Chapter 2 - The Insurance Market Flashcards
(273 cards)
1
Q
A - Market Structure
- Who are the main five participants in the insurance market?
A
Buyers (policyholders/insureds)
Insurers (sellers)
Intermediaries (those who bring buyers and sellers together, such as brokers)
Aggregators (most visible such as price comparison websites)
Reinsurers (a further means of spreading risk)
2
Q
A - Market Structure
- Who do buyers interact with?
A
Intermediaries & Insurers
3
Q
A - Market Structure
- Who do Intermediaries interact with?
A
Buyers, Insurers and Reinsurers
4
Q
A - Market Structure
- Who do Insurers interact with?
A
Buyers, Intermediaries, Reinsurers
5
Q
A - Market Structure
- Who do Reinsurers interact with?
A
Intermediaries and Insurers
6
Q
A - Market Structure
- Give examples of Intermediaries and state if they’re authorised or exempt.
A
Appointed representatives (exempt)
“Other” professionals (exempt)
Lloyds brokers (authorised)
Brokers (authorised)
Agents (authorised)
7
Q
A - Market Structure
- Give examples of Insurers
A
Direct insurers
Mutual indemnity associations
Captive insurance companies
Lloyds
Composite and specialist insurers
The State
8
Q
A - Market Structure
- Give examples of Reinsurers.
A
Reinsurance companies
Lloyds
The State (terrorism and flood)
9
Q
B - Buyers
- Name the five main types of buyers
A
Private individuals
Companies
Partnerships
Public Bodies
Charities, Associations and Clubs
10
Q
B - Buyers
B1 Private Individuals
- Give examples of insurance people buy in their private capacity
A
Household buildings and contents insurance
Motor insurance
11
Q
B - Buyers
B2 - Companies
- What types of companies need insurance?
A
Multinational corporations
Sole traders
12
Q
B - Buyers
B3 Partnerships
- Do Partnerships have a separate legal existence?
A
No, each partner is jointly and severally liable.
13
Q
B - Buyers
B3 Partnerships
- Give examples of partnerships
A
Medical practices
Veterinary practices
Legal professions
14
Q
B - Buyers
B3 Partnerships
- How are the insurance needs of partnerships typically catered for?
A
By specialist schemes, particularly in the area of professional negligence.
15
Q
B - Buyers
B4 Public Bodies
- Public Bodies are major buyers of insurance. Give examples of public bodies.
A
Authorities
Schools
16
Q
B - Buyers
B4 Public Bodies
- How do Public Bodies insure themselves?
A
Some may be large enough to set up their own insurance fund through which they insurance some risks, while turning to the market for others.
17
Q
B - Buyers
B4 Public Bodies
- Are some Public Bodies exempt from requiring insurance?
A
Yes, for example the police and motor insurance.
18
Q
B - Buyers
B5 Charities, Associations and Clubs
- What type of insurance do charities, associations and clubs typically take out? Give examples.
A
Liability risks and damage to owned property e.g football clubs, stamp collecting societies.
19
Q
B - Buyers
B5 Charities, Associations and Clubs
- How are charities, associations and clubs different in legal terms to companies and individuals?
A
There are “unincorporated associations” and have special requirements because, theoretically, each member is liable for the associations actions.
20
Q
C - Insurers
- Companies wanting to transact insurance in the UK must be authorised to do so by which authorities?
A
Prudential Regulation Authority (PRA)
Financial Conduct Authority (FCA)
21
Q
C - Insurers
- Financially speaking, what are insurance companies required to maintain?
A
Defined levels of solvency margins (difference between assets and liabilities)
22
Q
C - Insurers
- How might insurers be distinguished from one another?
A
In terms of ownership and function.
23
Q
C - Insurers
C1 Types of Insurer as defined by Ownership
- Name the 5 categories of ownership.
A
Proprietary companies
Mutual companies
Captive companies
Protected cell companies
Lloyds
24
Q
C - Insurers
C1A Proprietary Companies
- What is a Proprietary company?
A
Limited liability companies where shareholders, in buying shares, contribute to the share capital of the firm, and therefore own the company profits.
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C - Insurers
C1A Proprietary Companies
2. How is each shareholders liability for the company debts valued?
The shareholders liability for the company’s debts is limited to the nominal value of the shares they own.
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C - Insurers
C1B Mutual Companies
1. Who owns a mutual company?
The policyholders
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C - Insurers
C1B Mutual Companies
2. Why would a policyholder use a mutual company?
The policyholders share in the profits of the company is reflected by way of lower premiums.
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C - Insurers
C1B Mutual Companies
3. How are the losses of a mutual company limited for each policyholder
Limited by guarantee, with a policyholders maximum liability limited to their premium.
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C - Insurers
C1C Mutual Indemnity Associations
1. What is a Mutual Indemnity Association?
A self-managed pool of insurers that are owned by the policyholders.
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C - Insurers
C1C Mutual Indemnity Associations
2. Which industry are Mutual Indemnity Associations primarily used in?
Marine insurance, where Protection and Indemnity associations (known as P&I clubs) insure certain aspects of marine hull liability.
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C - Insurers
C1D Captive Insurers
1. What is a Captive Insurance Company?
A Captive is an insurance company established by its parent company to provide insurance coverage primarily, if not solely, to the parent.
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C - Insurers
C1D Captive Insurers
2. Why are Captives used?
For tax efficiency
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C - Insurers
C1D Captive Insurers
3. What are the non-fiscal reasons Captives might be used?
Get the full benefit of the group’s risk control techniques by paying premiums based on its own experience.
Avoid paying extra premium designed to meet a direct insurer’s overheads.
Obtaining a lower overall premium level by placing certain risks in the reinsurance market with its flexible products and lower overheads.
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C - Insurers
C1D Captive Insurers - Protected Cell Companies (PCCs)
1. What is the purpose of PCCs?
To ring-fence assets of the participating cells and allow them to operate as distinct insurance entities.
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C - Insurers
C1D Captive Insurers - Protected Cell Companies (PCCs)
2. PCCs operate in 2 parts. What are they?
A Core
An unlimited number of cells
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C - Insurers
C1D Captive Insurers - Protected Cell Companies (PCCs)
3. Legally speaking, what is a PCC?
A single legal entity with a single board of directors.
