General insurance markets

Question 1

• Lloyd’s

Answer 1

is a special insurance market where wealthy individuals and corporate bodies, known as ‘Names’, group together in syndicates to collectively coinsure risks. Lloyd’s itself does not provide the insurance.

Question 2

The main reasons for captives include (5):

Answer 2

o Focussing effort on risk management
o Managing the overall insurance spend
o Access to the reinsurance market
o Providing insurance cover not available elsewhere
o tax or regulatory advantages

Question 3

• Protections and Indemnity (P&I) Clubs

Answer 3

provide insurance to ship owners. They are a popular way to cover marine liability claims due to their mutual nature and the provision of technical assistance. The international Group of P&I Clubs can be used to pool very large risks and to obtain reinsurance.

Question 4

• Non-London Market business can be sold (3)

Answer 4

o Through intermediaries, such as brokers or tied agents (eg building societies or travel agents)
o By staff employed by the provider
o Via direct marketing methods (eg internet or telesales)

Question 5

• Regulation may affect the following areas (12)

Answer 5

o Amount/ mix of business written, including location of business, mandatory cover, restrictions on selling illegal products, etc
o Authorisation of insurance companies and management
o Restrictions on sales methods, eg licensing of agents and cooling off periods
o Underwriting and premium restrictions, eg approval required for premium rates
o Capital requirements, eg requirements to hold reserves, minimum capital requirements, risk-based capital calculations, restrictions on discounting etc
o Investment restrictions, eg assets held, matching requirements, etc
o Contributions to consumer protection bodies
o Requirements to treat customers fairly
o Restrictions and anti-competitive behaviour
o Reporting and disclosure requirements
o Audit requirements and requirements to produce a statement of actuarial opinion
o Reinsurance requirements

Question 6

• The disadvantages of regulation include (7)

Answer 6

o Monitoring and compliance costs
o Fewer business opportunities
o Lower investment returns
o Barriers to entry
o Higher costs passed on to policyholders
o Fewer economies of scale
o Less insurance provision to some sectors of the population