Chapter 1 - Structure Of The Insurance Industry Flashcards
(192 cards)
1
Q
What is the difference between a general insurance company and a composite insurance company?
A
A general insurance company is only able to transact general business and not life, whereas a composite transacts both life (long term business) and general insurance.
2
Q
The UK insurance market is the largest in? And third largest in?
A
Europe, and third largest in the world.
3
Q
What percentage of European economic area premium income does the UK account for?
A
24%
4
Q
How many people does the UK insurance market employ?
A
334,000
5
Q
The UK insurance market was responsible for what figure of investments in 2018,?
A
Investments of £1.74 trillion
6
Q
In the 2013/2014 tax year, what figure of tax revenue did the UK insurance industry generate?
A
£12 billion
7
Q
What percentage of the UK insurance markets net premium income come from overseas business?
A
26%
8
Q
The insurance market compromises?
A
Sellers - insurance companies and Lloyd’s
Buyers - general public, industry and commerce, and public authorities
Middlemen - insurance brokers and intermediaries
9
Q
What is the buyer?
A
Any person, company or organisation wanting to purchase insurance. They will often use a broker or intermediary.
10
Q
What is an intermediary?
A
An agent who is usually appointed by a party to seek the best cover and price and recommend an insurance company and/or insurance policy. They can be authorised by client to buy it. Some intermediaries only use insurer so they do not have an obligation to seek the best terms.
11
Q
What is an insurance broker?
A
An individual or firm whose full time occupation is the arranging of insurance with insurance companies. A high standard of expertise is placed on brokers, who have a responsibility to place the interest of their client before all other considerations.
12
Q
What is an advantage to a client for using a broker?
A
Can obtain independent advice on a wide range of insurance matters.
13
Q
What is an advantage to an insurance company through gaining business through a broker?
A
Negotiations are quick and easy with a broker because only intricate points or special requirements require discussion, both saving time and money on routine matters.
14
Q
In a proprietary company, who do the profits belong to?
A
Shareholders
15
Q
In a proprietary company, shareholders liability is?
A
Limited to the nominal value of their shares (hence the term limited liability)
16
Q
Most proprietary companies are what type of company?
A
Composite transact life and general insurance
17
Q
In simple terms, how do insurance companies operate?
A
By charging relatively small premiums in comparison to the exposed risk to large numbers of the same type of customers - the losses of the few are paid for by the premiums of the many. (Risk transfer)
18
Q
Give five examples of insurance classes
A
- Accident and health
- Motor
- Aviation
- Fire and other damage to property
- Liability
19
Q
What does reinsurance allow insurance companies to do?
A
Pass on risk for an agreed on premium
20
Q
What are the two basic needs and reasons why insurance companies purchase reinsurance?
A
- To limit (as much as possible) annual fluctuations in the losses that affect their underwriting account, often referred to as smoothing out the underwriting result.
- To be protected in the case of catastrophe (both man made and natural)
21
Q
Mutual insurance companies may transact?
A
Long term or general insurance business
22
Q
What are the two ways a mutual company can be formed?
A
Deed of settlement or registration under the companies act
23
Q
Mutual companies are owned by who?
A
The policyholders
24
Q
The profits in a mutual company belong to?
A
The policyholders, often through discounts and bonuses
25
Most mutual companies operate in the what sector?
Long term
26
The shareholder in a proprietary company will receive their profits by way of?
Dividends
27
The policyholders in a mutual company will enjoy what when profits are returned to the policyholders?
Lower premiums or higher life assurance bonuses
28
What is demutualisation?
When a mutual company decides to register under the companies act as a proprietary company.
29
What difficulty do mutual companies have?
Difficulty in raising additional capital to expand the business as they cannot issue additional shares in the way proprietary companies can.
30
Give 6 examples of long term business
1. Life and annuity
2. Permanent health
3. Critical illness
4. Pension fund management
5. Unit-linked investments
6. Endowment savings and assurance contracts
31
Within Lloyd's what are the groups called that members underwrite for?
Syndicates
32
Within Lloyd's, who do members employ to run syndicates and carry out underwriting business?