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C - Insurers
C1D Captive Insurers - Protected Cell Companies (PCCs)
4. How does a prospective cell owner join a PCC?
Each prospective cell owner must enter into a cell management agreement with the PCC Board and will be bound by the PCC Mem & Arts.
Entry to the PCC is subject to approval by the PCC Board who will require details of the proposed business plan and will agree the parameters within which the cell is to operate.
A PCC files a single annual return, but regulatory approval is required for each business plan.
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C - Insurers
C1D Captive Insurers - Protected Cell Companies (PCCs)
4. What are the benefits are using a PCC?
Minimum establishment and administration cost.
Establishment in territories with favourable tax rates will apply to any trading profits.
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C - Insurers
C2 Types of Insurer as defined by Function
1. What function do composite companies serve, and how are they represented in the market?
They accept several types of business and represent the major part of the insurance market.
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C - Insurers
C2 Types of Insurer as defined by Function
2. What function do specialist insurers serve?
They tend to issue policies for only one class of business.
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C - Insurers
C3 Takaful Insurance Companies
1. What is Takaful insurance?
Insurance that applies the rulings of Sharia law and Islamic attitudes to risk and profit.
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C - Insurers
C3 Takaful Insurance Companies
2. Name the 3 fundamental principles of Islam that insurance policies are seen to be contrary to.
Gharar (uncertainty)
Maisir (gambling)
Riba (interest)
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C - Insurers
C3 Takaful Insurance Companies
3. Explain why Gharar (uncertainty) is contrary to Islamic beliefs.
Islamic law forbids sales where there is a risk to the buyer.
Some believe that traditional insurance policies do not remove uncertainty because how much and when, if at all, a policy will pay out remains uncertain.
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C - Insurers
C3 Takaful Insurance Companies
4. Explain why Maisir (gambling) is contrary to Islamic beliefs.
Traditional insurance policies are seen to be a form of gambling because some policyholders receive claims payments while others do not.
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C - Insurers
C3 Takaful Insurance Companies
4. Explain why Riba (interest) is contrary to Islamic beliefs.
Islamic rules forbid making money from money. Wealth can only be made through the trade of assets and investments.
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C - Insurers
C3 Takaful Insurance Companies
5. What principles to Takaful insurances embrace?
Mutuality and Cooperation
Shared Responsibility
Joint Indemnity
Common Interests and Solidarity
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C - Insurers
C3 Takaful Insurance Companies
6. Who must Takaful products be approved by to ensure they’re compliant?
Islamic scholars
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C - Insurers
C4 The State
1. What does the UK government legislate to make compulsory?
Certain insurances
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C - Insurers
C4 The State
2. How does the UK government act as an insurer?
Welfare benefits
Pension provision
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C - Insurers
C4 The State
3. When does the UK government act as a guarantor to the insurance sector?
Terrorism risks
Flood risks
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D - Lloyd’s and the London Market
D1 Lloyd’s Structure and Features
1. Is Lloyd’s an insurer?
No, it’s a marketplace.
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D - Lloyd’s and the London Market
D1 Lloyd’s Structure and Features
2. What is Lloyd’s?
It is a society of members.
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D - Lloyd’s and the London Market
D1 Lloyd’s Structure and Features
3. What does the corporation of Lloyd’s provide?
The infrastructure for the market.
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D - Lloyd’s and the London Market
D1 Lloyd’s Structure and Features
4. Under the Lloyd’s Act 1982, what is the Council of Lloyd’s responsible for?
The management and supervision of the market.
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D - Lloyd’s and the London Market
D1 Lloyd’s Structure and Features
5. Who regulates Lloyd’s?
The PRA
The FCA
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D - Lloyd’s and the London Market
D1A Syndicates
1. What is a syndicate?
A group of private individuals or corporate investors who carry the risks (provide financial backing).
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D - Lloyd’s and the London Market
D1A Syndicates
2. What are corporate and individual investors known as?
Underwriting members or Names.
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D - Lloyd’s and the London Market
D1B Managing Agents
1. What is the role of managing agents?
Syndicates outsource the day-to-day running of their insurance business to managing agents.
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D - Lloyd’s and the London Market
D1B Managing Agents
2. What are the responsibilities of the managing agents?
Employing the underwriters and claim adjusters.
Liaise with Lloyds and the regulators.
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D - Lloyd’s and the London Market
D1C Capital and Members/Names
1. What is capital?
The investment put into the market by investors, known as members or names.
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D - Lloyd’s and the London Market
D1C Capital and Members/Names
2. What must prospective members be able to prove in order to invest in the market?
Show they have adequate means to pay any potential claims made against them.
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D - Lloyd’s and the London Market
D1D Members’ Agents
1. What advice do members’ agents provide?
They advise potential corporate and individual members/names on the advantages and disadvantages of investing in the Lloyd’s market.
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D - Lloyd’s and the London Market
D1D Members’ Agents
2. What do members agents advise on specifically?
Syndicate selection and performance
Reserve requirements
Compliance issues
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D - Lloyd’s and the London Market
D1D Members’ Agents
3. What additional role do member agents serve to members and managing agents?
Act as a communication channel between the member and the managing agents running the syndicates the member has invested in.
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D - Lloyd’s and the London Market
D1D Members’ Agents
4. What do member agents receive from managing agents?
Regular reports on syndicate performance.
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D - Lloyd’s and the London Market
D2 Transacting Insurance at Lloyd’s
1. What requirements must a broking firm meet to become a Lloyd’s broker?
Must be fully regulated by their own regulator
Must satisfy requirements set out by Lloyd’s about:
Capability
Understanding of the market
Ability to transact business using the central market systems.
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D - Lloyd’s and the London Market
D2B Placing a Risk
1. What is the document that the broker puts a summary of the risk to be placed, and the suggested terms and conditions, called?
Market Reform Contract (MRC)
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D - Lloyd’s and the London Market
D2B Placing a Risk
2. How is the standardisation and clarity of MRCs ensured?
Clear market rules.
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D - Lloyd’s and the London Market
D2B Placing a Risk
3. If a broker is involved, what is the first step of placing a risk?
The broker obtains a quote from an underwriter.
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D - Lloyd’s and the London Market
D2B Placing a Risk
4. What will the underwriter indicate on their quote?
The percentage share they’ll accept and the terms that apply.
