Authority to Settle, Exposure to Explain: Pricing Delegated Claims Power in UK MGA Capacity Deals

In UK MGA capacity arrangements, claims authority is often discussed as a service feature rather than a risk in its own right. The binder sets out premium delegation and underwriting limits; the claims schedule confirms who handles first notification, who appoints adjusters, and who signs the cheque. That division is convenient, but it can obscure a more important question for capacity providers: where does operational claims dependency end and contractual claims authority begin?

The distinction matters because the two exposures behave differently. An MGA that investigates claims but cannot settle them without consent is operationally dependent. An MGA that can compromise, deny or make ex gratia payments within its own discretion holds a form of delegated power that can alter the capacity provider's legal and economic position. The first is a continuity question. The second is an underwriting question, and it is frequently underpriced in UK MGA deals.

The authority map: investigation is not settlement

Claims handling contains several separable activities. The MGA or its claims administrator may receive notifications, validate cover, set reserves, instruct loss adjusters, correspond with brokers and claimants, and recommend a outcome. None of those activities necessarily carries the authority to bind the insurer to a settlement.

A useful underwriting discipline is to draw an authority map with three columns: who investigates, who decides, and who signs. The map should identify monetary limits, aggregate caps, consent thresholds, escalation triggers, and any authority to issue a reservation of rights. It should also confirm whether authority is revocable, whether it survives termination of the binder, and whether payments are made from a claims fund, a delegated payment facility or the capacity provider's own account.

Where the same individual or team performs all three roles, the capacity provider is relying on internal controls rather than contractual checks. That may be appropriate for low-value, high-volume claims. It is less comfortable where the MGA has discretion over coverage positions, legal costs or ex gratia payments.

Where the intangible exposure accumulates

The most visible claims risk is leakage: paying more than the claim is worth. The less visible risk is authority risk: paying, denying or reserving in a way that creates a precedent, a conduct issue or a legal position the capacity provider did not intend.

Settlement limits are the starting point, but they are not the whole picture. A limit per claim may be undermined by aggregation across related claims, by authority over defence costs, or by discretion to waive subrogation. A reservation-of-rights practice may be technically compliant yet commercially significant if it is applied inconsistently. Ex gratia discretion is especially sensitive: a small payment made to close a complaint can be sensible, but a pattern of such payments can signal a conduct weakness and weaken future coverage defences.

These are intangible exposures because they do not appear as a single loss event. They accumulate in files, correspondence and management information. By the time they surface in a claims audit or a regulatory review, the capacity provider may be pricing a relationship that has already changed.

Separating dependency from authority

Operational dependency is easier to replicate than contractual authority. If a claims administrator is replaced, files can be transferred, systems can be migrated and staff can be TUPE-transferred or replaced. If contractual authority is poorly defined, the capacity provider may find that the MGA has bound it to settlements, compromises or coverage positions that cannot be undone by a service transition.

Underwriters should therefore ask a direct question: can the MGA commit the capacity provider without a second signature? If the answer is yes, the next questions concern scope, monitoring and remedy. Is authority capped per claim and in aggregate? Are there mandatory consent thresholds for coverage disputes, fraud allegations, litigation and ex gratia payments? Does the capacity provider receive sufficient data to test whether authority is being used within its terms? Are there audit rights, remediation obligations and indemnities that are enforceable in practice?

A 2026 checklist for pricing the gap

The following checklist is designed for UK MGA capacity reviews in 2026. It is not a substitute for legal review, but it provides a consistent underwriting frame.

• Authority matrix: Confirm who may investigate, reserve, negotiate, settle, deny and make ex gratia payments, with named roles and monetary limits.
• Consent thresholds: Identify claims that require capacity provider consent before settlement, denial, reservation of rights or appointment of external lawyers.
• Aggregation: Test whether per-claim limits can be aggregated across related claims, defence costs or a single insured event.
• Reservation-of-rights practice: Review sample files for consistency, timing and escalation to the capacity provider.
• Ex gratia discretion: Establish whether such payments are permitted, capped, reported and reviewed for conduct patterns.
• Claims fund controls: Confirm how payments are funded, reconciled and audited, and whether the MGA can pay without prior approval.
• Management information: Check that the capacity provider receives claims data at a frequency and granularity that allows authority use to be tested.
• Exit and revocation: Confirm what happens to open claims, pending settlements and delegated authority on termination or run-off.
• Conduct linkage: Consider whether claims authority interacts with Consumer Duty obligations, complaints handling and vulnerable customer policies.
• Audit remedy: Assess whether audit findings trigger remediation, authority suspension or premium adjustment.

Pricing the final signature

The underwriting response need not be a blunt restriction of authority. It can be a calibrated structure: lower limits for coverage disputes, mandatory consent for ex gratia payments above a threshold, enhanced reporting for reservations of rights, and a claims audit programme that tests the authority map against actual files.

What matters is that the capacity provider prices the power it has delegated, not merely the service it has outsourced. In UK MGA arrangements, the final signature is an intangible asset when it is controlled and an intangible exposure when it is not. The underwriting task in 2026 is to know which one is being bought.