Companies known as managing agents
33
What is Lloyd's global reputation?
Being an insurance market with a strong ability to provide bespoke insurance solutions for its customers.
34
Customers will speak with who in the Lloyd's market?
Lloyd's brokers
35
What has Lloyd's set in place incase members are unable to pay a claim? And who does this protect?
A chain of security and this is designed to protect policyholders
36
What is an important development in the modernisation and reform of Lloyd's?
Creation of a franchise structure in which Lloyd's as the franchisor and managing agents and the members for whom they act are the franchisees.
37
What is the aim of Lloyd's being the franchisor and members being franchisees?
Improve profitability and allow monitoring and guidance of franchisees. This gives Lloyd's the power to approve business plans and eject business unable to comply with their requirements. Lloyd's now has a much more proactive role.
38
Who makes up the franchise board in Lloyd's?
Members drawn from both inside and outside the Lloyd's market.
39
What is a captive insurance company?
Tax efficient method of risk transfer, becoming more popular in recent years with large multinational companies. Parent company forms a subsidiary to underwrite certain of its own insurable risks.
40
What are the incentives of a captive insurance company?
1. Pay premium based on own experience
2. Avoidance of direct insurers overheads
3. Obtaining lower overall risk premium level by purchasing reinsurance at a lower cost than that required by the conventional or direct insurer.
41
Where do many captive companies operate from? Give examples.
Offshore locations such as Bermuda and Guernsey. Some companies are formed in European economic area member states such as Ireland (Dublin) and Malta to secure European passporting rights.
42
What are passporting rights?
Allows a UK company, subject to compliance with the relevant directives, to conduct business in the EEA
43
Apart from favourable tax, what is one other reason a company may set up a captive insurance company, specifically in an offshore location?
Regulatory environment may be more attractive as requirements are more straight forward and regulators more accessible.
44
What is an advantage of a captive insurance company being located offshore, apart from favourable tax and regulation purposes?
Allows me to tap into ancillary services such as investment management, banking and accounting.
45
What is takaful insurance?
Roots in Islamic financial services industry, based on rulings of sharia law on financial and commercial transactions. Works on principle that any transaction, risk and profit should be shared between participants.
46
Under sharia Islamic law, traditional insurance policies are seen by Muslims to?
Be contrary to some of the fundamental principles of Islam
47
In takaful insurance, what are the three aspects that are deemed to be against Islam?
1. gharar (uncertainty)
2. Maisir (gambling)
3. Riba (interest)
48
In takaful insurance what is gharar and why is this important?
Uncertainty. Islamic law forbids sales where there is risk to the buyer, some believe traditional insurance policies are uncertain because how much, when and if at all, an insurance company pays out remains uncertain.
49
What is Maisir and why is this of concern in takaful insurance?
Gambling. Traditional policies are seen to be a form of gambling because some policyholders receive payouts whereas others do not. Gambling is forbidden under Islamic law.
50
What is riba and what is the concern in takaful insurance?
Interest. Islamic rules forbid making money from money, such as through interest. Wealth can only be made through the grace of assets and investments.
51
What does takaful mean?
Guaranteeing each other
52
What are the 5 Islamic principles takaful insurance embraces?
1. Mutuality and cooperation
2. Shared responsibility
3. Joint indemnity
4. Common interest
5. Solidarity
53
Takaful insurance products need to be approved by?
Islamic scholars
54
Takaful insurance has existed for how many years? But only become popular since?
20 but only popular in 2005 when a bank decided to offer for buildings and contents.
55
What was the total value of takaful insurance premiums in 2017?
$20bn
56
Reinsurers are usually large multinational cooperations because?
Sums to be reinsured are generally quite significant
57
When a reinsurer is deciding whether to accept business, they must consider?
The overall underwriting approach and philosophy of the direct insurer to have some assurance that the risks are carefully assessed and priced.
58
What is treaty insurance?
When the reinsurer agrees to take on a part of all the insurance that the direct insurer underwrites. Usually an annual contract agreed in advance and terms are fixed so both the insurer and reinsurer have certainty of the deal for the next year.