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D - Lloyd’s and the London Market
D2B Placing a Risk
5. What is meant by saying the broker “fills the slip”
The brokers approaches other underwriters and obtains signatures for the shares they are each willing to accept.
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D - Lloyd’s and the London Market
D2B Placing a Risk
6. What takes place once the Market Reform Contract/slip is fully placed by the broker?
The risk must then be submitted electronically to Xchanging Ins-sure Services (XIS).
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D - Lloyd’s and the London Market
D2B Placing a Risk
7. In terms of remuneration, what do the underwriters usually agree with the broker?
That the broker can deduct a certain percentage of the premium as brokerage.
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D - Lloyd’s and the London Market
D2B Placing a Risk
8. What do the brokers do once they have deducted their brokerage from the premium?
Transfer the net amount to the underwriters.
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D - Lloyd’s and the London Market
D2B Placing a Risk
9. Where does XIS record the risk and premium details?
On the central database.
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D - Lloyd’s and the London Market
D2B Placing a Risk
10. What does XIS facilitate with regard to premiums?
Payment of the premium to both Lloyds and the London Market underwriters for the broker.
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D - Lloyd’s and the London Market
D2B Placing a Risk
11. If a formal document is required by insurers for sending to a client, who can they get this from?
XIS.
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D - Lloyd’s and the London Market
D2B Placing a Risk
12. Once the data is recorded and the premium paid, what do the brokers and underwriters receive?
Electronic messages from XIS with data about the risk.
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D - Lloyd’s and the London Market
D3 The London Market
1. Does Lloyd’s represent the whole market?
No, it represents part of a much wider London Insurance market.
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D - Lloyd’s and the London Market
D3 The London Market
2. Who are the main providers in the London Market?
Insurance and Reinsurance companies
Lloyds Syndicates
Lloyds Services Companies, who effectively act as branch offices of the syndicates
Protection & Indemnity Clubs (P&I)
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D - Lloyd’s and the London Market
D3 The London Market
3. What is the key difference between the London Market and Lloyd’s?
The market is general, where the Lloyd’s market has been a focus for placing very unusual risks.
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D - Lloyd’s and the London Market
D3 The London Market
4. What was the gross written premium income for the Lloyd’s Market in 2022?
£46.7 Billion.
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D - Lloyd’s and the London Market
D4 Contract Certainty
1. What is Contract Certainty? Who is it adopted by?
Procedures adopted to ensure all parties are fully aware of the coverage and terms of the policy.
Lloyd’s and the London Market
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D - Lloyd’s and the London Market
D4 Contract Certainty
2. What does Contract Certainty achieve?
The complete and final agreement of all terms between the insured and insurer by the time they enter the contract, with documentation provided promptly thereafter.
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D - Lloyd’s and the London Market
D4 Contract Certainty
3. What are the 3 elements of contract certainty?
Details - Certainty of the details of the agreed contract
Documents - Provision of contractual documentation to the client
Share - Certainty as to the final share of the risk that each insurer has agreed to take
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D - Lloyd’s and the London Market
D4 Contract Certainty
4. Who is responsible for ensuring contract certainty?
The underwriters.
The broker, if they were involved in placement.
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E - Intermediaries
1. What is an Intermediary?
An Agent.
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E - Intermediaries
2. What is an Agent’s relationship with the Principal?
The agent is authorised by the principal to bring the principal into a contractual relationship with a third party.
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E - Intermediaries
3. What sorts of mediation activities do agents perform?
Give advice
Promotion and sales functions
Complaints handling
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E - Intermediaries
4. Which statuses must the intermediary adopt to be exempt from FCA rules?
Appointed Representative (AR)
Introducer Appointed Representative (IAR)
Be a member of a designated professional body
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E - Intermediaries
5. What does it mean when an intermediary is exempted?
An authorised person/firm takes on the responsibility for the activities of the ARs/IARs.
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E - Intermediaries
6. What new category of intermediary was introduced in 2018 by the Insurance Distribution Directive (IDD)?
Ancillary Insurance Intermediary (AII)
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E - Intermediaries
7. What is an Ancillary Insurance Intermediary? Give an example.
Someone whose principle professional activity is not insurance distribution e.g. travel operator who sells travel insurance.
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E - Intermediaries
E1 Authorised Persons
1. Who/What is an Authorised Person?
An individual or firm authorised by the FCA to engage in regulated activities.
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E - Intermediaries
E1 Authorised Persons
2. What must an Intemediary wishing to offer insurance do to become an Authorised Person?
Apply for direct authorisation by the FCA.
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E - Intermediaries
E1 Authorised Persons
3. What happens to an Intermediary once they are authorised?
They are bound to abide by all FCA rules.
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E - Intermediaries
E1 Authorised Persons
4. What do FCA rules demand from authorised persons?
Financial accounting
Training and competence
Reporting requirements
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E - Intermediaries
E1 Authorised Persons
5. What has been the result of strict FCA rules?
A great deal of consolidation in the marketplace through sales and aquisitions.
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E - Intermediaries
E1 Authorised Persons
6. How do Umbrella organisations work?
Known as broker networks, the umbrella organisation becomes the authorised person and each “member” of the network becomes an appointed representative.
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E Intermediaries
E2 Appointed Representatives
1. What is an Appointed Representative?
An individual or company that is appointed by an authorised person (the principal) under the terms of a contract
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E Intermediaries
E2 Appointed Representatives
2. What is the name of the contract which sets out the terms of business between the intermediary and principal?
Appointed Representative Agreement
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E Intermediaries
E2 Appointed Representatives
3. What does the Appointed Representative Agreement determine?
The Appointed Representatives role and responsibilities
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E Intermediaries
E2 Appointed Representatives
4. What is the key feature of an Appointed Representative relationship?
The Principal takes responsibility for the Appointed Representatives activities in carrying out the business of the Principal.
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E Intermediaries
E2 Appointed Representatives
5. Can an Appointed Representative act for more than one Principal?
Yes, provided there is a suitable contract in place with each one.
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E Intermediaries
E2 Appointed Representatives
6. What must the Principals enter into if their Appointed Representative acts for more than one Principal?
A written Multiple Principal Agreement with every other Principal an AR may have.
