I10 1 Understand the insurance broking market Flashcards
(60 cards)
A reinsurance broker arranges reinsurance cover for a client who is a reinsurer [ABC Reinsurance Ltd.]. Cover is arranged with another reinsurer [XYZ Reinsurance Ltd.]. In this example, XYZ Reinsurance Ltd. would be the:
A. Client.
B. Primary Insurer.
C. Retrocessionaire.
D. Cedant.
C. Retrocessionaire.
An insurance broker decides to apply a fee in addition to the policy premium in order to reflect the extra work involved on a case. Which of the following assumptions is incorrect?
A. As the fee is for the broker’s service, it does not need to be separately shown on an invoice.
B. Fees are paid by the insured to the broker for the service they provide.
C. The fee would generally not be reimbursed to the client following a mid-term adjustment.
D. The fee should be agreed prior to the contract.
A. As the fee is for the broker’s service, it does not need to be separately shown on an invoice.
A Lloyd’s broker finds that a slip submitted to underwriters has become oversubscribed. To correct the matter, what action should the Lloyd’s broker take?
A. Proportionately reduce each underwriter’s line.
B. Submit the slip ‘as is’ to the Bureau for amendment.
C. Liaise with the Council of Lloyd’s to correct the matter.
D. Cancel the slip, create a new one and start again from the beginning.
A. Proportionately reduce each underwriter’s line.
Most insurance brokers will deal with retail customers, however what type of broker specifically has other brokers as its clients?
A. A general insurer.
B. An online broker.
C. An aggregator.
D. A wholesale broker
D. A wholesale broker
Although insurance brokers can engage in a wide range of financial services activities, nowadays the term is generally used to describe organisations that:
A. Offer independent advice.
B. Introduce customers to other intermediaries.
C. Function as tied agencies.
D. Assist with insurance claims.
A. Offer independent advice.
A broking account executive successfully negotiates some revised terms with the head underwriter at the holding insurer on behalf of a client. The broker has used their broking network facility to arrange a 5% discount. The principal in this relationship is the:
A. Underwriter who agreed to the policy terms.
B. Insurer who carries the risk and agrees to accept the cover.
C. Network which arranged the 5% discount.
D. Client who instructed the broker to arrange the cover.
D. Client who instructed the broker to arrange the cover.
Which of these is a benefit to both a client and their insurer of using an insurance broker?
A. Time and money saved in relation to administration.
B. The ability to quote from a range of insurers.
C. Technical expertise to explain products in full.
D. The delegation of tasks such as premium collection.
C. Technical expertise to explain products in full.
Insurance brokers often offer a range of ‘Added Value Services’ to assist with the needs of their clients. Can you identify which of the following options would NOT be typical of an ‘Added Value Service’ offered by a broker?
A. Property surveys.
B. Specialist tax advice.
C. Health and safety consultation.
D. Business continuity planning.
B. Specialist tax advice.
Identify which of the following statements is NOT true of Lloyd’s of London?
A. The Lloyd’s market is made up of syndicates.
B. Lloyd’s is a subscription market.
C. Lloyd’s is an insurer.
D. Broking firms must be registered with the Council of Lloyd’s to act as ‘Lloyd’s brokers’.
C. Lloyd’s is an insurer.
Broking firms whose principal method of growth is through mergers and acquisitions which result in a smaller number of larger firms are known as:
A. Global firms.
B. Consolidators.
C. Aggregators.
D. Wholesale brokers.
B. Consolidators.
One of the main differences between a wholesale broker and a retail broker, involved in the same placement, is that only the retail broker
A. acts on behalf of the principal.
B. deals directly with the proposer.
C. is remunerated from the overall commission available.
D. will have access to the Lloyd’s market.
B. deals directly with the proposer.
The principal of a reinsurance broker is the
A. insurance broker.
B. insured.
C. insurer.
D. reinsurer
C. insurer.
What is the benefit to an insurer of having an insurance policy placed through an insurance
broker?
A. Full disclosure of the policyholder’s material circumstances will always be made.
B. The insurance broker is responsible for paying the insurance premium in the event of
non-payment by the policyholder.
C. The insurance broker will explain the technical aspects of the insurance policy to the
policyholder.
D. The policyholder retention rate is always greater than that achieved for a direct placement.
C. The insurance broker will explain the technical aspects of the insurance policy to the
policyholder.
What type of risks are placed by insurance brokers?
A. All types of risk.
B. Commercial risks only.
C. Global risks only.
D. Personal lines risk only.
A. All types of risk.
Within an insurance brokerage, who is usually responsible for ensuring that mediation activities
comply with the Financial Conduct Authority’s requirements?
A. An account executive.
B. The compliance officer.
C. The data protection officer.
D. The finance director.
B. The compliance officer.
When a Lloyd’s insurance broker uses the subscription market to place an insurance policy, this is a process of
A. co-insurance.
B. co-ordination.
C. consolidation.
D. contribution.
A. co-insurance.
A firm of insurance brokers which establishes a network will seek to attract members who are
A. clients.
B. insurers.
C. other insurance brokers.
D. reinsurers.
C. other insurance brokers.
An insurance broker obtains quotations from a number of insurers for a client. In what circumstances may the broker take into account the amount of commission that will be paid when deciding which insurer to recommend?
A. Where no fee is charged in addition to the commission earned.
B. Where the approval of the regulator has been obtained.
C. Where the client’s interests are not prejudiced.
D. Where the policy is placed via Lloyd’s.
C. Where the client’s interests are not prejudiced.
Why does an insurer use a reinsurance broker to place its property catastrophe worldwide reinsurance exposure?
A. To provide an enhanced claims service.
B. To reduce its administration expenses.
C. To use the reinsurance broker’s expertise to reinsure the exposure with one large reinsurer
only.
D. To use the reinsurance broker’s expertise to reinsure the exposure with a number of financially strong reinsurers.
D. To use the reinsurance broker’s expertise to reinsure the exposure with a number of financially strong reinsurers.
Who instructs a wholesale insurance broker to place an insurance policy?
A. An appointed representative.
B. An insured.
C. An insurer.
D. A retail insurance broker
D. A retail insurance broker
Which element of the amount payable by a client must an insurance broker show separately on an invoice?
A. Commission.
B. Fee.
C. Administrative charges.
D. Work transfer fee
B. Fee.
Where a retail broker uses a wholesale broker to place business, who has a duty of care to the insured?
A. It is shared equally between the brokers.
B. It remains with the retail broker.
C. It solely depends on the terms of business agreed between the brokers.
D. It transfers from the retail broker to the wholesale broker
B. It remains with the retail broker.
How much commission does an insurance broker receive on placement of an insurance policy with a premium of £500 plus Insurance Premium Tax and a 20% commission rate?
A. £88
B. £100
C. £112
D. £120
B. £100
One of the key roles of an insurance broker is to
A. act as an intermediary between the insurer and the regulator.
B. calculate the insurance premium.
C. conduct insurance mediation on behalf of insurers.
D. provide independent, impartial advice to clients
D. provide independent, impartial advice to clients
