What is delegated authority?
Delegated authority is the contractual arrangement under which an insurer permits another party—typically a coverholder or Managing General Agent (MGA)—to underwrite business or handle claims on its behalf, within limits set out in a binder agreement. It allows insurers to write business in markets, products or territories they could not otherwise reach directly.
Key takeaways
- Delegated authority lets an insurer extend underwriting or claims authority to a third party.
- The party granted authority is usually a coverholder or Managing General Agent (MGA).
- Authority is set out formally in a binder agreement, which defines its scope and limits.
- The insurer remains liable for business written under delegation, which is why oversight matters.
Not every insurer can be present everywhere it wants to write business.
Delegated authority solves this by allowing an insurer to appoint another party to underwrite business, handle claims, or both, on its behalf—within terms the insurer sets in advance.
It is one of the foundational structures of the London Market, sitting behind a significant proportion of the business written each year.
Understanding it properly matters, because everything else in delegated authority—bordereaux, oversight, reporting—exists to manage the consequences of this basic arrangement.
How delegated authority works
At its core, delegated authority is a transfer of permission, not a transfer of risk.
An insurer, sometimes referred to as the capacity provider, agrees to let another party act on its behalf within defined boundaries.
That other party—usually a coverholder or Managing General Agent (MGA)—can then bind policies, collect premium, or handle claims as if they were the insurer, but only within the scope they have been given.
The insurer's own paper is used for the business written, and the insurer carries the risk. The coverholder or MGA is acting as an extension of the insurer, not as a separate risk carrier.
How authority has traditionally been granted and managed
Authority is formalised through a binder agreement (sometimes called a binding authority).
This document sets out exactly what has been delegated: which classes of business, which territories, what limits apply, and what claims-handling authority, if any, has been granted.
Traditionally, insurers have managed this relationship through a combination of the binder terms themselves, periodic audits of the coverholder's activity, and regular reporting—usually in the form of bordereaux—so the insurer can see what has actually been written or paid.
This oversight has always been manual and relationship-dependent, relying on experienced professionals reviewing activity against agreed terms.
Where the operational challenges begin
Delegation creates a layer of separation between the insurer and the point of sale.
The insurer is not present when a policy is bound or a claim is agreed—it only sees the outcome, usually after the fact, through the coverholder's own records and reports.
That separation is where most of the operational challenges in delegated authority originate: making sure the data coming back accurately reflects what was actually written, spotting activity that falls outside agreed terms, and keeping oversight current when dozens of coverholders may be reporting in dozens of different ways.
These challenges are explored in detail elsewhere in this knowledge hub—this article's purpose is simply to establish the model they all sit on top of.
Getting delegated authority right operationally
Delegated authority works well when three things are in place: binder terms that are clear and unambiguous, active oversight rather than one-off checks, and reliable, timely data flowing back from the coverholder.
None of these remove the insurer's responsibility. However much is delegated operationally, ultimate liability and governance remain with the insurer throughout the life of the arrangement.
Every other article in this knowledge hub builds on that principle.
Example
A Lloyd's managing agent grants a coverholder based in Singapore binding authority to write marine cargo business, up to a specified limit, within agreed classes and territories.
The coverholder binds policies directly with local clients under the managing agent's paper, operating within the terms set out in the binder agreement.
Each month, the coverholder reports the business it has written back to the managing agent via a bordereau, allowing the managing agent to monitor exposure, check activity against the agreed terms, and maintain oversight of business it did not directly transact.
FAQs
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Is a coverholder the same as an MGA?
The terms overlap considerably. Coverholder is the term most commonly used at Lloyd's for a party granted binding authority, while Managing General Agent (MGA) is a broader market term used across the wider insurance industry. In practice, many organisations operate as both.
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Does delegated authority mean the insurer has less control?
Not in principle. Authority is delegated within clearly defined limits set out in the binder agreement, and the insurer retains ultimate responsibility for the business written. Oversight of the coverholder's activity remains an ongoing insurer obligation, not a one-off handover.
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What happens if a coverholder exceeds their authority?
Binder agreements set explicit limits on what can be bound and on what terms. Business written outside those limits can create disputes over coverage and typically requires the insurer and coverholder to resolve the position, which is one of the reasons ongoing oversight matters so much.
