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I10 Insurance Broking Fundamentals > 1 - Insurance broking market > Flashcards

1 - Insurance broking market Flashcards

1
Q

‘Insurance Broker’ under FCA

A

organisations that offer independent advice. FCA makes no distinction between ‘broker’ and ‘independent intermediary’

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2
Q

Intermediaries who are authorised to conduct insurance mediation ob behalf of a company (eg an insurer)

A

Introducer appointed representatives (IARs) or appointed representatives (ARs). Not truly independent, and not insurance brokers. For eg. solicitors, estate agents, travel agents, vets, etc.

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3
Q

Define ‘agent’

A

Under common law, someone that acts on behalf of another

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4
Q

What is agent’s role?

A

Authorised by their principal to bring them into a contractual relationship with a third party

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5
Q

Distinguishing feature of an insurance broker as an agent

A

They are introducing business to the third party, rather than their principal

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6
Q

Insurance Brokers (Registration) Act 1977

A

Made ‘insurance broker’ a regulated term. Was subsequently repealed so there is no legal recognition of the term.

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7
Q

Evolution of the regulation of the insurance market

A

Started self-regulated by an independent body - General Insurance Standards Council GISC

Then Financial Services Authority took over 2005 - 2013

Then FCA until today

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8
Q

What is an independent financial adviser IFA

A

Entity that transacts life insurance, pension and investment advice. Insurance brokers used to do this until regulation was brought in in 2001 to define IFAs

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9
Q

Who does a broker have a legal duty of care to?

A

Their principal.
The FCA also imposes rules on top of this.

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10
Q

Why have a broker? Convenience

A

Principals don’t have time to research/prepare documentation. Brokers can do this and can communicate between the principal and insurer.

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11
Q

Why have a broker? Expert knowledge

A

Broker has responsibility to ensure client understands product. Assocation of British Insurance ABI - 82% of all insurance business bought through brokers in 2012

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12
Q

Why have a broker? Independent quotation

A

Range of cover. Brokers have influence for more favourable terms

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13
Q

Why have a broker? Complexity of product

A

Brokers understand complexity and can negotiate combined policies, extensions etc. Some insurers only offer products if a broker is used.

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14
Q

Why have a broker? Assistance with claims

A

Not all brokers offer claims service.
Brokers do neogitate on clients behalf for a more favourable outcome

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15
Q

Why have a broker? Existing relationship

A

Clients stay loyal to brokers - especially in family businesses where they like a personal touch

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16
Q

Why have a broker? Other services

A

Brokers are increasingly offering wider services - makes it harder for client to leave

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17
Q

What contribution is general insurance to UK GDP?

A

1%

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18
Q

How much general insurance vs commercial insurance is manage by brokers?

What is the total premium for general?

A

General 70%
Commercial 87%
Total premium for general = GBP 62.4bn

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19
Q

How many people do British Insurance Broking Association BIBA employ?

A

100,000

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20
Q

What are the three major classes of business?

A

Personal lines, Commercial and Specialties

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21
Q

What is personal lines insurance?

A

Purchased by private individuals (defined as ‘consumers’ by the FCA) as acting outside their trade or profession

Brokers owe higher duty of care to consumer than commercial clients under FCA

Types: house, motor, private medical

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22
Q

What share of the commercial lines insurance market do brokers have?

What type of commercial lines insurance is bought through brokers?

A

ABI - 87%

Small commercial risks - directly

Complex commercial risks - almost exclusively via a broker

SMEs (< 10 ppl) less likely to use a broker for commercial lines

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23
Q

Specialties insurance

A

eg marine aviation construction

need broker - more complex, bespoke product

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24
Q

Variables that affect using a broker or not

Complexity of risk

A

Non-standard profile - not enough similar risks to establish a standardized UW approach

Complex - insurers might require a broker to understand the technical side of the cover due to specialist knowledge and explain to cover

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25
Q

Variables that affect using a broker or not

Size of risk

A

Higher sum insured - higher concentration of risk - insurer might require a broker’s involvement

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26
Q

Variables that affect using a broker or not

Location of risk

A

Insurers more likely to want a broker in high risk areas (flood plains) or where the client needs to provide risk data

Assets in multiple countries

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27
Q

Variables that affect using a broker or not

Availability of cover

A

Specialist insurances - eg K&R - need brokers/insurers with specific knowledge

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28
Q

How many broking firms are there in the UK

A

3500

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29
Q

Global firm

A

Large organisation growing through acquisition (turnover > 500m). Business global so needs brokers located globally

30
Q

UK only based firms

A

Most common in UK
Usually retail (direct client interaction)
Can be generalists or specialists in one niche

31
Q

Consolidators

A

Broking firms who grow by acquiring small brokers

32
Q

Niche sector businesses

A

Eg. delegated authority with an insurer

Likely to have exclusive access to one client base eg an affinity scheme

Will go to events that client goes to etc

33
Q

Wholesale broker

A

Nearest to the insurer
Another broker may be its principal (via a TOBA)

34
Q

How much of Lloyds business is reinsurance

A

31%
Largest class transacted in Lloyds
Lloyds is third largest reinsurer in world based on premium

35
Q

Why buy reinsurance?

