Management of expenses

Question 1

The department with largest expenditure

Answer 1

Claims department

Question 2

The shop window of a company

Answer 2

Claims Department

Question 3

For this reason, it is imperative that the cost of settling claims is accurate, carefully monitored and properly reserved for.

Answer 3

True

Question 4

If the claims department regularly sets aside insufficient funds to cover the cost of claims, this could have

Answer 4

A negative effect on the profitability, and even the solvency, of the company.

Question 5

A similar effect will be produced if claims are regularly over paid

Answer 5

(This is called leakage).

Question 6

The claims department costs the insurer money when it settles a claim

Answer 6

(Called indemnity spent)

Question 7

There is also the cost of running the claims department to consider.

Answer 7

True

Question 8

The role of the claims manager is crucial in all these areas,

Answer 8

True

Question 9

The claims department creates and manages the largest amount of money spent by an insurance company.

Answer 9

True

Question 10

Therefore, the position of the claims manager is vital to developing

Answer 10

Operational excellence.

Question 11

Another form of the key tasks of claims manager is

Answer 11

To ensure the company’s strategic direction is followed;

having sufficient resources budgeted to the department to meet their objectives, and have an effective departmental structure to ensure the work is done; is a claims manager key task.

have suitable computer systems that produce effective, accurate reports and preferably incorporate a workflow system; is key task of claims manager.

maintain best practice within the claims department;

maintain a sufficiently senior status so that they are able to exert the influence the role demands; and

set business plans and objectives to ensure smooth
operation of the plans;

Question 12

There are two main aspects to the claims manager’s responsibilities when it comes to considering cost are :

Answer 12

Overseeing the internal cost of running the claims department (claims expenses).
Monitoring the cost of the claims themselves (claims indemnity), which encompasses the average lifecycle

Question 13

staff salaries and benefits; the cost of any outsourcing; and IT provision are examples of :

Answer 13

claims manager responsibilities in terms of cost when overseeing the internal cost of running claims department.

Question 14

payment of claims;
recovery from reinsurers, where appropriate, subrogated recovery are examples of claims manager responsibilities in terms of cost when monitoring the cost of the claims themselves (claims indemnity), which encompasses the

Answer 14

average lifecycle.

Question 15

Question 7.1
Which of the following is NOT a consideration for a claims manager when determining costs and expenses of running his operation?

a. Payments made to customers. □
b. Payments made to suppliers. □
c. Cost of recruiting staff. □
d. Office rent and rates. □
e. Cost of IT for claims staff. □

Answer 15

D

Question 16

What does the claims manager also needs to do :

Answer 16

ensure they have the means to recruit, train, motivate and retain intelligent and
competent staff.

Question 17

There are two main aspects to the claims manager’s responsibilities when it comes to considering cost are :

Answer 17

Overseeing the internal cost of running the claims department (claims expenses).

Monitoring the cost of the claims themselves (claims indemnity), which encompasses the average lifecycle

Question 18

staff salaries and benefits; the cost of any outsourcing; and IT provision are examples of :

Answer 18

Caims manager responsibilities in terms of cost when overseeing the internal cost of running claims department.

Question 19

payment of claims;
recovery from reinsurers, where appropriate, subrogated recovery are examples of claims manager responsibilities in terms of cost when monitoring the cost of the claims themselves (claims indemnity), which encompasses the

Answer 19

Average lifecycle.

Question 20

How is leakage defined as?

Answer 20

the amount by which the actual settlement exceeds the amount that would have been required to make an acceptable settlement under the policy.

Question 21

What does the claims manager also needs to do :

Answer 21

Ensure they have the means to:
recruit, train, motivate and retain intelligent and
competent staff.

Question 22

It can be seen from this that leakage could be the critical factor between a:

Answer 22

profitable or unprofitable account.

Question 23

When is an ex gratia payment made?

Answer 23

to preserve good business relationships,
where an exclusion is a borderline one;
where hardship would be created

Question 24

However, within this process, there is scope for paying more than is justified by the details and circumstances of the claim.

