9 - Underwriting Procedures Flashcards
What are the 4 processes for insuring a risk from an insurers perspective?
- Once a proposal form has been completed by a prospective insured (the proposer), this will generally provide all the info necessary to consider the risk
- The insurer will quote a premium and state any special terms that apply
- If the proposer agrees to the terms quoted, they will pay (or agree to pay) the premium
- Confirmation that cover is in force may be verbal, but is usually made by letter
When is the effective date for any insurance policies?
Once the proposer accepts the insurers offer by agreeing to pay the premium the contract will be in force from the effective date
What processes come under the jurisdiction of the FCA and ICOBS in relation to underwriting
Negotiations, policy docs, the initial response to enquiry, quotation
What do ICOBS and contract certainty have an impact on
ICOBS - Insurance: Conduct of Business Sourcebook
Provision of information, process and on timing
What are the three parties are involved when the intermediary places the insurance?
Proposer
Intermediary
Insurer
What are the 3 categories of intermediaries?
- Appointed representatives
- Introducer appointed representative (issue literature but do not become involved)
- Wholesale broker- usually Lloyd’s or the London market
What are the two principal types that Enter into a TOBA?
- Individually entered into with insurers, and if the intermediary is a Lloyd’s broker, with Lloyd’s syndicates
- Entered into with clients
What are the TOBAS with insurers and what do they determine
They determine:
The nature of the relationship
Authority levels
Financial aspects
Risk transfer arrangements between the intermediary and the insurer
What does it mean by risk transfer under TOBAS with insurers?
The acceptance by the insurer that monies once collected by the intermediary are treated as paid to the insurer
What does TOBAS with the client involve?
Identify services provided by the intermediary,
Terms of credit
A service Level Agreement
What do intermediaries document under TOBAS with clients?
Compliance procedures
Procedure relating to advice, quotations, and sales based upon FCA rules
Under TOBAS for clients if the status of the clients is unclear are they treated as a consumer or commercial client
Consumer
What is the provision of FCA required information?
FCA gives details of certain info about the intermediary and its services which must be provided prior to the conclusion of the contract
What 5 pieces of information must be given for the Provision of FCA required information
- Name and address of the company
- The fact that the firm is included in the financial services register
- Ownership:
Whether it owns more than 10% of an insurer
Whether an insurer owns more than 10% of it - Who to write to if the customer has a complaint
- Whether it gives advice on the basis of a fair analysis or the market
What must an intermediary do to provide advice on the basis of a fair analysis of the market?
Must consider a sufficiently large number of contracts of insurance before offering a recommendation
What are telephone selling rules governed by
Distance marketing directive
What information needs to be given under distance communication
The identity of the person and their link with the firm;
A description of the main characteristics of the financial service;
The total price to be paid incl. all taxes;
Notice of the possibility that other taxes or costs may exist ;
The existence or absence of a right to cancel;
That other info is available on request;
What are the 14 things needed to be given after a distance sale?
- The name and the main business of the firm
- The name and address of the representative
- The identity, address, and capacity of any professional involved
- The info required for statutory status purposes
- The main characteristics of the service the firm will provide
- Notice of any financial market risks
- Any time limitations for information
- The arrangements for payment
- Any extra costs
- The minimum duration of the contract
- The law applicable
- The language to be used
- Complaint procedures
- Whether compensation is available
What must be established by the intermediary before providing a recommendation
Demands and needs
When making a recommendation regarding the sale or cancellation of the policy an intermediary must ensure what
Suitability
What 2 says would it be permissible to recommend a policy that does not meet the client demand and needs to be provided that:
It would be permissible to recommend a policy that does not meet all the client’s d&n provided that:
- There is no policy that’ll meet all the demands and needs
2. The consumer is advised the D&n aren’t met
What must suitability take into account in regards to D&N (Demands and needs)
The level of cover and cost
Relevant exclusions
Excesses
Limitations
Conditions
What happens if a sale is done over the phone to the D&N
Should be done orally and then followed up with paper
If policies aren’t sold with personal recommendations how should the D&N be treated?
The statement can be included within the product document stating who it is appropriate for
A record of the D&N can be given to the customer
A key features document can be given to the customer
The statement can be included in the prop form
What happens if separate fees are to be charged by the intermediary either instead of commission or in addition to commission
They must be stated
What happens if a commercial client asks for info on the level of commission
Must be told in writing of the total remuneration under FCA
What is the IDD
Insurance Distribution Directive
Makes it easier for firms to trade across borders, strengthen policyholder protection and provide level playing fields
What are the 4 key provisions to IDD?
