Binding Authority

What is a Binding Authority?

A binding authority (also called a "binder") is a contractual agreement under which an insurance capacity provider — an insurer, Lloyd's syndicate, or group of syndicates — delegates the authority to underwrite and bind insurance contracts to a third party, the coverholder or managing general agent (MGA). The coverholder acts as the de facto underwriter for the delegated business, assessing risks, setting terms, collecting premiums, and issuing policy documents — all in the name of and on behalf of the capacity provider — without seeking prior approval for each individual risk.

The binding authority agreement defines the scope of the coverholder's delegated powers: the class of business that can be written, territorial limits, maximum line sizes per risk and in the aggregate, eligible risk types and exclusions, premium payment terms, and reporting requirements. The coverholder cannot write business outside these parameters; any risk falling outside the binder scope must be referred to the capacity provider for individual underwriting consideration.

Why Binding Authorities Are Used

Binding authorities are used extensively in the London Market and globally because they allow capacity providers to access distribution channels and specialist underwriting expertise that they could not efficiently provide themselves. A Lloyd's syndicate specialising in aviation hull reinsurance may lack the distribution infrastructure to access small general aviation business directly; a binding authority granted to a specialist aviation MGA solves this problem, giving the syndicate access to a diversified portfolio of business underwritten by specialists with deep market knowledge.

For the coverholder, binding authority relationships provide access to capacity at competitive terms, enabling them to operate as a quasi-insurer and build a scalable underwriting business without the regulatory requirements and capital obligations of holding a full insurance licence. The MGA model — typically built on binding authority relationships with multiple capacity providers — has become one of the primary structures for insurance entrepreneurship and specialty market innovation.

Regulatory Requirements and Lloyd's Approval

Coverholders operating binding authorities on behalf of Lloyd's syndicates must be approved by Lloyd's under the Lloyd's Coverholder Approval Process. This involves a detailed assessment of the coverholder's management, underwriting expertise, financial standing, IT systems, claims handling capabilities, and compliance framework. Approval is class-of-business specific and territorial, and must be renewed periodically. Lloyd's conducts ongoing oversight through its Delegated Authorities team, including regular audits of coverholder operations and bordereaux data quality.

Reporting Obligations Under Binding Authorities

The ongoing reporting obligations under a binding authority are substantial. Coverholders are required to submit premium bordereaux (listing all risks bound during the reporting period), claims bordereaux (detailing all claims activity on bound risks), and to provide premium accounts and settlement statements on agreed cycles. The accuracy and timeliness of these submissions is a core compliance obligation: persistent deficiencies can result in capacity providers imposing enhanced oversight, restricting the coverholder's authority, or ultimately terminating the binding authority arrangement. Automating bordereaux production from the coverholder's policy management system is therefore a critical operational capability for any binding authority business operating at scale.