for correction submissions to ensure safe delivery into the Xchanging Workflow Control system. To ensure the submission is processed by Xchanging as a matter of urgency, the broker should follow the existing procedures for requesting urgent processing (refer attachment 1). In addition to registering the correction request for urgent processing, the broker should also send an email to the following mailbox, notifying the urgency: premium.corrections@xchanging.com. The email subject must state Urgent Correction to avoid funding of deferred instalment number X. The email must also contain the UMR and work package reference (for electronic items) of the affected entry. This will provide a back-stop process for notifying the urgent submission in the event that there are delays in submitting the full correction request work package. In order to avoid funding, the broker must ensure the submission is received by Xchanging no later than 15:00 hours 1, three working days prior to the payment date. Provided the submission is error-free (see exceptions listed later in this communication and attachment 2 for submission criteria), Xchanging will process the request on the same day. The effect of this will be to reassign payment (via central settlement) of the instalment to the revised settlement due date (or nearest working day after that). If a broker has processed a correction to the SDD and the premium has still not been received near to the date of the replacement SDD, then the broker may further delay payment of the instalment by repeating the above process. Instalments must be paid in order; so revision to an instalment SDD which results in the revised payment date falling after the payment date of the next instalment is not permitted. However, the broker may revise the SDD of the next instalment to ensure this situation is avoided. The process will not prevent the postponement of instalment SDD extensions beyond the expiry date of the contract therefore underwriters may wish to consider the practical implications for credit control when instalments are payable in arrears. 1 Xchanging reserves the right to change the 15:00 hours cut-off time in light of volumes experienced.
Page 3 In the event that an SDD instalment date is moved but funds are then received, brokers may wish to bring the SDD instalment date forward. In these circumstances a further correction will need to be processed. Electronic A&S IMR Correction Request Submissions The Additional Information section of the work order should make it clear that it is an urgent submission to avoid funding of an instalment premium. Brokers should make an allowance for any internal systems time lag between the broker technician releasing the submission from their desktop and the submission being received, validated and accepted into the Xchanging Workflow Control system. Submissions sent by brokers at 15:00hrs on the last day may not be received by Xchanging in good time to allow same day processing and avoidance of funding. For the avoidance of doubt, the date and time of receipt by Xchanging will be used as a basis for measurement of service level achievement. Best endeavours will be made to process instructions received after 15:00hrs. There may be some limited instances when it is not possible for the broker to submit the correction request using the IMR. These circumstances should be identified at the time of requesting urgent processing. In these cases, the broker is required to provide all submission details and documents (refer attachment 2) by email to the following email address: premium.corrections@xchanging.com These documents should be included in the notification email referenced earlier in this section. Fax submissions should only be by exception, with the prior agreement of Xchanging, ie when an IMR or email submission is not possible. Due to the expected urgent nature of these correction requests, no arrangements have been made to receive paper submissions. High Volume Brokers Xchanging recognises that some of the larger brokers may elect to provide significant volumes of instructions to delay payment of instalment premiums. It is in underwriters interests to allow the broker the longest possible time to make a judgement on whether or not to delay payment of the instalment and then to offer a process which allows them to act swiftly on their decision. In exceptional circumstances, and by prior agreement with Xchanging 2, a broker may avoid using the IMR submission method (detailed above) and instead replace this with email only notification to Xchanging. Brokers should note this method will not result in the submission entering the standard Xchanging Workflow Control system, consequently, this process attracts more inherent risk than the conventional IMR submission method described earlier. The broker will be expected to send a standard email (specimen enclosed as attachment 5) to the leading Lloyd s &/or Company Market underwriter(s) notifying their intent to delay payment of the instalment. This email should also be copied to Xchanging at: premium.corrections@xchanging.com 2 Xchanging reserves the right to refuse a broker the right to use this non-standard submission method.
