I10 5 Understand the Key Financial Issues affecting Insurance Brokers Flashcards by Annie Larthe

A firm of insurance brokers arranges a business interruption review for a client by an independent third party provider. Into which account will they pay the fee received from the client for this
service?

A. Broker funds.

B. Client assets.

C. Insurer funds.

D. Risk transfer.

A. Broker funds.

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Why must an insurance broker segregate client assets from broker funds?

A. To allow claims payments to be made to clients.

B. To allow the offsetting of transactions against monies held for clients.

C. To ensure client monies are protected in the event of the failure of the broker.

D. To facilitate the addition of interest earned on balances held.

C. To ensure client monies are protected in the event of the failure of the broker.

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What money may be retained in an insurance broker’s client asset account?

A. Commission earned on insurance premiums.

B. Fees received from clients for insurance services.

C. Income received from investments.

D. Return premiums from insurers prior to payment to clients.

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When a risk transfer arrangement is in place with an insurer, who is responsible for client funds if the money is lost due to the bankruptcy of an insurance broker?

A. The client.

B. The Financial Conduct Authority.

C. The Financial Services Compensation Scheme.

D. The insurer

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What is the principal aim of the Insurance Distribution Directive?

A. Consumer protection.

B. Data protection.

C. Prevention of bribery in insurance.

D. Prevention of money laundering.

A. Consumer protection.

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What should a firm of insurance brokers consider to help maintain client retention levels?

A. Ensure faster premium payments are made to insurers.

B. Increase the level of claims reserves.

C. Recruit and train quality employees.

D. Request increased commission levels from insurers

C. Recruit and train quality employees.

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How does an insurance broker obtain additional income by up-selling?

A. By extending cover under an existing policy.

B. By providing insurance for a different class of business to an existing client.

C. By referrals from existing clients.

D. By targeting competitors’ clients.

A. By extending cover under an existing policy.

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Broker X focuses on motor insurance and Broker Y on complex commercial risks. Both brokers offer high levels of customer service. Which broker, if either, would normally achieve ongoing renewal retention rates of above 95%?

A. Neither broker.

B. Broker X only.

C. Broker Y only.

D. Both brokers

C. Broker Y only.

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Why is it important that an insurance broker with a high client retention level also focuses on attracting new clients?

A. The client base will naturally erode.

B. Commission rates are always higher for new business.

C. Cross-sold business levels are always significantly lower than new client levels.

D. The regulator requires a balanced approach to business.

A. The client base will naturally erode.

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What is the main disadvantage to a firm of insurance brokers of placing policies on a loss-leader basis?

A. Attraction of poor quality business in the early stages.

B. The need to increase the incentivisation of sales staff.

C. Significantly reduced profits in the early stages.

D. Such policies have a high claims ratio

C. Significantly reduced profits in the early stages.

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Why must an insurance broker have more than one bank account?

A. The Financial Services Compensation Scheme limits the amount of compensation payable following financial failure.

B. To keep money owed to clients and insurers separate from income earned by the broker.

C. To separate insurance premiums received from domestic and international clients.

D. Terms of Business Agreements require that separate accounts operate for each insurer.

B. To keep money owed to clients and insurers separate from income earned by the broker.

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A firm of insurance brokers will use the insurer funds account for

A. holding earned commission.

B. payment of insurer accounts statements.

C. payment of employees’ salaries.

D. receipt of fees paid by clients for risk management services.

B. payment of insurer accounts statements.

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For what main reason, do most insurance brokers try to maintain service excellence to their clients?

A. To encourage new business.

B. To increase commission payments

C. To reduce administrative expenses.

D. To retain client business at renewal.

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With what minimum frequency must earned commission be taken from insurer’s funds?

A. Every 5 business days.

B. Every 14 business days.

C. Every 25 business days.

D. Every 90 business days.

C. Every 25 business days.

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From which bank account would an insurance broker pay a return premium to a client?

A. Broker funds.

B. Client assets.

C. Contingency funds.

D. Insurer assets

B. Client assets.

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In what circumstances, if any, is an insurance broker permitted to retain a client’s return premium?