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E Intermediaries
E2 Appointed Representatives
7. Give examples of Appointed Representatives.
Organisations with a non-insurance main occupation e.g. motor garages, freight forwarders, and associations who sell relevant insurance products to their members
Full time insurance agents that have decided to become “tied” to one or more insurer, rather than become authorised directly themselves.
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E Intermediaries
E2 Appointed Representatives
8. What are some of the problems that have arisen from the use of Appointed Representatives?
Principals not performing adequate due diligence at the outset of the appointment
Inadequate oversight and control once the AR begins performing regulated activities on behalf of principals
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E Intermediaries
E2 Appointed Representatives
9. New FCA rules came into force in December 2022 that state, with regard to Appointed Representatives Principle firms are required to now….what?
Apply enhanced oversight of the Appointed Representatives (AR).
Ensure ARs have adequate systems, controls and resources.
Assess and monitor the risk ARs pose to consumers and the market.
Review their ARs activities, business and senior management annually.
Be clear on the circumstances where they should terminate an AR relationship.
Notify the FCA of future AR appointments 30 calendar days before it takes effect.
Provide complaints and revenue information for each AR to the FCA on an annual basis.
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E Intermediaries
E3 Introducer Appointed Representatives
1. How is the scope of an Introducer Appointed Representatives appointment limited?
Limited to effecting introductions and distributing financial promotions e.g. proposals and brochures
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E Intermediaries
E3 Introducer Appointed Representatives
2. How are the Principals responsibilities for an Introducer Appointed Representative different than with an Appointed Representative?
A less demanding regime applies e.g. training and competence rules do not apply.
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E Intermediaries
E3 Introducer Appointed Representative
3. To whom does an Introducer Appointed Representative appointment suit?
Those who wish to act as a marketing channel for an insurer.
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E Intermediaries
E4 Lloyd’s Brokers
1. Does the FCA make any formal distinction between the term “broker” and “independent intermediary”?
No.
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E Intermediaries
E4 Lloyd’s Brokers
2. Can the term “Lloyd’s Broker” be used freely in the market?
Yes, although it is the Council of Lloyd’s that registers insurance broking firms to act as Lloyd’s brokers.
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E Intermediaries
E4 Lloyd’s Brokers
3. Name the order that granted access to Lloyd’s to a wider range of Intermediaries?
Legislative Reform (Lloyds) Order 2008
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E Intermediaries
E4 Lloyd’s Brokers
4. When an Intermediary uses a Lloyd’s broker what terms are used to describe the two parties?
Lloyds Broker - Wholesale Broker
Intermediary - Producing Broker or Sub-Broker
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E Intermediaries
E5 Services provided by Intermediaries
1. Who do Independent Intermediaries act on behalf of?
They act on behalf of the client, not the insurer.
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E Intermediaries
E5 Services provided by Intermediaries
2. What expertise do Independent Intermediaries provide?
Recommending the most appropriate insurer to place the risk with.
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E Intermediaries
E5 Services provided by Intermediaries
3. What must Independent Intermediaries advise on when giving a recommendation?
Whether the product recommended is a personal recommendation based on fair and personal analysis of the market.
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E Intermediaries
E5 Services provided by Intermediaries
4. What do FCA rules oblige Intermediaries to provide if they have not fully explored the market?
A list of products available.
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E Intermediaries
E5 Services provided by Intermediaries
5. How are Intermediaries traditionally remunerated?
A percentage of the premium.
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E Intermediaries
E5 Services provided by Intermediaries
6. List some of the typical services provided by Intermediaries to their clients.
Deciding the best market to place the risk.
Negotiating terms and conditions initially and for mid-term changes.
Provide advice to the client regarding the detail of the policy wording.
Negotiate renewal.
Advise clients on the validity of claims.
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E Intermediaries
E5 Services provided by Intermediaries
7. What additional services might Intermediaries also provide to their clients?
Risk Management advice
Assisting with the presentation of claims
Assisting with recovering any uninsured losses
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E Intermediaries
E5 Services provided by Intermediaries
8. What are the typical services provided by intermediaries on behalf of the insurers?
Collecting the premium
Settling claims on behalf of the insurer
Issuing cover notes to give evidence of cover
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E Intermediaries
E5 Services provided by Intermediaries
9. What rule applies if an Intermediary operates as an Appointed Representative for an Insurer?
They may only give advice in relation to that insurer’s products.
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E Intermediaries
E6 Consolidation of the Insurance Broking Sector
E6A Broker Networks
1. What is a Broker Network?
An organisation that is authorised by the FCA that offers Appointed Representative status to those who join.
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E Intermediaries
E6 Consolidation of the Insurance Broking Sector
E6A Broker Networks
2. What are the benefits of joining a broker network?
Firms who join retain ownership of their own broker firm
But gain access to centralized services such as accounting, training and development and compliance.
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E Intermediaries
E6 Consolidation of the Insurance Broking Sector
E6A Broker Networks
3. What benefits does a Broker Network receive?
Greater purchasing power in negotiations from insurers
Cost savings from joint operations
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E Intermediaries
E6 Consolidation of the Insurance Broking Sector
E6B Consolidators
1. What are Consolidators?
Companies that grow through formal aquisition of others in the market.
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E Intermediaries
E6 Consolidation of the Insurance Broking Sector
E6B Consolidators
2. Why are Insurers keen to offer preferential rates to Consolidators?
Size and potential for growth.
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E Intermediaries
E6 Consolidation of the Insurance Broking Sector
E6B Consolidators
3. The Legislative Reform (Lloyds) Order 2008 has removed the “Divestment Rule”. What did the rule state?
Broking and Underwriting activities must be completely separated.
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F Insurance Marketing and Distribution
1. Name the 4 Ps of the marketing mix
Product
Price
Promotion
Place
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F Insurance Marketing and Distribution
2. What do Promotion and Place relate to? And why is it important in insurance?
Distribution
Because choice of distribution channel affects pricing.
