1 - The insurance broking market Flashcards
What is another word for a ‘broker’?
Independent intermediary.
What is an insurance broker organisation?
An organisation in the market that offers independent advice.
What is the difference between an ‘independent intermediary’ and an ‘intermediary’?
An independent intermediary is not contractually tied to another organisation.
Intermediaries who are not independent are contractually tied to one or more organisations, such as insurers, and are obliged to serve as an intermediary for the organisation they are tied to.
What is the ‘Law of Agency’?
Agent = broker.
Principal = client.
Third party = insurer.
The agent brings the principal into a contractual relationship with the third party.
What is one of the main roles of the broker?
They offer independent, impartial advice to the client to find them the best offer.
Reasons why insureds would buy an insurance product through an insurance broker?
Convenience:
- Some clients do not have the time to research the insurance market and compare quotations.
Expert knowledge:
- Clients wish to fully understand the product that they are contractually entering with the insurer.
Independent quotation:
- Brokers are independent, not usually tied to any product / insurer.
- Brokers can obtain quotes from a range of insurers without the need for the client to r information.
Assistance with claims:
- Clients often look towards brokers to negotiate on their behalf.
Existing relationship or connected business:
- Many clients stay loyal to the same firm, or the same individual.
What are the benefits of insurance brokers to insurers?
Convenience:
- Brokers interact directly with the client who can sometimes be demanding.
- Means brokers can concentrate on their core business of underwriting and paying claims.
Technical expertise:
- Brokers explain the more technical aspects of a policy to the client.
Peace of mind:
- Insurers trust the broker has disclosed the required risk information for the insurer to be able to underwrite the policy.
Cost benefits:
- Insurer does not have to administer each policy directly with the client - saves time & money.
What organisation represents insurance brokers?
The British Insurance Broker’s Association (BIBA).
BIBA is the main non-statutory trade association for insurance intermediaries, with a membership of over 2,000 firms.
BIBA draws its members’ attention to the need to conduct business with good faith and to represent the interests of their customers.
BIBA seeks to maintain the highest standards of business behaviour and protect & enhance the interests of its members for the benefit of the general public.
What is the London Market Regional Committee (LMRC)?
The LMRC is part of BIBA and represents brokers to the FCA, Europe, the UK government and LIIBA.
What is the London and International Insurance Brokers’ Association (LIIBA)?
LIIBA is an independent trade body representing the interests of insurance and reinsurance brokers who operate in the London and international markets.
Do all insurers choose to use insurance brokers?
No - some classes are more suited to using insurance brokers than others.
What are the 3 major classes of business?
- Personal lines
- Commercial
- Specialties
Personal lines insurance:
Who is it purchased by?
Examples?
What are personal lines customers classified as?
Brokers share of the household market?
Personal lines insurance products are purchased by private individuals.
E.g. household buildings & contents, private motor, travel & private medical insurance.
Personal lines customers are classified as consumers by the FCA.
Brokers’ share of the household market is 20% and 35% for private motor.
Commercial insurance:
Broker share?
Although insurance for small commercial risks is more commonly available directly from an insurer, larger, more complex commercial risks are almost exclusively sold through brokers.
Insurance brokers’ share of the UK commercial market has increased from 81% to 87% in the last 10 years.
Specialties?
What is it? Examples?
E.g. marine, aviation, construction.
For specialist risks customers are almost exclusively serviced by insurance brokers.
For specialist risks there is no ‘off the shelf’ product so brokers are required to place the risks individually & design the insurance programme on an exclusive basis.
Why are some classes of business more suited to insurance
brokers?
This is usually due to the nature of the risk, and…
Complexity of risk:
- The more complex the risk the more likely it is to be handled by a broker.
- e.g. marine, aviation, high value jewellery, fine art.
Size of risk:
- The higher the value of the asset or sum insured, the more likely a broker is to be involved.
Location of risk:
- Some risks are located in high risk areas such as storms, hurricanes etc.
- Insurers want to fully understand the risk with the expertise of a broker before they insure it.
Availability of cover:
- Some risks very specialist (i.e. kidnap & ransom).
- Brokers may have specific market knowledge to identify the few insurers who specialise in this type of cover.
Types of insurance broker: What is a ‘global firm’?
These are large organisations employing thousands of people in many different countries.
- Have grown rapidly through acquisition.
- Have turnovers in excess of £500m.
- Operate in more than one territory.
Types of insurance broker: What are ‘UK based only firms’?
The most common type of broking firm in the UK. These firms are usually located near to their clients and may be quite well known locally.
- Usually conduct business on a retail basis (i.e. directly with their clients).
- Often have a presence on the high street so people can conduct business face-to-face.
Types of insurance broker: What is a ‘Consolidator’?
Brokers whose principal method of growth is through mergers and acquisition - results in a smaller number of larger firms.
i.e. Consolidators tend to purchase much smaller brokerages.
Types of insurance broker: What is ‘niche sector business’?
Brokers who are key players in specialist areas of the market; i.e. classic car insurance.
- Likely to have an almost exclusive access to a particular client base.
- These brokers are small and offer a limited product range.
Types of insurance broker: What is a ‘Wholesale broker’?
= The broker who has the direct contact with the insurer and other brokers (the retail broker). The wholesale broker has NO contact with the policyholder.
Types of insurance broker: What is a ‘Retail broker’?
= The broker who has the direct contact with the insured or policyholder.
Types of insurance broker: What is a ‘Sub-broker’?
A broker who provides access to different markets (such as a market in a different country) to the retail broker.
Explain the diagram that shows the relationship between; the insured, retail broker (principal), wholesale broker (agent), and insurer?
The insured –> Retail broker (principal) –> Wholesale broker (agent) –> Insurer.
