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LONDON-Lloyd's of London is planning to reintroduce compulsory errors and omissions protection for agents and advisers in the market.

Lloyd's currently is exploring several proposals for financing the exposure, including various insurance options, and hopes to have an E&O program in force by the start of 1998.

Lloyd's suspended mandatory E&O coverage earlier this decade after E&O underwriters withdrew from the market due to mounting litigation against Lloyd's agents.

Lloyd's earlier this month began canvassing market participants for their views on its proposals.

Lloyd's noted that both its own underwriters and those in the company market are showing renewed willingness to underwrite a form of clerical E&O coverage-which would cover errors in policy wordings-that would cover some of the risk.

"There are signs of more comprehensive cover becoming available," Lloyd's added.

In addition to purchasing coverage in the market, other options being considered by Lloyd's include:

A "sinking fund" arrangement, in which premiums would go into a fund that would essentially provide policyholders with a line of credit. When a claim occurs, the fund would pay the claim and the policyholder would be required to pay back the amount over a specified time period.

A levy on syndicate premium volume. The proceeds of such a levy would then be used to capitalize a corporate syndicate or to fund a compensation plan.

A compensation plan based on the current Lloyd's Members' Compensation Scheme, which is a program funded by agents and designed to compensate members of insolvent agents.

Its advantage would be low start-up costs, as agents could make a modest annual contribution to establish a working fund, Lloyd's said. They could be called upon to make additional contributions should any claims exhaust the fund.

A two-tiered program, in which policyholders would fund a primary layer of coverage through some mechanism above which excess insurance would respond. This could result in reduced insurance costs because the compensation plan would meet the first layer of any claim, Lloyd's said.

The Regulatory Board has said that because any new plan would be compulsory for Lloyd's agents and advisers, it would have to meet the key criteria of affordability and availability.

Mandatory E&O coverage was suspended for members' agents in 1991 and for managing agents in 1992 due to problems with coverage availability and affordability. E&O underwriters, nearly all of whom came from Lloyd's, became unwilling provide coverage in the face of mounting losses from members' litigation against agents.

However, a 1995 Treasury and Civil Service Committee report on the regulation of Britain's financial services industry concluded that the lack of E&O insurance at Lloyd's was "a matter of considerable concern" that should be dealt with as a "priority."

The report said: "It is inequitable for names to trade forward with unlimited liability where even a simple clerical error could result in a major loss for the names without the availability of some form of cover."

As a result, Lloyd's 1997 Regulatory Plan called for the reintroduction of mandatory E&O coverage, prompting the current proposals from Lloyd's Regulatory Division.

Interested parties have until April 18 to submit comments to Lloyd's

Regulatory Division on the E&O proposals.