2 - The Insurance Market

Question 1

List the 5 main participants of the insurance market?

Answer 1

• Buyers
• Insurers
• Intermediaries
• Aggregators
• Reinsurers

Question 2

Which bodies authorise company’s to transact insurance?

Answer 2

Financial Conduct Authority (FCA)
Prudential Regulation Authority (PRA)

Question 3

An insurer that provides insurance cover to its parent company is known as a

Self-test questions

Answer 3

a. captive insurer
b. mutual company
c. proprietary company
d. reinsurance company

Question 4

(17) Mark receives policy documentation for his motor insurance policy which shows the premium as £100 and shows an additional amount for Insurance Premium Tax (IPT). How much IPT will be
charged on the premium?

iF1 Exam 2023

Answer 4

A. £5
B. £12
C. £15
D. £25

Question 5

Four benefits of captive insurance ownership?

Answer 5

• Tax efficient way of transferring risk
• Full benefit of the group’s risk control techniques by paying premiums based on its own experience
• Avoiding the payment of extra premiums to meet the insurers overheads
• Obtain a lower overall risk premium by being able to place certain risks in the reinusrance market

Question 6

Which five islamic principles should Takaful insurance embrace?

Answer 6

• Mututality & Cooperation
• Shared Responsibiltity
• Joint Indemnity
• Common Interest
• Solidarity

Question 7

Park Place Veterinary Surgery require insurance to protect the partners against professional negligence claims. They are most likely to arrange this through:

Self-test questions

Answer 7

a. a composite company.
b. Lloyd’s
c. a specialist insurer
d. a limited liability company

Question 8

(18) Who owns a captive insurance company?

iF1 Exam 2023

Answer 8

A. Employees
B. Parent company
C. Policyholders
D. Shareholders

Question 9

(19) The main financial advantage for an insurer that operates on a direct basis is that it

iF1 Exam 2023

Answer 9

A. can charge higher premiums
B. does not have to pay commission charges
C. incurs smaller advertising costs
D. receives fewer claims

Question 10

Within the Lloyd’s market, risks are placed by means of a:

Self-test questions

Answer 10

a. Market risk contract
b. Market Reform Contract
c. Note
d. Risk reform contract

Question 11

What is a PCC?

Answer 11

A type of captive insurer called a Protected cell company where it ringfencing the assests and allowd them to operate as distinct insruance entities.

Question 12

Which type of insurance company accepts several types of business?

Answer 12

Composite insurance companies

Question 13

Jacqui is an insurance broker. She is most likely to be remunerated by:

Self-test questions

Answer 13

a. A fixed advice fee
b. Commission based on the sum insured
c. An ongoing advice fee
d. Commission based on the premiums charged

Question 14

Ahmar has signed an agency agreement with Kent Regal Ltd. It is true to say that:

Self-test questions

Answer 14

a. He can act for Kent Regal Ltd in bringing them into legal relationships with others
b. Any contracts he enters into will not be binding on Kent Regal Ltd
c. Any contracts he enters into will not be binding on the insured
d. He must act solely as a representative of the insured

Question 15

(20) Which individuals provide financial backing for Lloyd’s syndicates?

iF1 Exam 2023

Answer 15

A. Managing agents
B. Members’ agents
C. Names
D. Underwriters

Question 16

(21) The third party which sometimes collects premiums from the insured on behalf of the insurer is the

iF1 Exam 2023

Answer 16

A. intermediary
B. reinsurer
C. risk manager
D. underwriter

Question 17

(22) What type of business does a reinsurer usually accept?

iF1 Exam 2023

Answer 17

A. Business from individuals who have already insured the risk with an insurer
B. Business from non-insurance companies which have large insurance needs
C. Business originally underwritten by an insurer
D. Business which an insurer has refused to underwrite

Question 18

(23) An electrical fault has caused insured fire damage in excess of £10,000. Which expert would the policyholder normally appoint to negotiate with the insurer on his behalf?

iF1 Exam 2023

Answer 18

A. Electrical engineer
B. Forensic scientist
C. Loss adjuster
D. Loss assessor

Question 19

Sulla, an independent intermediary, is placing business for new clients. Her services are least likely to include:

Self-test questions

Answer 19

a. Decisions on the best market in which to place the risk
b. Actions on behalf of the insurer
c. Advice relating to policy wording
d. Negotiating initial terms

Question 20

(24) Lloyd’s is

iF1 Exam 2023

Answer 20

A. an insurance company
B. an insurance market
C. an insurance syndicate
D. a Government body

Question 21

Who are mutual insurance companies owned by?

