What is delegated authority in insurance?
Delegated authority is an arrangement where a carrier (insurer) grants an MGA, coverholder, or broker the authority to underwrite policies, bind coverage, and sometimes handle claims on the carrier's behalf. The party receiving authority acts within agreed limits and reports back to the carrier via bordereaux.
Types of delegated authority
Delegated authority comes in several forms, each with different levels of authority and structure:
Binding authority
The most common form. The carrier grants the MGA or coverholder the authority to bind policies within agreed parameters: risk classes, territories, sum insured limits, and policy terms. The MGA can accept or decline risks without referring back to the carrier.
Lineslip
A pre-agreed facility where the carrier commits to accepting a percentage (a "line") on risks presented by the broker or MGA, provided they fall within agreed criteria. Common in the London market and Lloyd's.
Open cover
A standing agreement that automatically covers risks as they are declared, within pre-agreed terms. Common for cargo, transit, and marine insurance where risks are declared as shipments occur.
Facility
A broader arrangement that can combine elements of binding authorities and lineslips. Insurance facility management involves coordinating multiple participants, each taking a share of the risk.
Consortium
Multiple carriers participate on a shared programme, often with a lead underwriter who sets terms and follow markets who subscribe to a percentage. Each participant receives bordereaux proportional to their line.
Treaty & facultative
Reinsurance arrangements where a carrier cedes a portion of their risk. Treaty covers a defined book automatically; facultative covers individual risks on a case-by-case basis.
Key concepts
Operating within limits
The MGA or coverholder operates within limits set by the carrier. These typically include maximum sum insured per risk, approved risk classes (e.g. property, liability, marine), approved territories, and policy term limits. Risks outside these limits must be referred to the carrier for approval.
Participants and line percentages
Most delegated authority arrangements involve multiple carriers. The lead underwriter sets the terms and typically takes the largest share (line). Follow markets subscribe to smaller percentages. Each participant receives their proportional share of premium and bears their proportional share of claims.
Placing broker vs producing broker
In delegated authority business, two types of broker may be involved. The placing broker is the intermediary between the MGA and the carrier. They negotiate the binding authority terms and place the capacity. The producing broker is the intermediary between the insured and the MGA. They bring the individual risks to be bound under the authority.
Why delegated authority requires robust reporting
Because the carrier is entrusting another party to act on their behalf, they need comprehensive oversight. This takes the form of:
- Bordereaux: regular reports of policies bound, premiums collected, and claims incurred
- Financial controls: tracking premium flow from insured through broker and MGA to carrier
- Audit trails: complete record of underwriting decisions and claims handling
- Compliance monitoring: ensuring the coverholder operates within the agreed limits
Delegated authority management software like BBNET automates this reporting and oversight, giving carriers real-time visibility instead of quarterly snapshots.
Related terms
- What is a bordereaux?, the primary reporting mechanism for delegated authority
- What is an MGA?, the most common holder of delegated authority
- BBNET for carriers, how BBNET provides delegated authority oversight