A

Smooth peaks and troughs of claims
Protect the portfolio from certain perils
Improved customer service
Support insurers entering into a new market

36
Q

Types of reinsurers

A

Specialist companies who do not transact direct
Lloyds syndicates
insurance companies

37
Q

Reinsurance flow from client

A

Client - Insurer - Reinsurer - Retrocessionaire

38
Q

Online brokers

A

Mainly on the internet, low-cost, less complex, churn business where service is less important over price

39
Q

Lloyds brokers

What are the distinguishing diff from other brokers

A

Registered with Council of Lloyds who places additional regulation to that of the FCA

Diffs:
Market they operate in
Methods of transacting (f2f)
Types of risks (irregular)

40
Q

Legilsative Reform Lloyds Order 2008

A

Gives greater access to the market by other brokers who are not registered by Lloyds

41
Q

Managing agent - employed by? regulated by?

A

Established to manage UW of syndicate(s)
Appoints UWs
Regulated by PRA and FCA

42
Q

Lloyds code of conduct

A

Relies on FCAs - says it has to be minimum standards have to apply to all Lloyds brokers

43
Q

Contract certainty

A

Sending proof of cover
30 days from inception for most
5 days for some personal insurances

44
Q

Retail broker

A

closest to client. also a producing broker or a sub-broker

45
Q

Lloyds system for claims services

A

XCS Xchanging Claims Services
Lloyds central claims database, moves claim money

46
Q

Lloyds: % of risks that come from UK market

A

18%

47
Q

Broker networks

A

independent smaller brokers coming together to increase their buying power / better T&Cs for clients.

48
Q

Why segment business?

A

Better client service, cost effective

49
Q

Types of segmentation

A

By class of insurance
By trade (client’s sector)
By client size (SMEs vs middle market vs large/global)
Premium size

50
Q

Main broker services

A

Traditional broking

Risk Management - additional services to help reach risk management objectives (identify, evaluate, control and transfer). This can help bring down premiums if demonstrated to an insurer

Added value services - non-traditional solutions to manage risk

Services to insurers

51
Q

2017 FCA new regulatory rules on transparency for retail general insurances

A

need to treat customers fairly so.. at renewal you must

disclose last year’s premium
encourage them to check cover/shop around
if renewed 4 times, extra encouragement to check cover

price increases weren’t previously transparent so customers defaulted to products which were $ and not well suited

52
Q

Define risk management

A

Identification
Analysis
Economic control
of risks threatening assets/earning of an enterprise

53
Q

Ways to manage risks

A

Identify
Evaluate
Control and/or eliminate (via insurance)

54
Q

Added value services offered by brokers

A

Specialist consultancy services such as property surveys, business continuity planning, business interruption reviews, health and safety consultation, liability surveys, motor fleet risk management, environmental risk surveys, post-loss control surveys, disaster recovery surveys

55
Q

Services brokers offer insurers

A

Cost-effective distribution, technical expertise, checking and issuing documentation, collecting premium, administrative issues, dealing with client, claims management, client risk management, regulatory responsibility for sanctions checking and handling client money!

56
Q

What does the law of agency say about commission

A

Empowers consumers to request details. Brokers must disclose if a commercial customer

57
Q

Why might a broker earn more commission. When can conflicts of interests occur

A

on a delegated authority - for doing more work or if it is profitable, might cause conflict of interest

if they have a volume overrider / contingent commission arrangement paid on a whole account basis when profitable - sometimes not understood by clients, conflict of interest

58
Q

General IPT
Exceptions

A

General 12%
Sometimes 20% for travel

59
Q

Fees (paid by an insurer to broker)

A

For services to insurers - such as client behaviour data eg why didnt client accept their quote

Work transfer fees - for broker doing parts of admin

60
Q

Client service role

A

Activity for all brokers and their engagement with the client

61
Q

New business role

A

Focus on acquiring new clients

Usually segregated

People paid on basis of their performance

62
Q

Broking role

A

Usually client service staff also do this. Sometimes though you have placing brokers who only place the business.

63
Q

Claims role

A

Different depending on firms

64
Q

Loss assessor fee insurance

A

Services of a loss assessor then provided fee to an insured

65
Q

Management role

A

Ensure objectives are achieved
Brokers adopt different structuresC

66
Q

Compliance role

A

Making sure broking procedures are established correctly and monitored to adhere to regulatory requirementsP

67
Q

Product development role

A

Identifying gaps in product - sometimes client driven or driven by broker

68
Q

Back office role

A

finance IT HR Marketing

69
Q

Benefits of a broker to an insurer

A

Convenient - they do the admin, deal with complaints, present the risk information, ensure client understands product

Technical expertise - for complex products the client needs explaining of the product

Peace of mind - explaining consequences of not disclosing material facts

Cost benefits - delegate admin tasks

70
Q

British Insurance Brokers Assocation

A

Open to all independent intermediaries
Non-statutory trade association with more than 2000 members

Seeks to maintain high standards of business behaviour to protect and enhance interests of members and customers

71
Q

London Market Regional Committee

A

BIBA’s regional committee.

Maintains a lobbying role for the insurance broking sector to government / regulators.

72
Q

London and the International Insurance Brokers Association LIIBA

A

Independent trade body for insurance and reinsurance brokers

Overlap between LIIBA and LMRC

Ensuring London remains core hub of insurance by focusing on transformative processes and enforcing high standards

Represents brokers to government and regulators

Modernise processess / legislative technical changes / encouraging collaboration between Lloyds LMA and IUA

I10 Insurance Broking Fundamentals (1 decks)

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