Chapter 3- Other roles of insurance brokers

Question 1

what are the fundamental factors separating Lloyd’s from other insurers

Answer 1

• the market in which they operate
• their methods of transacting business
• many of the risks they place

Question 2

the three ways in which Lloyd’s transact

Answer 2

1. face to face between the broker and underwriter
2. through the use of delegated authority
3. through businesses set up outside Lloyd’s by syndicates

Question 3

The process of placing risk with Lloyd’s

Answer 3

step one-
the broker receives an initial enquiry from the client
step two-
the risk is presented to the lead underwriter by means of ‘slip’
step 3-
the slip is presented to other underwriters until the total amount of risk is underwritten
step 4-
the quote is presented to the client
step 5-
the broker revisits the underwriters to bind the risk
step 6-
the risk is recorded centrally and documents are issued to the client

Question 4

which of the following is NOT a method of transacting business at Lloyd’s?

A. through delegated authority schemes
B. on a face-to-face basis between broker & insurer
C. through business set up outside of Lloyd’s by syndicates
D. on a face-to-face basis between the insured and insurer

Answer 4

D. on a face-to-face basis between the insured and insurer

Question 5

the purpose of a reinsurer

Answer 5

• to smooth peaks and troughs in claims experiences
• to protect the portfolio of risks being transferred
• to provide improved customer service
• to provide the support for insurers entering new areas of business

Question 6

which of the following is NOT a purpose of reinsurance?

A. to smooth peaks and troughs in claims experience
B. to protect and insurer’s property risk portfolio from the damaging effect of multiple claims following a storm
C. to improve the service a broker offers to their client
D. to provide support for insurers who have decided to write a new liability line

Answer 6

C. to improve the service a broker offers to their client

Question 7

the two distinct control aspects

Answer 7

Physical controls- e.g. installing sprinklers and alarm systems

financial controls- making sure the contract is worded correctly e.g. arranging for the security firm to accept responsibility form cash while in its control

Question 8

which of the following is NOT a benefit of risk management?

A. the reduction in the potential loss by identifying a fire hazard and fitting the extinguishers
B. the introduction of a formal loss register to help identify the company’s risks
C. the reduction in an insurance premium where an insurer can see that a company has installed a new sprinkler system
D. the replacement of uncertainty of the size of a loss with a certainty of a fixed premium.

Answer 8

D. the replacement of uncertainty of the size of a loss with a certainty of a fixed premium.