Answer 24

True

Question 25

This potential overpayment is referred to in an insurance context as

Answer 25

Leakage,

Question 26

It may be problematic should a recovery be required from

Answer 26

reinsurers

Question 27

How to identify overpayment, by:

Answer 27

A detailed review of the handling of a claim through its various stages is required.

Question 28

It can be seen from this that leakage could be the critical factor between a:

Answer 28

Profitable or unprofitable account.

Question 29

Quantifying overpayment is not an exact science, but entails a degree of ?

Answer 29

Subjectivity

Question 30

Leakage the overpayment of claims categorised as

Answer 30

either soft or hard leakage.

Question 31

Ex gratia payments would be authorised by :

Answer 31

The claims manager.

Question 32

EX GRATIA PAYMENTS cannot really be regarded as avoidable overspend, and it may be problematic should a recovery be required from

Answer 32

Reinsurers

Question 33

Once any overpayment has been identified?

Answer 33

steps should be taken to prevent or limit its reoccurrence.

Question 34

How could an overpayment of claims be avoided?

Answer 34

The claims handler should have been properly trained and systems should have been in place to ensure that before the file was closed.

Question 35

What to consider before closing claim?

Answer 35

Excess taken into account, Indemnity offer was made, Salvage was sold to the benefit of the insurer, subrogation rights exercised against third party.

Question 36

Leakage the overpayment of claims categorised as

Answer 36

Either soft or hard leakage.

Question 37

Who could put emphasis on reducing claims payments in particular rather than expenses in general?

Answer 37

Senior Management

Question 38

Also what function should apply in respect of all claims, not just the large ones?

Answer 38

Management Control

Question 39

Who would have to be trained to the appropriate levels, and be encouraged to take professional qualifications?

Answer 39

Employee skills

Question 40

Once any overpayment has been identified?

Answer 40

Steps should be taken to prevent or limit its reoccurrence.

Question 41

Supervision of staff : | Supervisors require all the same skills as the rest of the employees plus:

Answer 41

* management training; and | * presentation training

Question 42

Who would require additional training?

Answer 42

Supervisors, in the management and presentation of the training.

Question 43

Adequate checks should be in place to avoid hard leakage and as many aspects of soft leakage as possible. What function is this?

Answer 43

Quality Management

Question 44

Checks that are USUALLY undertaken by way of regular audit are:

Answer 44

Quality Management.

Question 45

Computer systems can be designed to stop certain areas of leakage. For example, a system could warn or stop a user from making a payment. for which an excess or deductible has not been applied. What is the function of the example?

Answer 45

IT checks

Question 46

What does this encourage staff to be?

Answer 46

more attuned to ensuring the accuracy and validity of their actions, and ultimately reduces errors and omissions.

Question 47

In his article, George Bathurst considers the main cause of leakage to be poorly skilled, badly trained staff by :

Answer 47

using ineffective, disparate systems.

Question 48

Supervision of staff : | Supervisors require all the same skills as the rest of the employees plus:

Answer 48

* Management training; and | * Presentation training

Question 49

Who would require additional training?

Answer 49

Supervisors, in the management and presentation of the training.

Question 50

Adequate checks should be in place to avoid hard leakage and as many aspects of soft leakage as possible. What function is this?

Answer 50

Quality Management

Question 51

Checks that are USUALLY undertaken by way of regular audit are:

Answer 51

Quality Management.

Question 52

Computer systems can be designed to stop certain areas of leakage. For example, a system could warn or stop a user from making a payment. for which an excess or deductible has not been applied. What is the function of the example?

Answer 52

IT checks

Question 53

Insurers should allow a culture of accuracy and open challenge to flourish.

Answer 53

True

Question 54

What does this encourage staff to be?

Answer 54

More attuned to ensuring the accuracy and validity of their actions, and ultimately reduces errors and omissions.

