1. Structure of the insurance industry Flashcards
Within the UK, what 3 broad groups of insurance companies are there?
- Composite
- Life
- General
What is a Composite insurance company?
An insurance company that transacts both long-term business (life) and
general business, such as motor, household, aviation and public liability.
What is a Life insurance company?
A life insurance and pensions company that is only able to transact long-term
business.
What is a General insurance company?
An insurance company that is only able to transact general business.
What is a Proprietary company?
A privately owned business in which shareholders have limited liability. Profits are distributed after expenses and obligations are covered.
What is a Mutual company?
A company owned by its customers, with profits used to benefit them, often through lower premiums or higher bonuses, instead of paying dividends to shareholders.
What is a disadvantage of a mutual company?
There can be difficulty in raising additional capital since they cannot issue additional shares in the way that proprietary companies can.
What is Lloyd’s?
A marketplace where individual and corporate members, grouped into syndicates, underwrite insurance for their own profit, with managing agents handling the underwriting on their behalf, while Lloyd’s itself oversees and regulates the market through a franchise structure.
What is a Captive insurance company?
A tax-efficient method where a company creates its own subsidiary to insure its risks, gaining control over premiums and reinsurance costs, often using offshore locations for regulatory and fiscal benefits.
What are Takaful insurance companies?
A type of insurance based on Islamic principles, where participants share risk and profits, designed to comply with Sharia law by avoiding uncertainty, gambling, and interest.
What is Reinsurance?
The practice where insurers transfer portions of risk to reinsurers, often major international companies, using formats like treaties or facultative arrangements, to share large risks and premiums globally.
What is a treaty reinsurance agreement?
A reinsurance agreement where the reinsurer commits to covering a portion of all risks underwritten by the insurer, with fixed terms typically set for a year, either proportionally or non-proportionally.
What is a facultative reinsurance agreement?
A type of reinsurance where individual risks are negotiated separately, typically used when the insurer needs coverage outside existing treaty arrangements.
How is the State involved in insurance?
The UK government:
- Collects National Insurance contributions to fund income benefits
- Operated the National Health Service funded by taxation
- Established Pool Re for terrorism coverage
- Created the Flood Re scheme to provide affordable flood insurance
What is self-insurance?
When organisations set aside funds to cover the first layer of potential losses instead of purchasing insurance, often because they believe they can financially manage these predictable, low-severity losses more cost-effectively.
What is the difference between multinational and global companies?
- Multinational companies operate in multiple countries with semi-independent branches that adapt to local demands, like Prudential plc.
- Global companies view the world as a single market, focusing on a unified brand with centralized operations, as seen in organizations like Lloyd’s.
What are the BRICS countries?
Brazil, Russia, India, China and South Africa
What is a Direct insurer?
An insurance provider that interacts directly with customers via online platforms or telephone, without needing extensive branch networks.
What are Independent Intermediaries?
Insurance experts who offer clients a range of insurance products from various insurers, providing advice, policy management, and claims assistance, while working on behalf of the client and earning commission from insurers.
What is a affinity scheme?
Insurance programs designed for specific groups, like professionals or organizations, providing tailored coverage and managed by independent intermediaries who handle policies and claims.
What is an agent?
A representative who sells insurance policies from a specific company and may also work in other businesses, like real estate or retail.
What is a Price comparison websites/aggregators?
Online platforms that allow customers to compare insurance quotations from multiple providers by answering a set of questions, enabling them to find better deals, although not all insurers participate and the initial quotes may lack accuracy.
How are Banks and Building Societies involved in insurance?
They leverage their large customer base and distribution networks to sell personal insurance products, through partnerships with insurers or by creating their own insurance schemes, covering areas such as loans, mortgages, household, motor, and travel.
How are Retailers involved in insurance?
They offer insurance products under their own brand, partnering with insurers to provide services like household and travel insurance through their existing customer networks.
What is White labelling?
When an company sells insurance products branded with its own name, while an insurance company or Lloyd’s syndicate underwrites the policy.
What is Customer Relationship Management (CRM)?
It involves using data on individual customers to strengthen relationships, anticipate future needs, and encourage long-term loyalty, which is more cost-effective than acquiring new customers.
What characteristics are associated with excellent CRM?
- reliability
- responsiveness
- accessibility
- safety
- courtesy
- consideration
- communication
- recognising the customer
- competence.
