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LM2 > Chapter 8 - Business Process > Flashcards

Chapter 8 - Business Process Flashcards

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1
Q

What is a quotation?

A

A proposal/indication from the insurer as to the terms + conditions that they’re suggesting for the risk

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2
Q

What are ‘Aggregators’?

A

•Organisations that provide client with a number of quotations based on the info provided

•E.g. comparethemarket.com

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3
Q

If a quotation has expired + the client tries to accept it, what is the legal implication of an insurer?

A

Insurer isn’t obliged to accept, but they can if they want

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4
Q

If a client hasn’t accepted the quotation, but they’ve received it, what is the legal implication of an insurer?

A

The insurer isn’t on risk

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5
Q

If the insurer doesn’t indicate the period of validity for a quotation, what happens?

A

The concept of ‘reasonable time’ applies, which is a standard rule in contract law

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6
Q

If further material information to the contract is provided after the initial quotation, what can the insurer do?

A

Insurer can change or withdraw their quotation

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7
Q

If a risk is placed on paper, how will the UW agree their line?

A
  1. UW will agree their written lines using a rubber stamp showing the company + name
  2. UW scratches the slip (signing their initials or insurer’s initials) + adds the date
  3. Insurer states the underwriting reference that it’s applying to the risk
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8
Q

If a risk is placed electronically, how will the UW agree their line?

A

UW will agree their line electronically - the system records a timestamp + identification code for the insurer/UW based on their logins to the system

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9
Q

When is the contract between the insured + insurer concluded?

A

When the UW puts their line down on the broker’s slip (MRC)

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10
Q

At what point are the insurers on risk?

A

At the inception date

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11
Q

What does it mean if a risk is oversubscribed and what should a broker do in this scenario?

A

•The total of written lines taken by UWs exceeds 100%

•Broker needs to reduce the shares to a total of 100% - this is ‘signing down’

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12
Q

What is ‘signing down’ when a risk is oversubscribed + how does it happen?

A

•The process in which shares of a risk are reduced to 100%

•When a risk is entered into the market central database at Velonetic, each insurer’s written line is reduced proportionally, so the total lines add up to 100%

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13
Q

What should an insurer do if they don’t want their line reduced when a risk is oversubscribed?

A

They can indicate when they put their stamp down that they want their ‘line to stand’ or this can be done electronically

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14
Q

What are reasons for natural termination of an insurance contract?

A
  1. Cancellation by insured - consumers can cancel in 1st 14 days (the ‘cooling off period’)
  2. Cancellation by insurer - e.g. in marine hull, a policy terminates if the vessel is sold
  3. Fulfilment - e.g. if subject-matter doesn’t exist anymore + policy has paid out in full if vehicle suffered a total loss
  4. Expiry of policy period
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15
Q

What is a ‘short rate premium provision’ in a policy?

A

Shows the % the insurer keeps based on how many days the policy was in force before cancelling

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16
Q

What is a ‘downgrade clause’ that an insured may put in the policy?

A

Insured can remove an insurer from their policy if their security rating goes below a certain level, if they go into run/off, if they’re bought by another insurer, or if a certain UW is leaving

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17
Q

Reasons for unexpected termination (under the insurance act 2015)?

A
  1. Breach of the duty of fair presentation - insured should provide info in clear way + info that senior management knows
  2. Breach of warranty - contract is suspended for the period of breach
  3. Fraud
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18
Q

If there’s breach of warranty, does the insurer still pay claims for commercial insureds?

A

Yes, if the insured shows that the breach didn’t increase the risk of loss

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19
Q

If the commercial insured breaches duty of fair presentation + it was deliberate/reckless, what can the insurer do?

A

Insurer can avoid the contract + retain the premium

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20
Q

If the commercial insured breaches duty of fair presentation, but wasn’t deliberate/reckless, what can the insurer do?

A

The insurer can avoid the contract if they wouldn’t have written it + return the premium

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21
Q

If the insurer proves fraud in relation to duty of fair presentation from the commercial insured, what can the insurer do?

A

Insurer can be discharged from the liability + keep the premium

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22
Q

Why would an insurer want to renew a policy?

A
  1. It costs less to renew business then write it from scratch
  2. If portfolio of clients is stable, then the statistical data is more stable
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23
Q

What are the FCA 2017 rules on renewal transparency for retail general insurers?

A
  1. Disclose last year’s premium on renewal notices
  2. Include text to encourage consumers to check their cover + look for the best deal
  3. Tell consumers who’ve renewed for 4 consecutive times to shop around for the best deal
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24
Q

What are ‘days of grace’ in renewals?