A. In all circumstances.

B. Only if the broker is registered with the regulator.

C. Only if the client agrees.

D. In no circumstances.

C. Only if the client agrees.

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The requirements of the Insurance Distribution Directive 2018 enable the Financial Conduct Authority to regulate

A. all insurance contracts.

B. Lloyd’s brokers only.

C. the point of sale of consumer insurance products.

D. transactions relating to commercial insurance only

C. the point of sale of consumer insurance products.

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Under the Insurance Distribution Directive 2018, in what circumstances, if any, can the requirement for an insurance broker to disclose its commission to a client be waived?

A. In no circumstances.

B. Where the client is a consumer.

C. Where the client is a professional customer.

D. Where the client is a small commercial business.

C. Where the client is a professional customer.

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An insurance broker has a motor insurance portfolio with a high level of churn. What is the impact on its business?

A. Its turnover is likely to decrease.

B. Its turnover is likely to increase.

C. It will be involved in a higher number of claims.

D. It will receive a higher level of commission.

A. Its turnover is likely to decrease.

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What is represented by an insurance broker’s renewal retention figure?

A. The amount of commission the broker receives from renewed policies.

B. The number of clients that increase their premium on renewal.

C. The percentage of clients that remain with the same insurer.

D. The percentage of clients that renew their policies.

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Who does an insurance broker always approach when obtaining new business by cross-selling?

A. Commercial clients.

B. Consumers.

C. Existing clients.

D. New clients.

C. Existing clients.

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What action is an insurance broker most likely to take to generate new business?

A. Increasing excesses on insurance policies.

B. Increasing commission levels.

C. Investing in marketing.

D. Outsourcing all claims functions.

C. Investing in marketing.

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Insurance brokers are required to make regular returns to the Financial Conduct Authority [FCA] on an integrated system called GABRIEL. What is the correct name for these returns?

A. Retail Mediation Activities Return (RMAR).

B. Activity Return Monitoring Services (ARMS).

C. Return Monitoring Retail Activities (RMRA).

D. Mediated Retail Services Activities (MRS)

A. Retail Mediation Activities Return (RMAR)

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Insurance contracts are often transacted at considerable distances between the insurer, the broker and the customer. Can you identify a key consideration of the distance communications rules in ICOBS 3?

A. Transactions over the internet must be finalised through a software house using EDI.

B. Information in a durable medium must be supplied before the conclusion of the contract.

C. Policy wordings must be available in booklet form.

D. When a broker is located over 100 miles from a customer, the broker should inform the customer of this fact.

B. Information in a durable medium must be supplied before the conclusion of the contract

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Of the four criminal offences under the Bribery Act 2010, which has been the main cause for concern for insurance brokers? A. Giving, promising or offering a bribe. B. Requesting, agreeing to receive or accepting a bribe. C. Bribing a foreign public official. D. Failure by a commercial organisation to prevent bribery.

D. Failure by a commercial organisation to prevent bribery.

Insurance brokers operate within a regulatory environment. Which of the following is NOT considered a direct impact of the regulatory environment? A. Carrying on regulated activities without authorisation is a criminal offence. B. Brokers must adhere to the rules and principles laid down by the British Insurance Brokers' Association (BIBA). C. Regulated firms must ensure that the insurers they deal with are properly authorised. D. Regulated firms must follow the Financial Conduct Authority's (FCA's) rules and principles to maintain their authorisation.

B. Brokers must adhere to the rules and principles laid down by the British Insurance Brokers' Association (BIBA).

Although the Financial Conduct Authority [FCA] carries out a wide range of activities, its primary objective is: A. authorising and regulating organisations engaged in financial services. B. policing financial services and issuing fines for breaches of regulation. C. taking a non-risk based approach to their activities. D. consumer protection through the fair treatment of customers

D. consumer protection through the fair treatment of customers

When authorising an insurance intermediary, governance is a key area of consideration for the Financial Conduct Authority [FCA]. Which option best describes the area of governance? A. How the firm is managed, directed and controlled. B. The shared values and beliefs that help define the firm. C. The end-to-end sales processes of the firm. D. How the firm looks to prevent financial crime.