59
What are the two types of treaty re insurance and how do they differ?
Proportional and non proportional.
Proportional is when the insurers and reinsurers take a stated proportion of each risk and share the premium and claims on the same basis.
Non proportional is when an insurer retains the first layer of cover and the balance is transferred to the reinsurers.
60
What is facultative reinsurance?
This is where each reinsurance requirement is negotiated individually. This format is used when the insurer wishes to transfer cover that is outside treaty agreements. Such as where an individual building value is very high.
61
A reinsurer underwriter that underwrites treaty and or facultative reinsurance will need?
Specific underwriting skills
62
What is the AFM?
Association of financial mutual. A trade body that represents 47 mutual insurers, friendly societies and other financial mutuals across the UK
63
If an insurer provides cover for a building worth £10 million but decides to share 50% with a reinsurer on an equal basis, what is this reinsurance?
Proportional reinsurance, quota share.
64
Pool re was established in 1993 because of?
Numerous terrorist incidents in the UK
65
Pool re acts as a?
Mutual reinsurance company
66
Insurers that participate in pool re scheme do what?
Offer terrorist cover as part of their commercial policies, each insurer pays losses up to a threshold, when losses exceed this threshold the insurer may call upon reserves of pool re.
67
Should pool re not have sufficient reserves, who can be called upon?
The government
68
Insurance companies in the pool re scheme may charge what for terrorism cover?
Whatever they like
69
Following flood damage in the UK, the government and the Abu have agreed a memorandum of understanding on how to develop a scheme called?
Flood re
70
What is the aim of flood re?
Ensure flood insurance remains widely affordable and available. The memorandum of understanding is a first step towards establishing flood re and confirms it as the governments preferred option.
71
What will flood re actually do?
Provide a fund to offer people on high flood risk areas who might otherwise struggle to get affordable flood insurance, with cover at a set a price. Insurers will put into the fund those high flood risk homes they fell unable to insurer themselves, with the amount to cover the flood risk part of the Household premium being capped.
72
Flood re was launched in?
April 2016
73
Why does self insurance affect the market?
There is no transactions of either buying or selling. Such arrangements have an overall affect on the market in general and on premium levels where the organisation is carrying the first layer.
74
Why would a large company self insure?
They would feel that they are large enough financially to carry such losses and because the cost to them, by way of transfer to their reserve fund is lower than the commercial premium level.
75
A large organisation self insuring usually occurs when the company have an experience of?
High frequency low severity losses.
76
If a large organisation was to insure high frequency low severity losses, what type of arrangement ewould there be with the insurance company?
Pound swapping as organisation pays a pound to insurer only to get it back when it losses. Which both parties knew would occur.
77
Why is pound swapping when a large company insures low severity risks a problem for the insuring companies?
Insurance company would have to recover its costs and so the amount paid in premiums would exceed the cost of the predictable claims.
78
What is the difference between self and non insurance?
Self insurance is where a conscious decision is made to create a fund, whereas non insurance is when no conscious decision is made at all, or no fund is created.
79
What is the difference between a multinational and global company? List features.
A multinational company has a home base but many other national operations, this means it can respond to local demands whereas a global company sees the world as one potential market. The global companies aim is to be seen as one global singular brand, they are centralised businesses. An example of global would be Lloyd's.
80
What are the advanced economies and emerging markets?
USA, Japan and Europe are advanced whereas BRIC, Brazil, Russia, India and China are lesser but seeing rapid growth.
81
What is a feature of BRIC nations that makes it worthwhile for insurers to gain business there?
Low insurance penetration rates means opportunity for lots of new business
82
Who are the main participants in the London market?
1. Insurance companies that are members of international underwriters association.
2. Other insurance companies
3. Contact officers for foreign companies that are not authorised to transact business in the UK.
4. P&I clubs
5. Pools - international oil insurers and British insurance atomic energy committee
6. Lloyd's of London
7. Insurance brokers
83
Which act meant that non Lloyd's brokers could place business with Lloyd's syndicates?
Legislative reform (Lloyd's) order 2008
84
What is the core of London market business?