Page 4 Simultaneous advice is expected to be the norm, but circumstances may exist where this is not the case. The email subject must state Urgent Correction to avoid funding of deferred instalment number X. The email must unambiguously detail all the critical information and references to allow Xchanging to revise the SDD and related payment date for the required instalment on the required premium transaction. On receipt, Xchanging will process the revision to the instalment SDD. Xchanging will not wait or look for any underwriter response to the broker s email. Xchanging will also publish the broker s email to Slip Documents section of the relevant IMR contract folder. What if revising the instalment SDD is not the appropriate method for avoiding funding? If circumstances dictate that the above method of notifying a revised instalment SDD is unsuitable, brokers should contact the Xchanging Enquire Team (contact details at the start of this communication) to discuss alternative processing options. There is an expectation that the broker will also contact the underwriter to discuss the proposed course of action. What confirmation or notification is issued by Xchanging? The correction to the instalment SDD and related central settlement payment date will be communicated in standard Xchanging broker and underwriter messages and/or reports. Xchanging will endeavour to include standard narrative in the underwriter s correction advice: CHANGE TO SDD INSTALMENT [X] TO DELAY BROKER FUNDING Lloyd s processing Brokers will receive a Bureaux Signing Message (BSM) advising cancellation and replacement transactions as a result of the change to the instalment SDD. Underwriters will be notified of the change to the instalment SDD and related central settlement payment date via a Lloyd s EDI Underwriter Signing Message (USM). This is issued the morning after processing of the broker instruction and represents no change to current practice of cancelling and replacing a previously advised transaction. This will be a chargeable correction. Xchanging will work with the LMA XRB to agree whether a change to the Lloyd s USM is required to allow explicit identification of such transactions and also to assess the case for introducing a standalone reporting service to identify all SDD changes; similar to that in place for Company Market processing. Company Market Processing When the instalment SDD is changed to avoid funding, this is processed by Xchanging as a SDD Amendment and is not notified in DSIGN, ILUCSM or BSM messages. ILU companies registered for the optional ILUCSC EDI message will be notified of the change to the instalment SDD in this message. Xchanging records show only a limited number of companies are registered to receive this message. For Company market processing, notification of SDD changes is also provided by the following reports (CSV files) which are distributed by email: DL5028 for brokers & DL6021 for ILU and LIRMA companies
Page 5 Those Company Market underwriters who do not receive ILUCSC EDI message and brokers are strongly encouraged to register for these reports to avoid being uninformed of the payment date change. Registration documents are enclosed as attachment 6. Impact on related/subsequent transactions When requesting the correction of a deferred instalment SDD, brokers must ensure that they consider the impact of such a change on any additional and/or return premiums that may have already been, or may in future be, submitted to Xchanging (including any that are currently with Xchanging for processing or are under query). Premium cannot be returned before it is paid. Where a return premium has already been signed by Xchanging, and a SDD instalment correction is requested on the original premium and/or additional premium to which it relates, the broker must simultaneously request correction to the return premium. Where the return premium is submitted to Xchanging on or after the correction is requested, the return premium LPAN must show the replacement instalment SDD date(s). Failure to do so will result in query and/or rejection by Xchanging and will delay the signing of the return premium. It is recognized that the funding position with regard to additional premiums payable by deferred instalments may be independent of that applying to the premium that is being, or has been, corrected; it does not automatically follow that an additional premium will be subject to the same funding issues. It is therefore the responsibility of brokers to ensure that any related additional premiums that have already been signed by Xchanging are updated where necessary. If the same funding position does apply to an additional premium that has not yet been signed by Xchanging, time permitting, it should be signed first and then corrected in order to ensure that insurers are advised of the change either by their signing message or by report. Exceptions Xchanging will reject the submission in any of the following situations: 1. The submission content does not conform to the requirements detail in this communication and related attachments. 2. The submission (or resubmission after a rejection) is received too late to avoid funding the instalment; including submissions received after the cut-off date/time, but before the original payment date. 3. The submission relates to reversing an instalment already settled with underwriters. 4. The endorsement within the submission does not explicitly state the revised instalment SDD and instalment number to which it relates. 5. The submission instructs Xchanging to delay payment of a first instalment. 6. The revised instalment SDD will result in instalments being paid out of order or an instalment breaching a premium payment warranty.
Page 6 7. The submission relates to a pre-2010 contract (unless full underwriter agreement is supplied). 8. The submission does not include the required document content (refer attachment 2). 9. Submissions made via email, paper, fax correction requests, except by prior agreement with Xchanging. The following attachments have been included with this communication: 1. Procedures for Pre-Registering Urgent Submissions 2. Submission to Xchanging - Detailed Explanation of Xchanging Submission Procedures 3. Specimen A&S IMR Work Order Content 4. Specimen Correction Request Form (for use with IMR submission method) 5. Specimen email notification to leading underwriter(s) and Xchanging (for use by high volume brokers and by prior agreement only) 6. a Fact sheet for DL5028 report (brokers) and DL6021 report (companies) b Registration form for DL5028 report (brokers) and DL6021 report (companies) ANTHONY CROYDON HEAD OF SERVICE INSURANCE SECTOR Enc