A. How the firm is managed, directed and controlled.

An insurance broker monitors a range of their insurance mediation activities to ensure compliance with the Financial Conduct Authority's [FCA's] rules. Which example would NOT normally be classed as an insurance mediation activity? A. A third party web designer creating code for an insurance broker’s website. B. An administrative assistant who updates the details of a home insurance policy. C. A part-time account executive at an insurance brokerage who only occasionally places cover. D. An apprentice insurance broker who deals with clients, but has not completed their 6 month trial.

A. A third party web designer creating code for an insurance broker’s website.

An insurance broker receives instructions from a customer who is acting in both a private and a commercial capacity. According to ICOBS 2, the broker should treat the customer as a: A. dual customer. B. retail customer. C. commercial customer. D. Private customer.

C. commercial customer.

As part of your role with an international insurance broker, you often have to arrange cover on overseas assets for overseas clients. As a matter of best practice, it would be advisable to check the clients against: A. HM Treasury’s sanctions list. B. HM International Property Database. C. the Home Office International list. D. the International Sanctions Due Diligence Database

A. HM Treasury’s sanctions list.

In accordance with data protection legislation, which of the following would be considered a data subject? A. The profit and loss accounts for a Limited Company. B. A person who died over 10 years ago. C. A datasheet summarising the size of the population. D. A living person who retired 10 years ago.

D. A living person who retired 10 years ago.

The basis of how commission can be withdrawn by an insurance broker from an insurer’s money account is usually detailed in A. a demands and needs statement. B. a key features document. C. the Client Assets Sourcebook. D. a Terms of Business Agreement.

D. a Terms of Business Agreement.

With what minimum frequency must earned commission be taken from insurer’s funds? A. Every 5 business days. B. Every 14 business days. C. Every 25 business days. D. Every 90 business days.

C. Every 25 business days.

From which bank account would an insurance broker pay a return premium to a client? A. Broker funds. B. Client assets. C. Contingency funds. D. Insurer assets.

B. Client assets.

In what circumstances, if any, is an insurance broker permitted to retain a client’s return premium? A. In all circumstances. B. Only if the broker is registered with the regulator. C. Only if the client agrees. D. In no circumstances.

C. Only if the client agrees.

The requirements of the Insurance Distribution Directive 2018 enable the Financial Conduct Authority to regulate A. all insurance contracts. B. Lloyd’s brokers only. C. the point of sale of consumer insurance products. D. transactions relating to commercial insurance only.

C. the point of sale of consumer insurance products.

One of the key aims of the Insurance Distribution Directive 2018 is to A. ensure that plain language is used in all contract terms. B. increase the level of protection provided by the Financial Ombudsman Service. C. make it easier for insurance broking firms to trade in another country. D. reduce the level of reporting by insurance brokers to regulators.

C. make it easier for insurance broking firms to trade in another country.

Under the Insurance Distribution Directive 2018, in what circumstances, if any, can the requirement for an insurance broker to disclose its commission to a client be waived? A. In no circumstances. B. Where the client is a consumer. C. Where the client is a professional customer. D. Where the client is a small commercial business.

C. Where the client is a professional customer.

An insurance broker has a motor insurance portfolio with a high level of churn. What is the impact on its business? A. Its turnover is likely to decrease. B. Its turnover is likely to increase. C. It will be involved in a higher number of claims. D. It will receive a higher level of commission.

A. Its turnover is likely to decrease.

What is represented by an insurance broker’s renewal retention figure? A. The amount of commission the broker receives from renewed policies. B. The number of clients that increase their premium on renewal. C. The percentage of clients that remain with the same insurer. D. The percentage of clients that renew their policies.

D. The percentage of clients that renew their policies.

Whom does an insurance broker always approach when obtaining new business by cross-selling? A. Commercial clients. B. Consumers. C. Existing clients. D. New clients.