Question 55

In his article, George Bathurst considers the main cause of leakage to be poorly skilled, badly trained staff by :

Answer 55

Using ineffective, disparate systems.

Question 56

He (George Bathurst) maintains that an improvement in business processes will :

Answer 56

Directly affect profitability.

Question 57

The longer it takes to process a claim, the more opportunity there is for money to ‘leak’ out of the company.

Answer 57

True | George Bathurst article

Question 58

Most policyholders (individuals and companies alike) pay premiums for cover and in the event of a claim, expect to be paid an indemnity.

Answer 58

True

Question 59

An insurer is effectively a ‘trustee’ for the vast amounts of money generated by all those premiums and it is critical that it ensures that it has sufficient funds to

Answer 59

Pay the claims that are made.

Question 60

An insurer must always have a mandatory solvency margin, which means that it must have a proportion of its funds set aside to pay out :

Answer 60

Reported and estimated claims.

Question 61

With the demise of several insurers over the last few decades, it is even more critical that an insurer’s financial state is continually assessed to ensure that it: remains in a position to pay its liabilities, i.e. .....

Answer 61

its claims.

Question 62

What is Solvency II?

Answer 62

The Solvency II Directive is a European Union (EU) Directive for insurance companies.

Question 63

What is Solvency II function?

Answer 63

It directs insurers to ensure that they have enough capital set aside to provide reserve funds to cover all insurance claims that they are likely to receive.

Question 64

For further background reading, you can visit the Bank of England website:

Answer 64

https://bit.ly/2N1LOa8

Question 65

Can you think of the reasons for monitoring a company’s financial performance?

Answer 65

There are a number of reasons why it is necessary to monitor a company’s financial performance

Question 66

Who has to be satisfied that the company is solvent?

Answer 66

The regulators

Question 67

Why does a company need to be solvent?

Answer 67

In order to allow it to continue underwriting and pay claims.

Question 68

What are the requirements of Lloyd’s syndicates?

Answer 68

To file various financial performance indicators to Lloyd’s for similar reasons;

Question 69

What are the purposes for Lloyd's syndicates in relation to financial performance filing?

Answer 69

annual reports and accounts; and maintain management control (especially in respect of budgeting).

Question 70

Annual reports and accounts and maintaining management control (especially in respect of budgeting) are Lloyd's syndicates purposes for :

Answer 70

Filing financial performance indicators.

Question 71

The Financial Conduct Authority (FCA): | are responsible for ensuring that markets:

Answer 71

Operate with integrity; promotes effective competition; and requires firms to put the well-being of their customers at the heart of how they run their businesses.

Question 72

The Financial Services Act 2012 enables the Financial Policy Committee (FPC) within the Bank of England to give directions, using its macro-prudential tools, to the :

Answer 72

Regulators

Question 73

What's the purpose of the The Financial Services Act 2012 enabling the Financial Policy Committee (FPC) within the Bank of England to give directions, using its macro-prudential tools?

Answer 73

For protecting and enhancing stability.

Question 74

What does The Act of The Financial Services Act 2012 also require?

Answer 74

The Prudential Regulation Authority (PRA) to consider financial stability in its regulation of PRA authorised persons, such as banks and insurers.

Question 75

What does the The Prudential Regulation Authority (PRA) require??

Answer 75

The FCA to include within its objectives the soundness, stability and resilience of the UK financial system.

Question 76

Who is responsible to include within its objectives the soundness, stability and resilience of the UK financial system??

Answer 76

Financial Conduct Authority

Question 77

The FCA regulates the conduct of business for ALL authorised firms and supervises firms based upon a ‘three pillar’ system which involves the following.

Answer 77

Firm Systematic Framework, Event-driven work, Issues and products.

Question 78

What is Firm Systematic Framework?

Answer 78

FCA's three pillar system: Preventative work through a structured assessment of firms.

Question 79

What is Event-driven work?

Answer 79

FCA's three pillar system: Dealing with problems that have emerged or happened and securing them with customer redress or alternative remedial work.

