Reviewed by
Darrel Pendry
Updated: 29 February 2024

What Does Coverholder Mean?

A coverholder is a party that helps insurance companies write policies, collect premiums, and perform other duties in markets that are outside the insurance company's headquarters or normal territory. Coverholders play a key role in helping insurance companies expand their operations and reach new markets or regions.

A coverholder can have full or limited authority to underwrite on behalf of the insurance company. This is known as a binding authority. If a coverholder has binding authority, it will usually issue the insurance documentation and handle claims. If the coverholder can also settle the claims, this is known as a claims authority.

The benefit of coverholders to insurers is that coverholders not only take some of the labor of expansion out of the insurer's hands, but they also bring extensive knowledge of the local territory. They are the trusted local connection between the market and insurance companies. Coverholders, meanwhile, also benefit tremendously from partnering with steadily growing insurance companies. Helping them expand into new markets can be very profitable and cost-effective due to the reduced overhead costs or opening their own offices locally.

Coverholders are often the first point of contact for clients and hold the client relationship which makes them vital to market growth. Typically a coverholder would be knowledgeable in the following areas:

  • Market features – demographics, economy etc.

  • Local regulations – rules, laws and unique regulations.

  • Competitors – other area insurance providers.

  • Customer preferences – rural needs, vs urban needs.

This expertise allows the insurer not only to expand but to improve the odds of engaging in a commercially viable expansion.

Insuranceopedia Explains Coverholder

As global expansion and mergers grow among insurance providers, Coverholders are playing a larger role in growing the market share. Let’s take the example of Lloyd’s of London as an example. Since Lloyd’s is a broker market, brokers who place coverage with a Lloyd’s must of necessity possess the needed skills to represent the market.

Historically, Lloyd’s brokers waited in line at a box at Lloyd’s in London to present the proposed risk they hoped to present with an underwriter. Once given the opportunity to do so, they would present the risk to the underwriter, who would accept it, reject it, or ask for changes in terms and conditions.

Over the years the placements at Lloyd’s have become a good deal more complex, and are no longer limited to brokers with slipcases full of papers standing in line waiting to physically sit down with underwriters. With the growth of Lloyd’s, they now do business on a global scale, and so do the brokers and broker/coverholders they deal with.

Broker/Coverholders are critical in the placement process for Lloyd’s. These dual-duty brokers are not only the agent of record for their clients, but also act on behalf of Lloyd’s underwriters. In other words, they can bind coverage immediately without going to London and waiting 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.”

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