C. Existing clients.

What action is an insurance broker most likely to take to generate new business? A. Increasing excesses on insurance policies. B. Increasing commission levels. C. Investing in marketing. D. Outsourcing all claims functions

C. Investing in marketing.

For what main reason, do most insurance brokers try to maintain service excellence to their clients? A. To encourage new business. B. To increase commission payments C. To reduce administrative expenses. D. To retain client business at renewal.

D. To retain client business at renewal.

With what minimum frequency must earned commission be taken from insurer’s funds? A. Every 5 business days. B. Every 14 business days. C. Every 25 business days. D. Every 90 business days.

C. Every 25 business days.

From which bank account would an insurance broker pay a return premium to a client? A. Broker funds. B. Client assets. C. Contingency funds. D .Insurer assets.

B. Client assets.

C. Only if the client agrees.

C. the point of sale of consumer insurance products.

C. Where the client is a professional customer.

A. Its turnover is likely to decrease.

D. The percentage of clients that renew their policies.

Who does an insurance broker always approach when obtaining new business by cross-selling? A. Commercial clients. B. Consumers. C. Existing clients. D. New clients

C. Existing clients.

C. Investing in marketing.

In accordance with the Insurance: Conduct of Business sourcebook (ICOBS), what must an insurance broker disclose to a potential client regarding the premium to be paid? A. The amount of commission within the premium. B. The full premium calculation, including loadings and discounts. C. The premium with any fee shown separately. D. The premium both with and without Insurance Premium Tax.

C. The premium with any fee shown separately.

The Financial Conduct Authority’s approach to supervision requires insurance brokers to A. deal only with insurers who are members of the Association of British Insurers. B. identify and reduce risks which may affect its clients. C. improve the level of qualifications of its team D. submit details of complaints on a monthly basis.

B. identify and reduce risks which may affect its clients.

What type of insurance broker is the Financial Conduct Authority responsible for regulating? A. All European insurance brokers who place insurance risks with UK insurers. B. Only those insurance brokers who conduct general insurance mediation activities. C. Only those insurance brokers who conduct insurance mediation activities in the UK. D. Only those insurance brokers who place consumer insurance.

C. Only those insurance brokers who conduct insurance mediation activities in the UK.

When does an insurance broker’s duty for the fair treatment of customers expire? A. When an insurance placement is completed. B. At policy inception. C. At policy termination only. D. After policy termination when all claims have been settled.

D. After policy termination when all claims have been settled.

What is the maximum time period after inception during which an insurance broker should send an insurance policy to a consumer to comply with the Contract Certainty Code of Practice? A. 5 days. B. 7 days. C. 10 days. D. 14 days.

B. 7 days.

What does the regulator require in order for firms of insurance brokers to demonstrate the competency of employees? A. Annual appraisals. B. Continuing professional development. C. Success in approved examinations. D. The issuance of suitability statements

B. Continuing professional development.

In order to satisfy regulatory requirements, what is the minimum number of years for which an insurance broker must keep training records? A. 3 years. B. 5 years. C. 7 years. D. 10 years.

A. 3 years.

Where an employee of a firm of insurance brokers suspects that a client may be involved in money laundering, what action must initially be taken? A. Cease any business transactions with the client. B. Confront the client. C. Freeze any assets held by the broker on behalf of the client. D. Report the suspicion.

D. Report the suspicion.

Why is an insurance broker required to check the sanctions list? A. To avoid placing business for a prohibited client. B. To check a client’s financial assets. C. To establish in which territories a business client operates. D. To verify the legal existence of a business client.

A. To avoid placing business for a prohibited client.

How may an insurance broker inadvertently receive a bribe from a client? A. By accepting a lunch invitation to discuss the renewal of a client’s insurance programme. B. By receiving a client request to conduct a risk management site inspection. C. By receiving a gift for placing a client’s insurance programme. D. By receiving a request to speak at an international insurance conference.