Internationally traded insurance and reinsurance business - including the very large risks of UK companies, multinationals and overseas companies.
85
The London UK insurance market leads the world in?
Internationally traded insurance and reinsurance and is the leading global market for aviation and marine business.
86
Most business within the UK London market is life or general insurance?
General insurance with emphasis on high exposure risks
87
How much business does the UK London market account for in the UK?
Over one third of total non life insurance and re insurance written in Great Britain
88
Which group was established to maintain and enhance the position of the London market in the international insurance market?
London market group
89
Give 10 reasons why the London market has developed into successful international centre for insurance and reinsurance?
1. Political and economic stability
2. Geographical location
3. Quality transport system
4. Highly qualified personnel
5. Office space at competitive prices
6. English is business language
7. Stable legal and regulatory environment
8. Time zone
9. Foreign presence
10. Developed financial centre
90
Direct insurers do not need extensive branches because of?
Latest technology in telecommunications
91
Direct insurers will continue to ???? Because of ????
Grow because of more customers use to dealing over the telephone
92
Direct line removed duplication and ?
Zero value adding
93
How has the internet given companies an advantage?
Companies take advantage of presence and brand name to add insurance products to existing range.
94
Independent intermediaries are usually paid commission, often described as?
Brokerage
95
Independent intermediaries often have what with insurers other than delegated authority?
Schemes
96
A scheme which offers broader cover at a competitive rate and tends to target sectors of the market such as members of a particular profession, club or society are known as?
Affinity schemes
97
In the case of affinity schemes, the broker will be responsible for policy issue, claims handling and will therefore receive...
Higher rate of commission for the extra work they do
98
Agents including estate and travel agents will often be what type of intermediary?
Appointed representatives and therefore dealing with one particular insurance company.
99
Building societies traditionally provided?
Mortgages, but now have involvement in insurance thorough mortgage related life assurance products, household buildings insurance and mortgage guarantee business.
100
Banks have become a very powerful force in which specific market place and what is the reason for this?
Personal insurance market place due to large customer bas and extensive distribution network to develop new customers.
101
A bank usually brands its insurance products in?
It's own name but underwritten elsewhere
102
When agreeing a loan a bank may provide?
Creditor insurance
103
When a bank grants a mortgage it may offer?
Household buildings and contents insurance
104
In December 2013 a bank was fined £28 million because of?
Way it managed its bonus scheme for sales staff selling insurance and payment protection products.
105
Retailers having opportunity to market insurance products to very large customer base, this is also known as?
White labelling, where a organisation offers insurance products branded in own name but underwritten elsewhere.
106
White goods are for example?
Cookers, refrigerators, washing machines
107
The institute of chartered accountants in England and Wales offer members and insurance scheme for pi and office contents. This commercial insurance to them is known as?
Affinity group
108
Travel agents usually offer travel insurance as part of a?
Package basis underwritten by an insurance company.
109
Travel agents often now sell their own insurance and have the client decline the?
Tour operators policy
110
Travel insurance can be purchased at point of departure in?
Coupon form
111
Aggregators rely upon?
Cooperation of insurers and intermediaries to access their pricing for different risks.
112
How does an aggregator work?
Customer completes set of questions and is provided with quotations from a number of different providers. Customer can approach that company through a link.
113
What two economical factors have driven people to use aggregators more and more?
Insurance premiums rising and the economic crisis
114
Why have aggregators received criticism?
Limited amount of questions asked make accuracy of quotation skeptical, and that consumers rank products on price only and not cover or service offered. Results can be confusing as may not be full cost when additional info is submitted to chosen insurer.
115
Aggregators will continue to grow because?
Vast advertising of the sites and premiums hardening in private sectors.
116
It is important for companies to understand customer...?
Expectations
117
What does a company need to do to understand customers expectations?
Market research
118
How much more likely is it to retain a customer than win a new one?
5 times
119
Insurance companies should have a good customer focus both to retain business, gain new business and comply with...
Treating customers fairly under the financial conduct authority
120
Customer focus should run through the whole?
Company from top to bottom
121
What is a positive of a complaint?
Analysing complaints is a positive way to find out the cause of the problem and why it happened, helping to improve quality.