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F Insurance Marketing and Distribution
3. What are the two types of distribution channel? Give examples.
Direct - employees of the insurer sell the product
Indirect - intermediaries paid by the insurer promote the product
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F Insurance Marketing and Distribution
3. Who operates as direct marketing channels?
Direct insurers
Company sales staff
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F Insurance Marketing and Distribution
F1 Direct Marketing Channels
4. Who operates as indirect marketing channels?
Agents
Brokers
Consultants or advisers
Price comparison websites/aggregators
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F Insurance Marketing and Distribution
F1 Direct Marketing Channels
1. Give examples of direct marketing methods.
Targeted mailing
Telephone calls
Social media messaging
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F Insurance Marketing and Distribution
F1A Benefits and Drawbacks
1. What are the benefits of direct marketing?
When marketed directly, without involving paid sales staff, there will be reduced costs. These savings can be passed to the customer.
Customers can buy insurance quicker and more easily
Insurers can control the customer experience and make improvements to service quickly without having to involve third parties
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F Insurance Marketing and Distribution
F1A Benefits and Drawbacks
2. What are the drawbacks of direct marketing?
Only one product is available
Advertising and promotion costs can be significant
No independent advise is available regarding suitability
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F Insurance Marketing and Distribution
F2 Indirect Marketing Channels
1. What are benefits of indirect marketing?
There is an incentive to sell for intermediaries as they earn commission.
Intermediaries provide advice on suitability and attractiveness of the product
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F Insurance Marketing and Distribution
F2 Indirect Marketing Channels
2. What type of products are indirect marketing relationships suited to?
Complex commercial insurances
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F Insurance Marketing and Distribution
F2A Schemes and Delegated Authority
1. Who do insurers delegate authority to?
Intermediaries, to act on their behalf
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F Insurance Marketing and Distribution
F2A Schemes and Delegated Authority
2. Can Intermediaries be authorised to issue cover?
Yes, provided it falls within the defined criteria of a delegated authority arrangement
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F Insurance Marketing and Distribution
F2A Schemes and Delegated Authority
3. What is a binder?
A delegated authority scheme
with a great deal of flexibility within defined limits.
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F Insurance Marketing and Distribution
F2A Schemes and Delegated Authority
4. What is the attraction of Binder schemes for insurers?
Flow of business from the tailored wording
Agreed ratings for ease of business
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F Insurance Marketing and Distribution
F2A Schemes and Delegated Authority
5. What is the attraction of Binder schemes for Intermediaries?
Ability to grant immediate cover
Ease of operation
Sometimes profit sharing provision, if results of the scheme are good
146
F Insurance Marketing and Distribution
F2A Schemes and Delegated Authority
5. What is a Managing General Agent?
A specialist intermediary who has delegated authority to act for one or more insurers.
147
F Insurance Marketing and Distribution
F2A Schemes and Delegated Authority
6. What functions do Managing General Agents perform?
As an intermediary, MGAs perform functions ordinarily handled only by insurers
E.g. Marketing
Binding cover
Underwriting and pricing cover
Appointing agents and loss adjusters
Handling claims
148
F Insurance Marketing and Distribution
F2A Schemes and Delegated Authority
7. How do Managing General Agents benefit insurers?
By providing specialist expertise in niche areas
By distributing and servicing insurance products
149
F Insurance Marketing and Distribution
F3 Bancassurance
1. What is Bancassurance?
The arrangement between a bank and an insurance company whereby insurance products are sold to the bank’s customers
150
F Insurance Marketing and Distribution
F3 Bancassurance
2. What are the advantages of Bancassurance?
Access to each parties “scale efficiencies”
Lower risk to the business
Access to previously unavailable resources
Improving Value Chain Efficiency
Opportunities for joint product development
Access to one another’s brands and reputations
151
F Insurance Marketing and Distribution
F4 Price Comparison Website
1. What is the main criticism of price comparison websites?
The imperative to save time and effort in submitting personal details by limiting the number of questions may affect the accuracy of quotations.
152
G Reinsurance
1. What is Reinsuance?
The transfer of risk from insurers to reinsurers.
153
G Reinsurance
2. Name the three ways reinsurance may be done.
On an individual risk basis
On an event basis
On a portfolio of risks
154
G Reinsurance
G1 Purpose of Reinsurance
1. Give examples of why reinsurance is used.
To cover several losses to different risks that are all connected in some way e.g. Storm damage
To cover very large losses e.g. terrorist attack
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G Reinsurance
G1 Purpose of Reinsurance
2. When are insurers able to reinsure a risk they hold?
When they stand to lose financially as a result of any claim payment.
156
G Reinsurance
G1 Purpose of Reinsurance
3. Do insurers reinsure the whole risk?
No, they only reinsure part of the risk.
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G Reinsurance
G1 Purpose of Reinsurance
4. What does reinsuring part of the risk allow insurers to do?
Share losses on a risk-by-risk basis.
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G Reinsurance
G1 Purpose of Reinsurance
5. What is one of the big differences between Reinsurance and Co-Insurance?
When an insurer reinsurers, the insured need not know this has happened.
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G1 Purpose of Reinsurance
6. Is there a contractual relationship between the insured and the reinsurer?
No.
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G1 Purpose of Reinsurance
7. What happens when a claim occurs on a reinsured policy?
The insured will look to the insurer to meet the loss in full.
Any subsequent recovery of reinsurance monies is entirely a matter for the insurer to pursue with the reinsurer.
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G Reinsurance
G1 Purpose of Reinsurance
8. Name the 4 purposes of reinsurance
To smooth peaks and troughs in trading results
To protect the portfolio
To provide improved customer service
To provide support to insurers entering new areas of business
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G Reinsurance
G1A Smoothing Peaks and Troughs
1. How does reinsurance ensure stability in insurance companies?
By spreading the cost of very large losses over a period of time
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G Reinsurance
G1A Smoothing Peaks and Troughs
2. How does reinsurance provide stability in relation to adverse trends?
Reinsurers will require increases in premium, but will not try to recoup a very large payment in one go, instead spreading the cost over a number of years.
164
G Reinsurance
G1B Protecting the Portfolio
1. What is facultative reinsurance?
Reinsurance on a single known risk
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G Reinsurance
G1B Protecting the Portfolio
2. Why is facultative reinsurance used?
To protect the pool from effects of very large losses arising from a single cause e.g. weather related claims
166
G Reinsurance
G1B Protecting the Portfolio
3. What are Treaties?
Facilities arranged to enable insurers to place a range of risks that fall within agreed criteria.