Answer 21

The policyholders

Question 22

Define Contract Certainty

Answer 22

Contract certainty is achieved by the complete final agreeemnt of all terms between the insured and insurers by the time they enter into the contract, with contract documentation provided promptly thereafter.

Question 23

An indirect marketing strategy would mean that an insurer would distribute their products via:

Self-test questions

Answer 23

a. Insurance brokers
b. Company sales staff
c. Newspaper advertising
d. The internet

Question 24

The purpose of reinsurance is to:

Self-test questions

Answer 24

a. transfer all of the cost to a third party
b. smooth peaks and troughs in the trading results
c. enable claims to be settled quickly
d. reduce the cost for the client

Question 25

(25) Why might a company use an intermediary when considering the purchase of insurance? ## Footnote iF1 Exam 2023

Answer 25

A. To acquire protection against the insolvency of an insurer. B. To pay reduced Insurance Premium Tax. C. To ensure that the premium can be written-off against Insurance Premium Tax. D. To obtain advice on the type of policy that best suits its needs.

Question 26

(26) The London Market is predominantly associated with the placing of what type of risks? ## Footnote iF1 Exam 2023

Answer 26

A. Aviation liability insurance risks only. B. Complex national and international insurance and reinsurance programmes. C. Marine liability insurance risks only. D. Motor fleet insurance risks up to a premium of £500,000.

Question 27

(27) Which insurers make up the London Market? ## Footnote iF1 Exam 2023

Answer 27

A. Reinsurers and Lloyd’s syndicates only. B. Lloyd’s syndicates and captive insurers only. C. Insurers, reinsurers, Lloyd’s syndicates and protection and indemnity club members. D. Insurers, reinsurers, Lloyd’s syndicates and captive insurers.

Question 28

(28) What type of insurer is owned by a non-insurance parent company and is established with the express purpose of providing insurance cover for the parent company’s own risks? ## Footnote iF1 Exam 2023

Answer 28

A. A captive insurer B. A Lloyd’s syndicate C. A mutual insurer D. A proprietary insurer

Question 29

List 5 sevices intermediaries provide for thier clients?

Answer 29

- Decide the best market to place a risk - Provide advice to the client regarding policy wording details - Review client needs - Negotiate Renewals - Advise the client on the validity of claims

Question 30

What is Bancassurance?

Answer 30

Bancassurance decsribes the arrangement between a bank and an insurance company whereby insurance products are sold to the bank's customers through their banking services.

Question 31

What are the purposes of reinsurance?

Answer 31

- Smooth peaks and troughs in trading results - Protect the portfolio - Provide improved sutomer service - Provide support for insurers entering new areas of business

Question 32

Insurance premium tax (IPT) applies to: ## Footnote Self-test questions

Answer 32

a. Insurers' premium income b. Life insurance premiums only c. Some general insurance premiums d. All insurance premiums

Question 33

(10) Income protection provides: ## Footnote Self-test questions

Answer 33

a. Fixed benefits in the event of accidental death or bodily injury b. Fixed benefits in the event of an accident, illness or loss of job c. Payments for inability to work due to sickness only d. Payments in the event of diagnosis of a serious illness

Question 34

(29) An insurer owned entirely by its policyholders is a ## Footnote iF1 Exam 2023

Answer 34

A. captive insurer B. coinsurer C. mutual insurer D. reinsurer

Question 35

(30) An entity that enables potential policyholders to complete a single online proposal and obtain quotes from several different insurers NOT associated with the entity is known as ## Footnote iF1 Exam 2023

Answer 35

A. a data controller B. an insurance aggregator C. a mutual insurer D. a tied agent

Question 36

What is the standard rate of tax on general insurance premiums

Answer 36

12%

Question 37

What is pecuniary insurance and give 2 examples

Answer 37

A type of insurance which covers intangibles such as income, revenue, or value. - Credit - cover businesses against the risk of non payment - Fidelity guarantee - covers the risk of losing money or stock, by the fraud or dishonesty of a person holding a position of trust.

Question 38

Within the Lloyd's Martket, how are risks placed?

Answer 38

The broker puts a summary of the risk to be placed and suggested terms and conditions onto a document called a Market Reform Contract (MCR). The nature and contact of the document is to achieve standardisation and clarity as early in the process as possible.

Question 39

(31) Which organisation provides information and technical services to underwriting businesses in the Lloyd’s market? ## Footnote iF1 Exam 2023

Answer 39

A. British Insurance Brokers’ Association B. Lloyd’s Market Association C. London and International Insurance Brokers’ Association D. London Market Regional Committee