AI Chapter 2 Flashcards
What is the primary purpose of reinsurance?
To protect insurers from high amounts of related risks
Reinsurers may operate in different territories from the original risks.
What are the five main participants in the insurance market?
- Buyers (PH/insured)
- Insurers
- Intermediaries (brokers)
- Aggregators (price comparison websites)
- Reinsurers
What types of buyers are defined in the insurance market?
- Private individuals
- Companies
- Partnerships
- Public bodies
- Charities, associations, and clubs
How are companies defined in the insurance market categorized?
- Proprietary companies
- Mutual companies
- Captive insurers
- Protected cell companies
- Lloyd’s
What is a proprietary company?
A company owned by shareholders, registered under the Companies Act 1985
Shareholders’ liability is limited to the nominal value of their shares.
What distinguishes mutual companies from proprietary companies?
Mutual companies are owned by policyholders who share in profits through lower premiums
Policyholders are liable for losses made by the company.
What is the primary function of captive insurers?
To provide coverage primarily to their parent company
They offer tax-efficient methods of transferring risk.
What are protected cell companies (PCCs)?
A type of captive insurer that ‘ring fences’ assets of participating cells
Each cell operates as a distinct insurance entity.
What is the role of syndicates in Lloyd’s Market?
Groups of private individuals or corporate investors who carry risks and provide financial backing
Known as underwriting members or names.
What is the significance of the Insurance Distribution Directive (2018)?
Introduced a new category of intermediary: ancillary insurance intermediary
This applies to those distributing insurance as a secondary activity.
What is meant by ‘contract certainty’ in the insurance market?
Complete and final agreement of all terms between insured and insurers before a risk starts
Includes certainty about contract details and the final share of risk.
True or False: All intermediaries must be authorized by the FCA.
True
Exemptions apply under specific conditions.
What is the primary function of intermediaries in the insurance market?
To act on behalf of the client when placing business, not on behalf of the insurer
They provide advice and negotiate terms and conditions.
What does the term ‘subscription market’ refer to?
A market where multiple underwriters share the risk of large exposures
This is common for risks that are too large for a single underwriter.
What are managing general agents (MGAs)?
Specialist intermediaries with authority to act for one or more insurers
They have delegated authority to issue cover.
What is bancassurance?
An arrangement between a bank and an insurance company to sell insurance products to bank customers
It combines banking and insurance services.
Fill in the blank: The state acts as an insurer in _______ benefits and pension provision.
[welfare]
What is the purpose of Lloyd’s brokers?
To facilitate access to the Lloyd’s market for intermediaries
They serve as wholesale brokers in the supply chain.
What are the three distinct elements of contract certainty?
- Certainty as to details of the contract
- Certainty as to the final share of risk
- Documentation within specified timeframes
What are appointed representatives (ARs)?
Individuals or companies appointed by an authorized person to act on their behalf
ARs can represent more than one principal under certain market practices.
What are the potential issues identified by the FCA regarding principal firms and ARs?
Inadequate control measures and insufficient oversight
This has led to new rules for enhanced oversight of ARs.
True or False: Captive insurers offer insurance to the general public.
False
They are designed to provide coverage primarily to their parent company.
What is the role of independent intermediaries in insurance?
Provide advice to clients on complex commercial insurance
Independent intermediaries are essential for navigating complex insurance products.
What are delegated authorities in insurance?
Insurers delegate authority to intermediaries to act on their behalf and issue cover
This includes binders that allow flexibility in business flow.
What is bancassurance?
An arrangement between a bank and insurance company to sell insurance products to bank customers
This has led to several mergers and acquisitions worldwide.
What is the purpose of price comparison websites (PCWs)?
Use web-based extraction tools to collect information on insurance products
While they save time, they may affect the accuracy of quotations due to limited questions.
What is reinsurance?
A method for individuals and corporations to transfer risk to reinsurers
Reinsurance can be done on an individual risk basis, event basis, or portfolio basis.
What is the purpose of reinsurance?
To smooth peaks and troughs in trading results and protect portfolios
It helps spread the cost of large losses over time.
What is facultative reinsurance?
Reinsurance arranged on a single risk basis
This is different from treaty reinsurance, which covers a range of risks.
What is the difference between co-insurance and reinsurance?
Co-insurance involves sharing risk among insurers, while reinsurance transfers risk to another insurer
The insured does not have a contractual relationship with the reinsurer.
Who are underwriters?
Professionals who manage risk pools, assess risks, and determine terms and premiums
Their role is critical in ensuring the profitability and sustainability of insurance products.
What is the function of claims personnel?
Deal quickly and fairly with claims, distinguish between real and fraudulent claims
They also determine the realistic cost of claims prior to payment.
What do loss adjusters do?
Investigate claims, determine policy coverage, and negotiate settlements
They often handle larger claims that require detailed investigation.
What is the role of loss assessors?
Act for the insured and conduct forensic analyses to determine the cause of loss
They gather evidence and establish negligence or policy exclusions.
What do actuaries do?
Apply probability and statistical theory to insurance and risk management problems
They are often associated with life insurance and future liability predictions.
What is the role of risk managers?
Identify, analyze, and control risks that threaten the business
They play a key role in pricing and reserving methodology.
What is the role of compliance officers in insurance?
Ensure the firm abides by rules and regulations and report to the governing body
They also perform the role of money laundering reporting officer.
What is the function of internal auditors?
Monitor and evaluate risk management and governance processes
They assess the effectiveness of company operations beyond financial risks.
What is the Association of British Insurers (ABI)?
The largest market association in the UK, representing 300 member companies
ABI gathers market statistics and plays a major role in public relations.
What are the main types of insurers?
- Specialist reinsurance companies
- Lloyd’s syndicates
- Insurance companies acting as reinsurers
These insurers often have substantial capital due to the high risk involved.
What is the purpose of the Motor Insurers’ Bureau (MIB)?
Compensate victims of accidents caused by uninsured or untraced motorists
MIB operates under agreements with the government for compensation.
What does health insurance cover?
- Personal accident
- Sickness
- Private medical insurance
- Short-term income protection
- Critical illness
These cover various health-related financial risks.
What is liability insurance?
Covers legal liability to pay compensation for death, injury, or disease
This includes employers liability, public liability, and products liability.
What does aviation insurance cover?
Loss or damage to aircraft and legal liability to third parties
Aviation cargo is covered under marine policies.
What is cyber insurance?
Protects businesses from first and third-party losses arising from cyber attacks
It includes costs for investigations and legal defenses against data loss claims.
