The practice of ?delegated authority? in which insurance underwriters give brokers or managing agents the right to accept business on their behalf has come under fire.

The practice may have cost insurers billions of dollars over the years.

The controversial case of former Bermuda-based company Sphere Drake and Stirling Cooke Brown Holdings is a prime example according to a reinsurance consultant, who said that $25 million of premiums secured by Stirling Cooke ? now trading as Alphastar ? led to more than $250 million worth of claims for Sphere Drake.

Julian Ward, managing director of London-based JTW Reinsurance Consultants, told Lloyd?s List yesterday: ?Lack of due diligence in delegated authority is public enemy number one bigger than fraud even accounting for wasted billions of pounds over the years.

?The scandal is that no effective preventative action is being taken.

?Delegated authority counts for as much as a quarter of business in the London market, we estimate, and of that easily ten percent ends in tears.?

Delegated authority, also known as binding authority and colloquially called ?giving away the pen?, is where an underwriter allows a third party such as a broker or managing agent to accept business on his or her behalf. The underwriter is legally responsible for all of the liabilities arising, Lloyd?s List said.

Sphere Drake vs. Sterling Cooke Brown was said to be an example of poorly monitored and controlled binding authorities, Lloyd?s List said.

Mr. Ward, whose company works in the North American, Bermuda and UK market for insurers, said: ?It is a paradox that the very sector that deals in risk takes more blind risks than is reasonably decent and fair for its stakeholders.

?It is true that industry initiatives from Lloyd?s and the Financial Services Authority have been launched to try to address this problem. And there is a consensus that it is a good thing that insurance industry standards are being raised more to those of the banking sector.

?But the problem is that the measures so far introduced in the marketplace have been seen, in too many cases, as tick-box formulas.

?There would be far fewer problems with delegated authority if it were applied to appropriate classes of business, carefully monitored and policed and more regularly audited.

?The industry has forgotten the lessons of the past, seeing delegated authority as an easy route to premium income, and forgetting to put in the procedures and checks that should be in place right from the start.?