C. By receiving a gift for placing a client’s insurance programme.

A client telephones an insurance broker to request details of the data that is held about him. What data, if any, must the broker provide? A. Full details of the data, but it is illegal for a fee to be charged. B. Full details of the data, but a fee may be charged. C. A summary of the data. D. Such data cannot be provided

B. Full details of the data, but a fee may be charged.

For how long may an insurance broker retain personal data about a UK policyholder? A. For the policy period only. B. For a maximum of 10 years only. C. Until the death of the policyholder only. D. Only for the time period that is required for its purposes

D. Only for the time period that is required for its purposes

An insurance broker placed a risk based on information supplied by a consumer. Although the broker had every reason to believe the information to be accurate, deliberate misrepresentation was proven at the time of a claim. How is responsibility for this misrepresentation allocated under the Consumer Insurance (Disclosure and Representations) Act 2012? A. Equally between the broker and consumer. B. Fully with the broker. C. Fully with the consumer. D. It depends on whether or not the information was available on an industry database.

C. Fully with the consumer.

An insurance broker must comply with the requirements of the Consumer Insurance (Disclosure and Representation) Act 2012 when placing what type of insurance? A. Business interruption. B. Household. C. Marine cargo. D. Motor fleet.

B. Household.

The Financial Conduct Authority’s rules relating to identifying client needs, product information and claims handling are stated in the A. Consumer Insurance Act 2012. B. Insurance: Conduct of Business sourcebook (ICOBS). C. Insurance Mediation Directive 2012. D. Terms of Business Agreement.

B. Insurance: Conduct of Business sourcebook (ICOBS).

Why must an insurance broker segregate client assets from broker funds? A. To allow claims payments to be made to clients. B. To allow the offsetting of transactions against monies held for clients. C. To ensure client monies are protected in the event of the failure of the broker. D. To facilitate the addition of interest earned on balances held.

C. To ensure client monies are protected in the event of the failure of the broker.

What money may be retained in an insurance broker’s client asset account? A. Commission earned on insurance premiums. B. Fees received from clients for insurance services. C. Income received from investments. D. Return premiums from insurers prior to payment to clients.

D. Return premiums from insurers prior to payment to clients.

When a risk transfer arrangement is in place with an insurer, who is responsible for client funds if the money is lost due to the bankruptcy of an insurance broker? A. The client. B. The Financial Conduct Authority. C. The Financial Services Compensation Scheme. D. The insurer.

D. The insurer.

What is the principal aim of the Insurance Mediation Directive 2002? A. Consumer protection. B. Data protection. C. Prevention of bribery in insurance. D. Prevention of money laundering.

A. Consumer protection.

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

Which element of the amount payable by a client must an insurance broker show separately on an invoice? A. Commission. B. Fee. C. Insurance Premium Tax. D. Work transfer fee.

B. Fee.

Under a contract of insurance, what is brokerage? A. The commission paid to the broker by the insurer, which is included in the premium. B. The commission rebated by the insurer to the insured in cases with limited broker involvement. C. A fee paid by the insured directly to the broker. D. A fee paid by the insured directly to the insurer, in addition to the premium.

A. The commission paid to the broker by the insurer, which is included in the premium.

How does an insurance broker obtain additional income by up-selling? A. By extending cover under an existing policy. B. By providing insurance for a different class of business to an existing client. C. By referrals from existing clients. D. By targeting competitors’ clients.

A. By extending cover under an existing policy.

C. Broker Y only.

Why is it important that an insurance broker with a high client retention level also focuses on attracting new clients? A. The client base will naturally erode. B. Commission rates are always higher for new business. C. Cross-sold business levels are always significantly lower than new client levels. D. The regulator requires a balanced approach to business.

A. The client base will naturally erode.

What is the main disadvantage to a firm of insurance brokers of placing policies on a loss-leader basis? A. Attraction of poor quality business in the early stages. B. The need to increase the incentivisation of sales staff. C. Significantly reduced profits in the early stages. D. Such policies have a high claims ratio.

C. Significantly reduced profits in the early stages.

Why must an insurance broker have more than one bank account? A. The Financial Services Compensation Scheme limits the amount of compensation payable following financial failure. B. To keep money owed to clients and insurers separate from income earned by the broker. C. To separate insurance premiums received from domestic and international clients. D. Terms of Business Agreements require that separate accounts operate for each insurer.

B. To keep money owed to clients and insurers separate from income earned by the broker.