122
What is CRM and why is it important?
CRM is customer relationship management. This is to do with getting closer to the customer and moving proactively. This is important because it is by gaining more than once policy with a customer that they are less likely to move elsewhere.
123
What are methods of implementing CRM?
- offering a relationship focus rather than a transaction focus
- understanding buying patterns of customers
- moving proactive not reactive
- adopting total relationship management such as direct mail, telemarketing, direct selling, cross selling, email etc.
- enhancing/complementing additional revenue generation efforts.
124
As expectations of customers is increasing, rewards will be considerable for..
Companies that can deliver increased levels of service
125
What is the biggest challenge in a company developing CRM capability?
Developing effective computer systems to be able to support this, having relevant information stored, captured and relevant etc.
126
What are the 6 fair treatment of customers outcomes ?
1. The fair treatment of customers is central to the corporate operate culture.
2. Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and targeted accordingly.
3. Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
4. Where consumers receive advice, the advice is suitable and takes account of their circumstances.
5. Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
6. Consumers do not face unreasonable post-sales barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
127
What is a stakeholder?
Someone who has an interest in the way a company acts
128
Give 9 examples of stakeholders
1. Customers
2. Shareholders
3. Government
4. The public
5. Employees
6. Suppliers/creditors
7. Consumerists
8. The law
9. Regulators
129
Companies must balance the interests of...
Stakeholders
130
What are business ethics?
Standards and moral conducts that a company or business sets in its dealings within the organisation and outside the business and social environment as a whole.
131
Large organisations can have revenue income which can be more than?
Small nations
132
Senior members within an organisation can have what impact on employees and communities?
Large as they can promote and affect things due to their power
133
Companies should not alienate themselves from?
Society
134
Not all commercial organisations believe they have a role beyond?
Their own business. This is shareholder focus.
135
What is it called when companies take the view that it is in their long term interests to play a role in society beyond what is required by law?
Stakeholder perspective
136
Because the CII consider ethical standards very important, what have they said their members should follow?
A code of ethics
137
What are the main requirements of the code of ethics?
Members must:
1. Comply with the code and all relevant laws and regulations
2. Act with the highest ethical standards and integrity
3. Act in the best interests of each client
4. Provide a high standard of service
5. Treat people fairly, regardless of age, sex, religion, race etc
138
The CII code of ethics is principle based because?
This is flexible and helps wide range of different roles in the sector be accounted for
139
The CII say that code should be thought of?
As a virtuous platform and not a regulatory burden. CII have set ask yourself questions to make the code a living document.
140
What can happen to members of the CII who do not follow the code?
May have disciplinary action taken against them.
141
What is organic growth?
Where a company develops and expands by increasing its sales, revenue and output through its own current businesses, activities and effort, rather than through mergers or acquisitions.
142
Organic growth can only be achieved when?
Business has the financial resources to pay for the expansion.
143
Organic growth simply defined by peter drucker is?
Rate of business expansion through increasing output and sales
144
Mergers and acquisitions are also known as what type of growth?
Non organic
145
Why would a company want to grow?
- increasing consumer incomes
- ready availability of finance
- low interest rates
- buoyant markets
- opportunities for product development
- export opportunities
- economies of scale through lower operating costs and
- opportunity of increased revenue, profits and shareholder value
146
In the 1990s and 2000s there was considerable amounts of?
Merger and acquisition activity
147
Organic growth usually means that a company closely examines its?
Own resources, assets and finances to use them effectively.
148
Organic growth is usually less expensive than non organic as?
Improved returns and forces a company to build a base for further growth.
149
Organic growth puts heavy demands on?
Management
150
What are advantages of organic growth?
- sound means to measure progress
- more profitable and better investment return
- focus on growing the business/commitment
- good reputation and more economical
- real sales efforts not distorted by m&a's
- less risky
151
What are disadvantages of organic growth?
- takes more time
- heavy demand on management and resources
- may not meet investors expectations
152
The time taken to grow organically could mean that the company has insufficient income to disperse it's fixed overheads. Because of this, what also should be grown within the business?