167
G Reinsurance
G1B Protecting the Portfolio
4. Give examples of Treaties.
Reinsurance to protect the portfolio (class of business) as a whole
Reinsurance that pays out if the overall loss ratio exceeds a certain figure
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G Reinsurance
G1C Improving Customer Service
1. How does reinsurance improve customer service?
The extra capacity created by treaty arrangements enables insurers to accept much more than their own net capacity
169
G Reinsurance
G1C Improving Customer Service
2. Who does the extra capacity created by reinsurance benefit most?
Independent Intermediaries placing extremely large risks.
170
G Reinsurance
G1D Entering New Business Areas
1. When insurers decide to underwrite a new class of business, who must they register their intention to do so with?
The Prudential Regulatory Authority (PRA)
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G Reinsurance
G1D Entering New Business Areas
2. How does reinsurance help insurers to enter new business areas?
Special arrangements exist that provide extra capacity while the insurer is gaining experience.
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G Reinsurance
G2 Types of Reinsurer
1. What does the typical reinsurer look like?
Limited Liability Company
Substantial amounts of paid up capital
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G2 Types of Reinsurer
2. What are the main types of reinsurers?
Insurance companies
Lloyds syndicates
Specialist reinsurance companies
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G Reinsurance
G2 Types of Reinsurer
3. What is it called when reinsurance is reinsured? What is the risk called?
Retroceding
The risk placed is called Retrocession
175
G Reinsurance
G2 Types of Reinsurer
4. What is another name for a reinsurer?
Cedant or ceding office.
176
G Reinsurance
G2 Types of Reinsurer
5. What are the two main reinsurance centers?
Lloyds
The International Underwriting Association of London (IUA)
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G Reinsurance
G2 Types of Reinsurer
6. What is the International Underwriting Association of London (IUA) responsible for?
Representing its member companies
Providing information and research
It is not itself an insurer
178
G Reinsurance
G2 Types of Reinsurer
7. What purpose does the London Underwriting Centre (LUC) serve?
Produce clause wordings for the London Market, notably for Marine Insurance.
179
H Insurance Professionals
H1 Underwriters
1. What is the task of an underwriter?
To manage the pool as effectively and profitably as possible
180
H Insurance Professionals
H1 Underwriters
2. What are the main functions of an underwriter?
Assess the risks brought to the pool
Decide whether risks are accepted
Determine the terms and conditions and scope of cover offered
Calculate a suitable premium to cover expected claims, provide a reserve, meet all expenses and provide a profit
181
H Insurance Professionals
H1 Underwriters
3. Who can be an underwriter?
Employee of an insurance company
Employee of an insurance broker
Lloyd’s underwriter
An insurance company
182
H Insurance Professionals
H2 Claims Personnel
1. What is the role of Claims Personnel?
Deal quickly and fairly with all claims submitted
Distinguish between real and fraudulent claims
Determine the realistic cost of a claim prior to payment
Determine whether loss adjustors need to be involved
Settle claims with minimum wastage
183
H Insurance Professionals
H3 Loss Ajustors
1. What is a Loss Adjustor?
An expert in processing claims who acts for the insurer
184
H Insurance Professionals
H3 Loss Ajustors
2. When are loss adjustors used?
For larger claims or more complex policy wordings
185
H Insurance Professionals
H3 Loss Ajustors
3. What are the duties of a loss adjustor?
Investigate the circumstances surrounding a claim
Determine to what extent the policy covers the loss
Facilitate any emergency measures
Negotiate amounts claimed
Negotiate with any specialist suppliers
Make a recommendation for settlement to the insurer
186
H Insurance Professionals
H3 Loss Assessor
1. What is a Loss Assessor?
An expert in dealing with insurance claims who acts for the insured and negotiates claims
187
H Insurance Professionals
H5 Surveyors and those providing forensic services
1. What do Surveyors use forensic analysis to do?
Determine the proximate cause of a loss
188
I Market Organisations
I1 Association of British Insurers (ABI)
1. What is the Association of British Insurers?
The largest of the insurance market associations.
189
I Market Organisations
I1 Association of British Insurers (ABI)
2. What functions does the Association of British Insurers (ABI) serve?
Gather market statistics
Frame codes of practice
Public relations
Conferring with government
190
I Market Organisations
I1 Association of British Insurers (ABI)
3. What are the objectives of the Association of British Insurers (ABI)?
Get the right people to inform public policy
Be the public voice of the sector
Encourage customer understanding of products and services
Support a competitive insurance industry
191
I Market Organisations
I1 Association of British Insurers (ABI)
4. Name the two councils in the ABI.
General insurance council
Life insurance council
192
I Market Organisations
I2 British Insurance Brokers Association (BIBA)
1. What is BIBA?
The major non-statutory trade association for insurance intermediaries
193
I Market Organisations
I2 British Insurance Brokers Association (BIBA)
2. What are the key roles of BIBA?
Promote members views on legislation
Encourage training
Encourage links between members
Liaise with outside bodies
194
I Market Organisations
I3 Lloyd’s Market Association (LMA)
1. What does the Lloyds’s Market Association (LMA) do?
Provides representation, information and technical services to underwriting businesses in the Lloyd’s market
195
I Market Organisations
I3 Lloyd’s Market Association (LMA)
2. What are the Lloyd’s Market Association’s (LMA) strategic objectives?
Increase the flow of profitable businesses to the market
Maintain capital flexibility
Reduce costs
196
I Market Organisations
I4 London and International Insurance Brokers Association (LIIBA)
1. What is the London and International Insurance Brokers Association (LIIBA)?
Independent trade body that represents the interests of insurance and reinsurance brokers
197
I Market Organisations
I3 London and International Insurance Brokers’ Association (LIIBA)
2. What are the London and International Insurance Brokers’ Association (LIIBA) key priorities?
Represent members interests to government
Modernize London market processes
Support members with regard to legislative and technical changes
198
I Market Organisations
I5 London Market Regional Committee (LMRC)
1. What is the London Market Regional Committee (LMRC) a part of?
BIBA
199
I Market Organisations
I5 London Market Regional Committee (LMRC)
2. What is the role of London Market Regional Committee (LMRC)?
Lobbying on behalf of London market brokers
200
I Market Organisations
I6 International Underwriting Association of London (IUA)
1. What is the International Underwriting Association of London (IUA)?
The worlds largest representation organisation for international and wholesale insurance companies
201
I Market Organisations
I6 International Underwriting Association of London (IUA)
2. Is the International Underwriting Association of London (IUA) a limited company with a Chief executive and elected board?