Question 80

What is Issues and Products??

Answer 80

FCA's three pillar system: Campaigns in relation to market sectors or products which put or may put customers at risk?

Question 81

What is the focus of the FCA?

Answer 81

Ensure that client assets are protected and that relevant markets function well.

Question 82

Management accounts enable a company to: control, monitor and plan (budget)

Answer 82

the company’s operations.

Question 83

The system originally covered risk categories C1 (large banking and insurance groups with very large number of retail customers) through to C4 (smaller firms including:

Answer 83

Most intermediaries.

Question 84

The FCA announced in September 2015 that it was making further changes to its:

Answer 84

Supervisory model,

Question 85

How it classified firms, to support the sector-based approach introduced as part of its ‘New Strategy’ in 2015 by the :

Answer 85

FCA

Question 86

The FCA will continue to look at the way individual firms and people behave, but will also increasingly look at how:

Answer 86

Markets work as a whole, with greater emphasis on sector and market-wide analysis.

Question 87

Part of the change to the FCA model is a move away from C1 to C4 conduct categories that it has previously used; instead, firms will now be categorised as either ??

Answer 87

‘fixed portfolio’ or ‘flexible portfolio’.

Question 88

The FCA approach will vary depending on the risks it has identified in each sector, but may mean that over time, some firms will see changes to ??

Answer 88

How they are supervised.

Question 89

The reclassification meant that around 70 firms moved from ‘fixed’ to ‘flexible’ portfolio or from ??

Answer 89

‘flexible’ to ‘fixed’.

Question 90

Fixed Portfolio Firms require highest level of supervisory attention.

Answer 90

TRUE

Question 91

Fixed portfolio firms are based on factors such as:

Answer 91

Size, market presence and customer footprint.

Question 92

The majority of firms are classified as??

Answer 92

Flexible portfolio firms.

Question 93

How are flexible portfolio firms proactively supervised?

Answer 93

The programmes of communication, engagement and education activity aligned with the key risks identified for the sector in which the firms operate, are the ways in which the flexible portfolio firms supervised.

Question 94

Flexible portfolio firms use the FCA Customer Contact Centre as their first point of contact with FCA as they :

Answer 94

Are not allocated a named individual supervisor.

Question 95

Contact Centre staff should have the expertise to deal with the majority of issues and queries, and these will be passed onto the:

Answer 95

Appropriate supervision area where necessary.

Question 96

Required by the Companies Act 1985 are:

Answer 96

Annual reports and accounts.

Question 97

Annual reports and accounts include :

Answer 97

Profit and loss account; and balance sheet.

Question 98

The profit and loss account shows the transactions carried out by a company during the financial year.

Answer 98

True

Question 99

The balance sheet shows the financial position at the end of the financial year

Answer 99

True

Question 100

Balance Sheet shows the assets and liabilities of the company.

Answer 100

True

Question 101

Premium reserves, such as outstanding claims and incurred but not reported (IBNR) claims are disclosed in the

Answer 101

Liability section.

Question 102

Management accounts enable a company to: control, monitor and plan (budget)

Answer 102

The company’s operations.

Question 103

They are produced more frequently than the annual reports and accounts.

Answer 103

True

Question 104

Management accounts are produced more frequently than annual reports and accounts.

Answer 104

True

Question 105

It is imperative that a company’s financial performance is monitored regularly.

Answer 105

True

Question 106

Appropriate action can then be taken if necessary and the interests of related parties are:

Answer 106

Protected at all times.

Question 107

The monitoring of claims outstanding and IBNR are an integral part of

Answer 107

Regular financial monitoring and protection of related parties.

Question 108

It is extremely important, therefore, that the aspect of a company’s operations is:

Answer 108

Carefully monitored.

Question 109

The claims function is the main source of money spent by an insurance company.

Answer 109

True

Question 110

If this is not properly reported and controlled, the very existence of the insurer is under threat.

Answer 110

True