Staff, IT, facilities, should be matched to growth in premiums where possible.
153
What is non organic growth?
This is where a company merges with or acquires another company with the aim of rapidly growing its business.
154
What is the difference between a merger and an acquisition?
A merger only happens if two companies agree to join on a strategic basis whereas an acquisition is where a company gains control of another company purchasing a majority shareholding. The latter is not always seen as a welcome purchaser by the management or shareholders.
155
What is the difference between horizontal and vertical integration in a merger/acquisition?
Horizontal is where the two companies are in the same market, vertical is where a company is attempting to control a stage closer to the source of the customer or manufacturer.
156
Which company is an example of both vertical and horizontal integration? Also state why.
Bluefin. The reasons for this is because they where acquired vertically by AXA who is an insurer with the capacity to now act as an intermediary, and bluefin was formed by small-medium size brokers that merged horizontally to create the larger firm.
157
What are the reasons for a horizontal merger and acquisition?
1. Improves mediocre performance to a better market position.
2. Achieving economies of scale.
3. Improving competitiveness
4. Possible opportunities for diversification
158
What are the reasons for a vertical merger and acquisition?
1. Reduce costs, through economies of scale
2. Gain more control of the market, including sources of the supply
3. Greater value to the whole customer proposition, such as when an insurer acquires a back-office service company.
159
How could a merger/acquisition bring rapid growth?
Access to new distribution channels
160
Give 3 alternative benefits/reasons for an M&A
1. Acquiring an advanced IT system
2. Employee know how
3. Local licensing in an overseas company
161
M&A's can help a company become larger, this gives what advantage?
Let's the company operate in the global market
162
Give 4 reasons why M&As happen, apart from growth.
1. Removes duplication so improved efficiency and performance through synergy of processes or economies or of sale by lowering unit costs.
2. Overcoming the cost of IT and resources
3. Provides investment opportunities if an insurance company has spare capital.
4. Spreads risk when companies join together, as diversification by being separate I.e not all book of business in one place. Likely lower solvency capital requirements p.
163
What is the overall main argument for the reasons for an m&a?
Improve shareholder value
164
Every year, a proportion of M&A's fail due to?
Being unable to deliver the promises to shareholders as laid down at the time of the deal - this includes insurance deals.
165
What are the disadvantages to mergers and acquisitions?
1. Reduced customer choice so less competition.
2. Can impact staff negativity through lack of morale if the merge is managed poorly, and could also lead to redundancies.
3. Clash of corporate cultures
4. Takes away focus of core company goals as senior managers caught up in managing the merge.
5. Reduced customer service while change is taking place
6. M&a savings may not be realised, forecasts made by directors on how will improve shareholder value are often not achieved so savings do not actually happen and real value of change therefore not clearly evident.
166
What is the definition of outsourcing?
Outsourcing is the use of a skilled resource outside the company to handle work that was previously performed by in house staff.
167
What was one of the earliest examples of outsourcing on the insurance industry?
Loss adjusters
168
Range of outsourcing services is now extensive, give examples.
1. IT
2. Data processing
3. Employee benefits and payroll processing
4. Actuarial
5. Risk management
6. Audits
7. Accounting
8. Claims management
9. Telesales and customer service
169
What is the key benefit of outsourcing?
Frees up the company to focus on profit generating activities.
170
Outsourcing must be done within?
Regulatory guidelines
171
How do the legalities of outsourcing usually work?
Working relationship governed by legal contract, an agreed for for the outsourced company is promised in return for an agreed service over an agreed period. If the outsourcing company fails to deliver the required service then contract may be terminated and damages sought against it.
172
What are the advantages of outsourcing?
1. Firms can use external specialists and only incur the costs for the work completed.
2. Business is guaranteed a certain level of service.
3. Business can budget for a pre agreed fixed cost for the agreed service.
4. Outsourced companies are normally specialists in their area and bring new skills and working methods to a company.
5. Many outsourcing contracts lead to new partnership opportunities as the businesses learn new ways of doing business processes.
6. Business may develop new products and speed to their market.
7. Business that do outsource have more time to focus on their core business areas.
173
What are the disadvantages of outsourcing?