Yes
202
I Market Organisations
I6 International Underwriting Association of London (IUA)
3. What are the objectives of the International Underwriting Association of London (IUA)?
Transform business through modernization
Deliver knowledge and expertise for underwriting and claims handling
Represent members on matters of public policy and regulation
203
I Market Organisations
I7 Managing General Agents’ Association (MGAA)
1. What purpose does the Managing General Agents’ Association (MGAA) serve?
Provides the industry with a better understanding of what an MGA is
204
I Market Organisations
I8 Chartered Insurance Institute (CII)
1. What activities does the Chartered Insurance Institute (CII) take part in?
Offering qualifications
Promoting professional growth
Careers information
Code of Conduct
205
I Market Organisations
I9 Chartered Institute of Loss Adjusters (CILA)
1. What is the Chartered Institute of Loss Adjusters? What do they provide? And who do they represent?
Leading authority on claims related issues
Code of conduct
Individuals rather than firms
206
I Market Organisations
I10 Institute and Faculty of Actuaries (IFOA)
1. What is the Institute and Faculty of Actuaries (IFOA)?
Only chartered body dedicated to Actuaries
207
I Market Organisations
I9 Institute of Risk Management?
1. What is the institute of risk management?
Only chartered body dedicated to risk management.
208
I Market Organisations
I12 Association of Insurance and Risk Managers in Industry and Commerce (AIRMIC)
1. What does AIRMIC do?
Promotes the interests of insurance buyers
209
I Market Organisations
I13 Insurtech UK (IUK)
1. What does IUK do?
Promotes technical innovation in the insurance sector
210
I Market Organisations
I10 Motor Insurers’ Bureau (MIB)
1. What is the purpose of MIB?
Enter into agreements with the government to compensate the victims of accidents cause by uninsured motorists
211
I Market Organisations
I10 Motor Insurers’ Bureau (MIB)
2. How is the MIB financed?
By a levy on authorised motor insurers
212
I Market Organisations
I10 Motor Insurers’ Bureau (MIB)
3. Name the two arms of the MIB.
Untraced Drivers
Uninsured Drivers
213
J Classes of Insurance
1. What do Personal Lines do?
Protect a policyholder from loss or damage to personal property or damages for which the policyholder may be held personally liable.
214
J Classes of Insurance
2. What do Commercial Lines do?
Protects a business from loss of its business property or damages for which the company may be held liable
215
J Classes of Insurance
3. What is Insurance Premium Tax levied on?
General insurance premiums
216
J Classes of Insurance
4. What are the two main rates of IPT?
Standard rate 12%
Higher rate 20% for travel insurance
217
J Classes of Insurance
5. What types of insurance of exempt from IPT?
Most long-term insurances
Reinsurance’s
Marine
Aircraft
Goods-in-transit (international)
Risks located outside the U.K.
218
J Classes of Insurance
6. Who collects IPT?
The insurer
Who then pays it to HMRC
219
J Classes of Insurance
J1 Motor Insurance
1. What is the name for cover that pays for losses to the policyholders property?
Property cover
220
J Classes of Insurance
J1 Motor Insurance
2. What is the name for cover that pays for damages for which the policyholder is liable?
Causality cover
221
J Classes of Insurance
J1 Motor Insurance
What are larger commercial motor risks referred to as?
Fleet-rated risks
222
J Classes of Insurance
J2 Home Insurance
1. What does home insurance provide cover for?
Buildings and contents against a range or perils including fire and theft
Valuables and personal effects are also included
223
J Classes of Insurance
J2 Home Insurance
2. Can home insurance cover accidental damage?
Yes, optional extensions are available
224
J Classes of Insurance
J3 Travel Insurance
1. What does travel insurance cover?
Injury
Death
Medical expenses
Loss of luggage, possessions, money
Cancellations
225
J Classes of Insurance
J4 Pet Insurance
1. What does Pet Insurance cover?
Vet costs if a pet is ill, injured or has an accident
226
J Classes of Insurance
J4 Pet Insurance
2. What optional extensions are available with pet insurance?
Purchase price if a pet dies due to accident
Third party injury caused by the pet
227
J Classes of Insurance
J5 Health Insurance
1. What are the 5 main types of health insurance?
Personal Accident
Sickness
Private Medical Insurance
Short-Term Income Protection
Critical Illness
228
J Classes of Insurance
J5 Health Insurance
2. What does personal accident cover? How is it paid?
Accidental death and disablement
Compensation is paid in a lump sum
229
J Classes of Insurance
J5 Health Insurance
3. How are temporary disabilities paid?
Paid by a weekly benefit for a specified period.
230
J Classes of Insurance
J5 Health Insurance
4. What does Sickness insurance cover?
An inability to engage in the individuals usual occupation due to sickness or disease
231
J Classes of Insurance
J5 Health Insurance
5. How is sickness insurance paid?
Compensation is paid in weekly installments for a specified period.
232
J Classes of Insurance
J5 Health Insurance
6. What does private medical insurance cover?
Individuals who seek medical treatment outside the NHS
233
J Classes of Insurance
J5 Health Insurance
7. What is the purpose of private medical insurance?
To provide cover for costs of acute care received, rather than long term or chronic conditions
234
J Classes of Insurance
J5 Health Insurance
8. What is short-term income protection designed to do?
Pay an agreed amount during a short period an individual can’t work because of accident, sickness or redundancy
235
J Classes of Insurance
J5 Health Insurance
9. How is short-term income protection paid?
The policyholder must wait a set number of days before receiving a monthly payment
236
J Classes of Insurance
J5 Health Insurance
10. What does critical illness insurance cover?
Cover in the event of a diagnosis of a defined range of disabilities or long-term serious illnesses
e.g. loss of limb, heart attack, stroke
237
J Classes of Insurance
J5 Health Insurance
11. What does payment protection insurance cover?
Covers monthly loan and credit card payments
238
J Classes of Insurance
J5 Health Insurance
12. How is Payment Protection Insurance paid?
Typically made directly to the insured’s creditors, rather than to the insured
239
J Classes of Insurance
J5 Health Insurance
13. Can Payment Protection Insurance be sold as a single premium contract?
No, it must be sold with other insurance.