- Professionalism
- Commission disclosure
- Harmonisation
- Price comparison websites are in scope
What are the specific FCA rules for protection policies?
Must be suitable for the customer,
They just fully understand
The choice must be theirs
What are the two protection policies as defined by the regulators?
Pure protection - death, sickness, etc.
Payment protection
What are EDI systems?
Electronic data interchange-
They function to obtain quotations for prospective policyholders
Private motor insurance is the most common type of policy using this
What can an EDI system do?
Provide quotation and the documentation once chosen
Exchange information electronically
What are the 7 legal implications for quotations?
- The quotation remains open and valid for a set number of days
- Unless the quotation states otherwise during this time cover is not effective
- The insurer is legally bound to honor the quotation in the event the proposer accepts
- If no period is set. The offer remains open for a reasonable time
- If there are material changes to the risk between the quotation and acceptable the insurer is not bound to maintain the quotation
- The proposer has a right to accept or decline the quotation
- If they don’t take up the quotation it is no longer valid
What is the information supplied by insurers for FCA rules?
Usually a key features document- it is compulsory for pure protection and payment indemnity contracts
What 13 things must a key facts document contain
- A statement that the policy summary doesn’t contain the full T&CS of the policy
- Name of the insurer
- Type of insurance and cover
- Significant features and benefits
- Significant and unusual exclusion or limitations
- The duration of the insurance contract
- A statement that the consumer may need to review and update the cover
- Price information
- The existence and duration of the right to cancel
- Contact details of how a claim may be notified
- How to complain to the insurer
- Possible entitlement to compensation from the FSCS
- The key facts logo
What does cancellation rights refer to
The initial period of cover during which the contract may be voided at the option of the policyholder
Cancellation/ cooling off rights don’t apply to
- Travel, baggage, or any short term policies
- A general insurance contract where the performance of which has not been fully completed
3 . A pure protection contract 6 months duration or less
- A pure protection contact effected by the trustees of an occupational pension scheme
- An insurance contract which is sold by an authorised persons
- A connected contract
Where there is a right to cancel what rules apply
The duration of the cancellation period is 14 days for general insurance and 30 days for protection contracts
Under cooling off why may the consumer be required to pay in certain circumstances
For general insurance contracts industry’s are entitled to a pro-rata sum
For pure protection contracts, no charges may be made unless a claim has been made
What 4 things must be provided to a commercial client before the conclusion
- Appropriate info in good time
- The law applicable to the policy
- Arrangement for handling complaints
- The address of the head office
Under commercial clients how many days do contract certainty define as ‘promptly’
30 days
Why would an insurer issue statement of facts
Where some information has been gathered over the telephone
What two things are on a printed proposal form containing a declaration
- The declaration that the proposer must sign, states the info supplied is correct
- The warning or important info tells info that should be disclosed and points out the dangers if material circumstances are not disclosed.
What happened in the European court of justice to insurance premiums
Can’t take into account gender
What are the two things premium calculation is based on
The premium rate - intended to reflect the hazards associated with the insured
The premium base - Measure of the exposure
How is the premium calculated?
Sum insured x rate = premium
What is a premium rate?
It’s a future set by the insurer either rate per cent or a rate per mille
What is meant by the rate per cent
A rate per cent is the price in pounds for every hundred pounds of the sum insured (e.g 1.5% would be £1.50 premium for every £100 of risk insured)
What is the rate per mille
Is the price in pounds for each £1000
What rates are EL based on
Wage roll
What rates are PL based on
Turnover
What policies are normally applied with a flat premium
Motor insurance - takes into account all various hazards associated with it
What must be issued so both the insured and insurer are clear as to the terms agreed between them
A policy - contains all the details of the cover, period of cover, exceptions, conditions, etc
What 5 characteristics will be on a cover note
- Commencement date
- Statement that the policy follows the normal terms
- Risk specific information
- Any special terms that apply
- How long does the cover note lasts
What 7 things need to be on a private car motor insurance certificate
- Registration number of vehicle
- Name of policyholder
- Date of commencement
- Expiry date
- Person entitled
- Class of use
- Confirmation that cover complies with UK law
For EL certs what 5 things need to be on there:
- Name of policyholder
- Date of commencement of cover
- Expiry date
- Confirmation that cover complies
- Minimum amount of cover is not less than £5 million
What are the 3 methods of collecting premiums other than the annual payment?
Credit facilities
Installment facilities (usually personal lines)
Third-party premium financing
What contracts of insurance are not subject to IPT (Insurance premium tax)
Reinsurance contracts
Certain marine policies
Engineering inspection insurances
