The head of insurance supervision at UK regulator the Prudential Regulation Authority (PRA) has said the watchdog would probe deeper into the impact of facilities on carriers.

The move came after participants in a recent survey expressed worries about a lack of transparency and the potential for conflicts of interest.

In a 22 June letter to insurance CEOs, PRA director David Rule noted that most firms that took part in a recent market-monitoring exercise “had concerns about changing distribution channels”.

Worries included higher commissions, difficulties in exposure management and the implications of moving from case to portfolio pricing, he noted.

“Views differed as to whether broker-insurer facilities were significantly increasing acquisition costs. Some firms stated that increased commissions could be offset by a reduction in their own claims administration,” he wrote.

“However, a common point of feedback was the importance of managing the potential for conflicts of interest and transparency of commission arrangements. Several firms mentioned increases in different types of commission and fee arrangements that could be perceived as going against the benefit of the insured.”

Rule said that the PRA survey found that the Lloyd’s market is expecting the decline in open market placement and growth of delegated underwriting to continue.

He noted that a company’s distribution strategy is a “commercial decision, but it may have an impact on a firm’s ability to monitor, manage and assess risks”.

The regulator continued: “This is an area we will seek to understand in more depth as part of our ongoing reviews into the underwriting and exposure management of a number of firms in the London market.”

The PRA’s work on the area, which was revealed earlier this month by this publication, marks a change from a previous more laissez-faire approach to carriers’ arrangements with brokers.

The underwriting and exposure management review is one of several initiatives detailed in Rule’s letter.

The regulator is working with large carriers and zeroing in on a select number of lines of business.

Rule said the PRA is also looking at the impact on those firms of broker facilities, MGAs and other delegated underwriting arrangements in which they participate.

In these cases, “we will be assessing how they ensure that they understand the impact of business written on their overall risk profile and their results”, he wrote.

The PRA is also conducting a thematic review of distribution practices across smaller Lloyd’s managing agents.

This publication reported earlier this month that the PRA’s work on facilities and other underwriting practices will feed into separate studies the Financial Conduct Authority (FCA) is conducting on value in the insurance distribution chain and the wholesale insurance market, which are due to end in the business year beginning April 2018.

Facilities and rising acquisition costs are also expected to be one of the areas of the FCA’s focus.

Lloyd’s CEO Inga Beale has signalled that the Corporation will shift its syndicate oversight activity to focus on all elements of the combined ratio, rather than almost exclusively on the loss ratio.

In a half-yearly circular sent to the market earlier today, Beale said the move was designed to better protect the Central Fund in the current “challenging environment”.

However, at an individual class and aggregate level the Corporation will continue to focus on the loss ratio and downside risk management.

Beale also reiterated previously announced plans to spend more time helping underperforming syndicates to improve their underwriting performance while leaving the good performers to “get on with running their successful businesses”.

On acquisition costs, Beale noted that the Lloyd’s oversight team had collected data from a number of managing agents, and would soon contact the market on the next possible steps to help reduce costs across the entire value chain.

The Lloyd’s CEO also said that while progress against the Corporation’s objectives for 2017 had been “encouraging so far”, the fact that the market was expected to shrink this year and next showed there was still a performance gap to address.

In addition to improving efficiency, cutting costs and maintaining underwriting standards, Beale said that targeted market oversight, innovation and talent would be key to closing this gap.

She went on to reiterate an earlier pledge from the Corporation to conduct fewer minimum standards reviews and focus on high-impact areas, and to have fewer portfolio review classes.

Beale’s letter also detailed the strengthening of Lloyd’s capital position following the issuance of a £300mn ($382mn) Tier II bond and said that “good progress” had been made on the Target Operating Model (Tom).

At present there are 19 brokers and 80 carriers, including six MGAs, signed up for electronic placing, while more than 5,000 risks have been bound across three lines of business.

“We need to maintain this momentum. As new lines of business come online, I would encourage all of you to get on board. The more people use it, the more effective it will be,” she said.

The ability to process claims and premiums electronically had increased the “right first time” rate from 60 percent to more than 90 percent and speeded up the flow of funds to carriers by about 30 days, Beale said.

And next month structured data capture will be tested, which will help carriers reduce data capture costs and improve data accuracy.

Beale also referenced the Corporation Operating Model programme, which includes moving to an account management system for managing agents.

“A pilot scheme with six managing agents of various sizes is currently underway, and we aim to roll out account management to all managing agents by the end of the year,” she said.