A

Allows insured some scope should they be late in renewing their insurance, but policy has to state it does this

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25
What is the ‘warranted no known or reported losses’ (WNKORL) warranty that UW use?
Makes sure that UWs don’t pay for any losses before they write the line as they may look at a risk after it has already incepted
26
Where are proposal forms mostly used in the LM & why?
•Professional indemnity & yacht insurance •Regulators want yacht insurers to ask all questions that they want answered
27
What are proposal forms?
•They include questions on claims history, turnover, geographical spread of the risk, nature of business, etc •Forms created by the broker/insured that the insured answers + signs •They’re used in conjunction w/ the slip to present the risk to the insurer for a quotation
28
What are the different ways a broker can present risks to an UW?
1. Proposal forms 2. MRC/slip 3. Online/in-person presentations 4. Send info to UWs via PPL or Whitespace or face-to-face w/ paper documents
29
What are the benefits of MRC as a document used to present risk info?
•Easier for insurers to find info of the risk •Easier to perform other processes, like creation of contract documentation •Easier to comply w/ contract certainty •Easier to work towards electronic submission info
30
What is an open market MRC?
•Broker places each risk individually + visits each UW separately •Mandatory to use in Lloyd’s market + highly recommended to use in company markets •MRC v3 issued March 2023 to support market moving towards greater data discipline required for the use of Core Data Record
31
What is a lineslip MRC?
•Broker arranges a group of UWs •If 1/2 agree to a risk, then the remainder will be bound to the risk or each insurer can agree to their own share of the risk
32
What is a binder MRC?
UWs given delegates underwriting authority to a 3rd party, the 3rd party operate within a limit of authority + reports back the risks they’ve written each month
33
What are the 6 sections of an open market MRC?
1. Risk details 2. Info - provided further info 3. Security details 4. Subscription agreement 5. Fiscal & regulatory 6. Broker remuneration & deductions
34
In the ‘premium & payment terms’ in ‘risk details’ section of the open market MRC, what is the LSW3000 clause?
If premium isn’t paid by pre-agreed days, then insurer can give 15 days’ notice of cancellation to the insured
35
What is insurance premium tax (IPT)?
•In UK, this is added to the premium for certain insurances, such as travel •The client pays this to the insurer, then is paid to HMRC
36
What is in the ‘security details’ section of an open market MRC?
•Insurers’ liability •Order - share of the risk the broker is placing on the MRC •Basis or written lines - % of whole, % of order, or part of whole (used when UWs show their share in financial terms, not as a %) •Signing provision - details how signing down will be done + how lines to stand will apply •Written lines - UWs put their stamps + write their lines + references - UWs can put 2 notations next to stamp (‘line to stand’ or other related to reinsurance)
37
What is ‘insurers’ liability’ in the ‘security details’ section of an open market MRC?
If more than 1 insurer is on risk, then need to have a several liability wording stating that each insurer is liable for their proportion of the risk
38
What is the ‘basis of sighed lines’ in the ‘security details’ section of an open market MRC?
Used if basis is different to written lines, but this is not expected for open market business
39
What is in the ‘subscription agreement’ section of an open market MRC?
1. Slip leader & bureau leader (if slip isn’t part of Lloyd’s or IUA) 2. Basis of agreement to contract changes - the GUA is created for most classes 3. Basis of claims agreement 4. Experts fee collection 5. Settlement due date - date premium should be paid 6. Bureaux arrangements - state of policy is going to be signed on a de-linked basis
40
What is de-linking in bureaux arrangements?
•Risk is sent to Velonetic to be entered into the market database early + premium is paid later •Eaerly data entry is good as can get data to UWs + give the risk central references
41
What is in the ‘fiscal & regulatory’ section of an open market MRC?
•Tax payable by insurers - e.g. premium + income tax •Country of origin - head office of insured •Regulatory risk location •Overseas or surplus lines broker •State of filing + US classification (US regulators want to know about risk if uses US dollars) •Allocation of premium to coding - risks written in Lloyd’s have a risk code identifying what business it is (e.g. cargo) •Allocation of premium to years of account - if policies exceed 18 months (e.g. construction contracts) •Regulatory client classification - most risks in LM are commercial or large risks
42
What is the digitisation process of LM?
•Want fully computable contracts, so need to agree a Core Data Record for direct + fac reinsurance business using ACORD standards •Then develop MRC v3 for open market business - this is a stepping stone into developing the data discipline between all market participants
43
44
What is the Core Data Record in the digitisation process of the LM?
•It provides the transaction related data from bind in order, premium validation + settlement, claims matching at 1st notification of loss, tax + regulatory validation, + reporting (Lloyd’s only) •It will be the source of info on which digital processing is based •It has 37 mandatory fields + 180 conditional
45
What is an endorsement?
Document that the broker presents changes to the UWs
46
What is the General Underwriters Agreement?
•Creates agreement between UWs on an MRC about who will deal with contract changes •It has class of business specific schedules - e.g. non-marine, marine cargo, etc •Slip lead should attach a GUA stamp to the endorsement + indicate which UWs are required to agree
47
What is the General Underwriters Agreement?
