8. Role of a Broker Flashcards
What are the different types of agent authority?
Actual authority:
- Express authority (which arises from the terms of an agreement)
- Implied authority (when an agent needs to undertake certain actions to complete their requirements)
Apparent authority - the assumed authority of the agent, which the insurer may not know (such as which lines of business they are broking for)
Definition: Agent
The broker who provides insurance between the insured (principal) and insurer (third party)
Definition: Appointed representatives
An individual or company that is appointed by an authorised person under the terms of a contract. The principal takes responsibility for the AR’s activities
Definition: Authorised persons
An intermediary wishing to offer independent advice must apply for direct authorisation by the FCA.
Definition: Broker Insurance Document (BID)
A summary of the risk provided to the client by their broker
Definition: Delegated authority
When a broker is entrusted with certain authority by the insurer such as binding risks, settling claims, and collecting premium
What are the different types of agency?
There are three methods of creating an agent/principal relationship:
- Agency by consent, both parties agree on terms of appointment
- Agency by necessity, trusted to act in a certain way to prevent damage in an emergency
- Agency by ratification, agent acts without authority, which the principal accepts afterwards
Definition: Principal
The person looking to buy insurance via a broker (agent) and insurer (third party)
Definition: Broker
An agent who is subject to the general law of agency, and typically represents the insured / client
Retail: A broker in contact with the insured / client
Wholesale: A broker in contact with the insurer
They are regulated by the FCA, and do not need to be a Lloyd’s broker to operate in the Lloyd’s market
Definition: Termination of agency
Mutual agreement
Termination by one party
Death, bankruptcy or insanity
Definition: Terms of business agreement (TOBA)
Sets out the details of their relationship with their clients and insurers
What services does a broker provide?
Client:
- Review needs
- Advise whether risk is insurance
- Decide best market
- Negotiate terms and conditions
- Assist with claims
Insurer:
- Binding risks
- Issuing documentation
- Settling claims
- Collecting premium to share with insured
How does a broker assist in the placing and claims process?
They present the required information to the insurer and negotiate on behalf of the client
Funds (premium and claims) then flow through the broker