240
J Classes of Insurance
J6 Liability Insurance
1. What does Liability insurance cover?
The legal liability to pay compensation and costs awarded against the insured in favour of another party.
241
J Classes of Insurance
J6 Liability Insurance
2. What does Employers Liability insurance cover?
Compensates the insured in respect of their legal liability to pay damages to any employee arising from bodily injury, disease, illness or death.
242
J Classes of Insurance
J6 Liability Insurance
3. Is Employers Liability Insurance compulsory?
Yes.
243
J Classes of Insurance
J6 Liability Insurance
4. What does Public Liability insurance cover?
Compensates the insured in respect of claims from third parties for accidental bodily injury or damage to property due to negligence
244
J Classes of Insurance
J6 Liability Insurance
5. What does Products Liability insurance cover?
Legal liability for third party bodily injury or property damage caused by products, goods or services sold or supplied.
245
J Classes of Insurance
J6 Liability Insurance
6. What does Directors and Officers Liability insurance cover?
Covers personal legal liability incurred by individual directors and officers for financial loss resulting from their negligence or failure to fulfill their statutory responsibilities
246
J Classes of Insurance
J6 Liability Insurance
7. What does Professional Indemnity insurance cover?
Protects a person acting in their professional capacity against claims that loss or injury resulted from their negligent actions or advice.
247
J Classes of Insurance
J7 Commercial Property Insurance
1. What do Perils and “All Risks” policies cover?
Material property such as building, contents and stock
248
J Classes of Insurance
J7 Commercial Property Insurance
2. How are Perils and “All Risks” policies issued?
Tend to be issued on the basis of building up cover by adding different perils or, as with risk policies, removing exclusions.
249
J Classes of Insurance
J7 Commercial Property Insurance
3. What does Engineering/Breakdown insurance cover?
Explosions, breakdown or accidental damage to plant & machinery
250
J Classes of Insurance
J7 Commercial Property Insurance
4. What legal requirement applies to Engineering/Breakdown insurance?
Many items need to be inspected regularly by a competent person.
251
J Classes of Insurance
J7 Commercial Property Insurance
5. What do Glass insurance cover? And on what basis?
Destruction or damage to all fixed glass
On an “All Risks” basis
252
J Classes of Insurance
J7 Commercial Property Insurance
6. What does Livestock insurance cover?
Covers livestock against death through accident or disease, and theft
253
J Classes of Insurance
J7 Commercial Property Insurance
7. What does Money insurance cover? And on what basis?
Covers all losses, destruction or damage to money.
“All Risks” basis
254
J Classes of Insurance
J8 Pecuniary Insurance
1. What does Pecuniary insurance cover?
Intangibles such as income, revenue or value.
255
J Classes of Insurance
J8 Pecuniary Insurance
2. What does Fidelity mean?
Faithful or loyal performance of a duty
256
J Classes of Insurance
J8 Pecuniary Insurance
3. What does a Fidelity Guarantee cover against?
Financial loss as a result of dishonesty or disloyalty of a company employee
257
J Classes of Insurance
J8 Pecuniary Insurance
4. What does Legal Expenses insurance cover?
The cost of seeking legal advice or pursuing/defending civil actions.
258
J Classes of Insurance
J8 Pecuniary Insurance
5. What does Credit insurance cover?
Covers a business against non-payment
259
J Classes of Insurance
J8 Pecuniary Insurance
6. What does Business Interruption insurance cover?
Losses caused by an interruption to normal business activities usually caused by material damage or disease
260
J Classes of Insurance
J8 Pecuniary Insurance
7. How is Business Interruption insurance paid?
Paid in respect of actual loss of earnings, adjusted for business trends
plus costs associated with business recovery
261
J Classes of Insurance
J8 Pecuniary Insurance
8. What does Political insurance cover?
The risk that revolution or political conditions result in a loss.
262
J Classes of Insurance
J8 Pecuniary Insurance
9. What does Guaranteed Asset Protection (GAP) cover?
Covers the difference between the amount still to be repaid on the finance that was taken out to buy the vehicle and the amount the insurance company pays if the car is stolen or totaled.
263
J Classes of Insurance
J9 Marine and Aviation Insurance
1. What are the 3 main risks with Marine insurance?
Physical damage to the ship or goods
Liabilities incurred to other parties
Loss of income
264
J Classes of Insurance
J9 Marine and Aviation Insurance
2. What does Marine Hull insurance cover?
Physical damage to the ship, its machinery and equipment
And some limited liability in case of contact with other vessels
265
J Classes of Insurance
J9 Marine and Aviation Insurance
3. What does Marine Cargo insurance cover?
Loss or damage to goods.
266
J Classes of Insurance
J9 Marine and Aviation Insurance
4. What does Marine Freight insurance cover?
The sums paid for transporting goods or for vessel hire.
267
J Classes of Insurance
J9 Marine and Aviation Insurance
5. What does Aviation insurance cover?
Loss of or damage to the aircraft
Legal liability to third parties and passengers
268
J Classes of Insurance
J9 Marine and Aviation Insurance
6. How is aviation cargo covered?
Under a marine policy.
269
J Classes of Insurance
J9 Marine and Aviation Insurance
10. Name another special type of aviation insurance.
Satellite insurance.
270
J Classes of Insurance
J10 Cyber Insurance
1. What does Cyber insurance cover?
Protects businesses from both first party and third party losses arising from cyber attacks.
271
J Classes of Insurance
J10 Cyber Insurance
2. What else is included in Cyber insurance?
Costs of investigation
Recovering lost data
Loss of income arising from an attack
Extortion payments demanded by attackers.
272
J Classes of Insurance
J11 Combined or Packaged Policies
1. What do Combined or Packaged policies do?
Bring together a range of types of cover or a range of risks/perils under one policy.
273
J Classes of Insurance
J11 Combined or Packaged Policies
2. Who are combined packages designed for?
Particular trade sectors e.g. shopkeepers, hoteliers, hairdressers
Usually relatively inflexible (don’t cater to other trades)
Carefully researched to cater for a particular trade, at favourable rates.