1. Certain element of control is lost
2. Poor service by the supplier can damage reputation of the main company even if it wasn't their fault.
3. Extreme care needs to be taken with customers confidential information, especially with overseas transfer of information.
4. If company is too dependant on the outsourced supplier or their is lack of competition, may be higher costs.
5. If outsourced provider gets into financial difficulty than the main company has to find alternative arrangements often at short notice.
6. Poor communication between companies can result in lack of understanding of customer behaviour and satisfaction.
174
If a business is considering outsourcing, what MUST happen?
Senior managers must carry out a thorough investigation to determine the best option.
175
Outsourcing is a process which must be managed and implemented?
Smoothly and effectively to avoid disruption and to ensure business runs as usual.
176
Why have many insurance companies brought back in house functions as oppose to outsourcing them?
Outsourced services often suffer from poorer customer service and Lowe standards of care. Resulting in increased complaints. Also sometimes costs are greater than expected and the gains in using dedicated technology have not been achieved.
177
As regulated businesses are required to outsource in accordance with regulatory guidelines, where can the rules relating to this be found?
PRA and FCA handbooks in the high level standards senior management arrangements, systems and controls, section 8
178
What are the essential important features of outsourcing regulation?
1. Take reasonable steps to ensure that there is no undue additional operational risks in outsourcing an activity as opposed to retaining the function in house.
2. The quality of internal control is not impaired.
3. The ability of the regulators to monitor the firms regulatory compliance is not hampered by any outsourced arrangements.
179
If a firm outsources any part of its business, what can this not escape?
Requirements of the regulators
180
The PRA and FCA handbook states what regarding material outsourcing must be given to the regulators?
Prior notification
181
What do the FCA and PRA also require a business that is outsourcing to do with regards to its supplier?
Suppliers deal in an open an cooperative way with the regulators, give them access to the business premises with or without prior notice and give the firms auditors accesses to books and records.
182
How do the PRA and FCA each define material outsourcing?
PRA - services of such importance that weakness or failure of the services would cast serious doubt upon the firms continuing satirisation of the threshold conditions or compliance with the funda mental rules.
FCA - services of such importance that weakness of failure of the services would cast serious doubt upon the firms continuing satisfaction of the threshold conditions or compliance with the principles.
183
The governance aspects of ???? Are also concerned with outsourcing management?
Solvency II
184
The requirements of the European insurance and occupational pensions authority detail the expectation of insurers that mange outsourced contracts. These include the requirements for the terms to cover:
1. The duties and responsibilities of both parties is clearly stated
2. Service providers commitment to comply with applicable laws, regulatory requirements and to cooperate with the firms appropriate regulator.
3. Notice period of the termination by the service provider to be sufficient to allow the firm to make alternative arrangements.
4. The firm, its external auditors and the regulators will have effective access to all information related to outsourced function.
5. The firm must ensure that the outsourced provider has effective risk management and internal controls.
185
What is an advantage of marketing insurance products to affinity groups?
Opportunity to reach a large group of potential policyholders through existing communication channels. This allows targeted products to be developed and sold with lower acquisition costs than in the open market.
186
What is the difference between organic and non organic growth?
Organic growth is where the company develops and expands its sales and revenue through its existing book. Non organic growth comes about through mergers and acquisitions.
187
An insurer provides property insurance for a building values at £50m. It has an automatically facility to share 40% of the risk with a reinsurer. This is an example of what type of reinsurance?
Quota share reinsurance
188
Which type of risks are most suited to self insurance?
High frequency low severity
189
The CII code of ethics operates by providing...
A positive statement of core principles
190
A merger is where?
Two companies agree to join forces on a strategic basis
191
The regulatory requirements regarding material outsourcing do not include:
a) prior notification of outsourcing
b) regulators to be given access to business premises
c) six monthly audits of outsourced work
d) auditors to be given access to the suppliers books and records
Correct answer is (c) six monthly audits of outsourced work
192
What is the London Market Group's (LMG's) Target Operating Model (TOM)
Comprehensive programme to make the London market a more accessible and cost effective place to do business