•Creates agreement between UWs on an MRC about who will deal with contract changes •It has class of business specific schedules - e.g. non-marine, marine cargo, etc •Slip lead should attach a GUA stamp to the endorsement + indicate which UWs are required to agree - for marine, all UWs historically are notified
48
What are
49
What are the 3 parts of the General Underwriters Agreement?
1. Slip leader only - refers to non-material changes ( e.g. typo errors) 2. Slip leader + agreement parties 3. All UWs historically - refers to material changes (e.g. changes to geographical scope)
50
What is the ‘market reform contract endorsement (MRCE)’ section?
•Refers to change being requested: contract changes, risk + endorsement identification, any supporting info, agreement party of changes, contract advisory (including, changes to MRC sections ‘subscription agreement’, ‘fiscal + regulatory’, + ‘broker remuneration’ •If change requires premium to be paid/refunded, then a settlement date is shown
51
How does the broker process premiums?
1. Broker prepares documents for client showing premium + tax they have to pay (IPT) - this is debit note form 2. Broker prepares documents for insurer who aren’t using central settlement systems (overseas insurers) to show amount of premium they’ll receive - or does London Premium Advice Note (LPAN) for insurers using the central system (1 typically is created for Lloyds + 1 for company markets) 3. Broker using Accounting + Settlement systems to submit slip, LPANs, other docs to Velonetic 4. Velonetic checks this + risk data is captured on databases for Lloyd’s (LIDS) + company markets (POSH) w/ premium info 5. Signing number + data is created on every premium payment data + message is sent to insurers 6. Premium is moved from brokers account to insurers
52
What is the marine insurance act 1906 term s.53?
Broker is responsible to insurers for payment of premium
53
What is the operative clauses in the policy document?
Sets out what is covered under the policy
54
What are 2 types of conditions in a policy?
1. Condition precedent to contract - the condition must be satisfied for the contract to exist - e.g. must have insurance interest 2. Condition precedent ro liability - the condition must be satisfied for the insurer to have liability under the contract - e.g. must notify insurer of claim within x days
55
What is an exclusion?
A risk that the insurer won’t cover under a policy
56
What are the rules Lloyd’s have for war risks?
Need to formally request permission to write war business in the business planning process + needs regular exposure reports for static + mobile risks (realistic disaster scenarios)
57
What are warranties?
•Promises made by the insured relating to facts or performance concerning the risk - (e.g. have a operational sprinkler in the building) •They’re used by insurers for important elements of a risk + they carry penalties if breached
58
Under the Insurance Act 2015, what is the law on warranties?
•If there’s a breach of warranty, then the policy is suspended until the breach is remedied •If loss occurs + insured shows that breach of warranty didn’t increase the risk of loss, then insurer still pays
59
When does the LM use another markets’ policy forms + wordings?
When the other market has led the risk or writing the primary + London is providing excess layer coverage
60
What are the different methods of conducts business in LM?
1. Service companies 2. Branch offices 3. Services + establishment business 4. Delegated underwriting
61
What are service companies as a method of conducting business in LM?
•Type of delegated underwriting •Operate in LM where managing agents see yo insurance organisations in various locations •They underwrite on behalf of the syndicate
62
What are branch offices as a method of conducting business in LM?
To write in other countries, insurance companies need regulatory permission, which usually involves setting up a branch office to write risks in that country - Although, this doesn’t apply to Lloyd’s syndicates
63
Insurers operating in EU can operate in 2 ways: services + establishment basis, what is this?
1. Services - insurers can stay within their own country + write risks coming out of other countries on a cross-border basis - they’re regulated by only their home regulator 2. Establishment - insurers can choose to set up an office in another country + write risks from there
64
What is Lloyd’s Brussels (Lloyd’s Insurance Company S.A.)?
•Belgian insurance company that’s a sub of Lloyd’s •Set up to ensure that when UK left EU, syndicates operating within Lloyd’s market could operate in EU •Can write direct + reinsurance business in EEA + Monaco
65
What is a ‘pure follow basis’?
The line is a follow line w/ no variations from the leader’s term
66
What is contract certainty?
All parties of a contract know what is going on + all the terms at the point they enter into the contract
67
What do insurer/broker do to ensure contract certainty when entering into a contract?
1. Check MRC terms are clear 2. If risk placed after inception, use WNKORL 3. If there’s a subjectivity (e.g. insured provided survey to insurer before inception), then make clear whose responsible + penalty for non-compliance
68
What do insurer/broker do to ensure contract certainty after entering into a contract?
1. Send client full policy, MRC, BID, or certificate - Send within 30 days of inception for commercial customers + 7 working days for consumer 2. Broker passes risk info to Xchanging quickly so its registered on databases + final signed lines are advised to insurers (broker can also do this directly) 3. Insurers use ‘line to stand’ if they want their written line to be their final share of the risk
69
What do insurer/broker do to ensure contract certainty during contract changes?
•Use MRCE & E-MRCE •Give info to insured promptly using copy of MRCE, BID, or formal endorsement
70
What do insurer/broker do to ensure contract certainty when more than 1 insurer is involved?
1. On MRC, make it clear whether lines are of order or whole 2. Broker shouldn’t take the written or signed lines above 100% of the risk after inception

LM2 (10 decks)

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