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🔎 '''Delegated authority audit''' is a formal review process through which an [[Definition:Insurance carrier | insurance carrier]] or [[Definition:Lloyd's of London | Lloyd's]] [[Definition:Managing agent | managing agent]] examines the operations, controls, and compliance of a third party — typically a [[Definition:Coverholder | coverholder]], [[Definition:Managing general agent (MGA) | MGA]], or [[Definition:Third-party administrator (TPA) | third-party administrator]] — that has been granted [[Definition:Delegated underwriting authority (DUA) | delegated underwriting authority]] or [[Definition:Claims authority | claims-handling authority]]. Because the insurer remains ultimately liable for the business written or claims settled on its behalf, these audits serve as a critical governance mechanism to verify that the delegate is operating within the boundaries of its [[Definition:Binding authority agreement | binding authority agreement]] and adhering to agreed-upon standards.

📊 The audit process typically encompasses several domains: [[Definition:Underwriting | underwriting]] practices and adherence to risk appetites, [[Definition:Pricing | pricing]] consistency with approved rating methodologies, [[Definition:Bordereaux | bordereaux]] accuracy and timeliness, [[Definition:Premium | premium]] collection and remittance, [[Definition:Claims management | claims handling]] procedures, [[Definition:Regulatory compliance | regulatory compliance]], and data quality. In the Lloyd's market, the [[Definition:Lloyd's delegated authority framework | delegated authority framework]] sets minimum audit standards and frequencies, often requiring on-site reviews at least annually for material relationships. Audits may be conducted by the carrier's internal team, by specialized external firms, or through a combination of both. Findings are documented in formal reports that assign risk ratings and identify required corrective actions, with follow-up timelines tracked to closure.

✅ Robust audit programs protect insurers from the operational, financial, and reputational risks inherent in delegating authority to external parties. When a coverholder deviates from its agreed [[Definition:Line guide | line guide]] or misclassifies risks, the consequences — from deteriorating [[Definition:Loss ratio (L/R) | loss ratios]] to regulatory sanctions — ultimately fall on the capacity provider. High-profile failures in delegated authority arrangements have prompted regulators, including [[Definition:Lloyd's of London | Lloyd's]] and various [[Definition:Department of insurance (DOI) | state insurance departments]], to tighten oversight requirements in recent years. Increasingly, [[Definition:Insurtech | insurtech]] solutions are augmenting traditional audits with real-time data monitoring, automated bordereaux validation, and [[Definition:Artificial intelligence (AI) | AI-driven]] anomaly detection, enabling carriers to identify problems between scheduled audits rather than discovering them months after the fact.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Delegated underwriting authority (DUA)]]
* [[Definition:Coverholder]]
* [[Definition:Binding authority agreement]]
* [[Definition:Managing general agent (MGA)]]
* [[Definition:Bordereaux]]
* [[Definition:Lloyd's delegated authority framework]]
{{Div col end}}

Definition:Delegated authority audit - Revision history

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