Coverholder

What Does Coverholder Mean?

A coverholder is a party that assists insurance companies in writing policies, collecting premiums, and performing other duties in markets outside the insurance company’s headquarters or normal territory. Coverholders play a crucial role in helping insurers expand operations and access new regions or markets.

A coverholder can have full or limited authority to underwrite on behalf of the insurance company, known as binding authority. If a coverholder has binding authority, it typically issues the insurance documentation and handles claims. If the coverholder can also settle the claims, this is referred to as claims authority.

The benefit of coverholders to insurers is twofold: they not only reduce the insurer’s workload in expanding but also bring extensive knowledge of the local market. Coverholders serve as the trusted local link between the market and insurance companies. For coverholders, partnering with steadily growing insurers can be highly profitable and cost-effective, as it reduces the overhead costs associated with opening their own offices locally.

Coverholders are often the first point of contact for clients and maintain the client relationship, making them vital to market growth. They are typically knowledgeable in areas such as:

• Market features: demographics, economy, etc.
• Local regulations: rules, laws, and unique regulations
• Competitors: other area insurance providers
• Customer preferences: rural versus urban needs

This expertise allows insurers to not only expand but also increase the likelihood of a commercially successful expansion.

Insuranceopedia Explains Coverholder

As global expansion and mergers continue among insurance providers, coverholders are playing an increasingly important role in growing market share. A prime example of this is Lloyd’s of London. Since Lloyd’s operates as a broker market, brokers who place coverage with Lloyd’s must have the necessary skills to represent the market.

Historically, Lloyd’s brokers would wait in line at a box in Lloyd’s, London, to present the proposed risk to an underwriter. Once given the opportunity, they would present the risk, and the underwriter would either accept it, reject it, or request changes to the terms and conditions.

Over the years, placements at Lloyd’s have become far more complex and are no longer limited to brokers with slipcases full of papers waiting for a chance to meet with an underwriter. With the growth of Lloyd’s, the market now operates on a global scale, and so do the brokers and broker/coverholders who work with them.

Brokers/coverholders play a critical role in the placement process at Lloyd’s. These dual-duty brokers not only act as the agent of record for their clients but also represent Lloyd’s underwriters. This means they can bind coverage immediately without having to travel to London and wait to see an underwriter at the box at Lloyd’s.

Lloyd’s defines a coverholder, or “designated authority,” as a “company or partnership authorized by a managing agent to enter into a contract or contracts of insurance to be underwritten by the members of a syndicate managed by it, in accordance with the terms of a binding authority.”