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LM2 > Business Processes (ch8) 14 > Flashcards

Business Processes (ch8) 14 Flashcards

1
Q

What are the legal implications of an insurer providing a quotation?

A

• They do not remain valid indefinitely.
• If the insurer does not specify on the quotation the time period for which it remains open for acceptance, then the concept of ‘reasonable time’ applies.
• If the client accepts the quotation on the terms provided in the time period, the insurer cannot back out of the agreement.

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2
Q

Reasons for natural termination

A

• Cancellation by the insured.
• Cancellation by the insurer.
• Fulfilment.
• Expiry of the policy period.

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3
Q

Reasons for unexpected termination

A

Insurance Act 2015:

• Breach of the duty of fair presentation.
• Breach of warranty.
• Fraud.

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4
Q

At what point are the insurers on risk?

A

U/W puts their line down on the broker’s slip (Market Reform Contract).

Extent of their liability under the contract is not necessarily clear at that point.

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5
Q

The existing insurers may not want to quote for the renewal for either or both of the following reasons:

A

• The contract has been loss-making.
• They are exiting that class of business.

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6
Q

Insurer might wish to keep as much business as possible for two practical reasons:

A

• It costs less to renew business than to write it from scratch.
• The more stable the portfolio of clients, the more reliable the statistical

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7
Q

‘Days of grace’

A

‘elastic’ end to the previous policy which allows the insured some scope should they be late in renewing their insurance.

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8
Q

FCA rules on renewal transparency for retail general insurances

A

• disclose last year’s premium on renewal notices

• text to encourage consumers to check their cover and shop around

• consumers who have renewed with them four consecutive times, and give message encouraging them to shop around.

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9
Q

Signing down

A

• shares of a risk are reduced to 100% is known as ‘signing down’.

• each insurer’s written line is reduced proportionately so that the total lines add up to 100%. This reduced line size is known as the ‘signed line’.

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10
Q

Who can perform the signing down

A

• broker without any reference to the underwriters

• however, if a broker is finding it difficult to place a risk, they cannot increase underwriters’ lines without their express permission.

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11
Q

Why might the existing insurer not want to quote for the renewal

A
  1. The contract has been loss making
  2. They are exiting that class of business
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12
Q

Why might the insurer want to keep as much business as possible?

A
  1. It costs less to renew business than to write it from scratch
  2. The most stable the portfolio of clients, the more reliable the statistical data
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13
Q

FCA rules - renewal must include

A
  • Last years premium
  • Text to encourage consumers to check their cover and shop around
  • consumers who have renewed 4 times must encourage them to shop around
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14
Q

Writing a risk after the risk has incepted

A

Broker and client still have duty to disclose
U/w use specific warranty - ‘Warranted no known or reported losses’ - WNKORL

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15
Q

Proposal forms

A
  • Not widely used in London Market
  • Have a place is certain classes, e.g yacht
  • Form completed by insured or insured & broker.
  • Present the risk
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16
Q

Other ways to present a risk

A

Can invite u/w to actual/virtual presentations

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17
Q

Market Reform Contract (MRC) - what are the roles?

A
  • Doc broker puts together that summarises their clients risk into a standardised format for U/W
  • U/W can formally indicate their written lines in non-electronic placement
  • Can be sent to client as their copy of insurance contract
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18
Q

Market Reform Contract - split into 6 sections:

A
  1. Risk details
  2. Information
  3. Security details
  4. Subscription agreement
  5. Fiscal and regulatory
  6. Broker remuneration and deductions
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19
Q

The reason for 3 different documents for MRC:

A
  • open market business, lineslips and binders.
  • information required by u/w is subtly different so different fields are required in the template
20
Q

What has been done to get the London Market more digital?

A

Create and agree a Core Data Record for direct and Fac RI business using ACORD standards

21
Q

What is the Core Data Record (CDR)

A

Provides critical transaction related data that must be captured at the point of bind in order to complete the following 4 sets of downstreaming processing:

  • premium validation and settlement (Lloyds & companies)
  • claims matching at first motivation of loss (Lloyds & companies)
  • tax validation & reporting (Lloyds only)
  • regulatory validation & reporting (Lloyds only)
22
Q

Endorsements

A

‘Endorsement’ is doc broker presents the changes to the u/w and it can be used to send to the client as evidence of those changes

23
Q

What is the purpose of General Underwriters Agreement?

A
  • Create agreement between all the u/w on a particular MRC as who will deal with an contract changes (mini delegation contract)
  • Clarify extent of authority given to the leader u/w to agree changes
  • Enable flexibility for each class to refine the rules
  • Ensure all u/w are advised of the changes even if not involved in the agreement process
24
Q

GUA has a number of class-business specific schedules, what are the 3 parts?

A

E.g. non-marine, marine cargo and political risk.

  • Schedules divided into 3 parts, each indicating what type of changes can be agreed by certain insurers

Part 1 - slip leader only (not bureau leaders)
Part 2 - slip leader + agreement parties
Part 3 - all underwriters

25
Q

What sections are in the Market Reform Contract Endorsement (MRCR)

A
  • Risk and endorsement identification
  • Contract changes
  • Information
  • Agreement
  • Contract administration and advisory
26
Q

For the MRCE and MRC, the change can be evidenced to the insured by sending them on of the following:

A
  • copy of the MRCE
  • copy of the MRCE with the contract administration and advisory section removed
  • a formal policy endorsement
  • a broker insurance document (BID)
27
Q

Premium processing

A
  • Doc how much premium they will be paying with tax
  • Doc for insurers who aren’t using London Market central settlement systems to show how much premium they will receive - overseas insurers will require this to be done
  • London Premium Advise note (LPAN) for insurers using central settlement. One will be created for Lloyd’s market and one for company market
28
Q

What are conditions?

A

Covers a number of different elements of the wording in insurance policy.

The standard conditions or terms provide for the insured complying with the terms and telling u/w about any changes to the risk

29
Q

What are the two types of condition?

A
  • condition precedent to contract
  • condition precedent to liability
30
Q

Does do we mean by ‘precedent’ when referring to conditions

A

Means that the condition must be satisfied for either the contract to exist or for the insurer to have any liability under the contract

31
Q

What is an exclusion

A

Is a risk that the insurer will not cover.

Market exclusions: radioactive contamination

Individual exclusions: coverage can sometimes be purchased from specialist u/w

32
Q

What are warranties?

A

Promises made by the insured relating either to facts or to performance concerning the risk

33
Q

Warranty is the insured saying:

A
  • something will or not be done
  • certain fact exists or doesn’t exist
  • Property risk: there is a fully operational sprinkler system
  • Aviation risk: only personnel with certain number of flying hours will operate equipment
  • Marine risk: Vessel will not trade in certain areas
34
Q

Consumer Insurance (Disclosure and Representations) Act 2012

A

Law on warranties in relation to consumer instance was partially amended by virtue of the Consumer Insurance Act

Act removed the ability of insurers to rely on the basis of contact clauses to create a warranty from a representation made by a consumer

35
Q

Insurance Act 2015

A

Breach of warranty the policy is suspended until the breach is remedied and suspension lifts automatically

36
Q

Insurance Act highlights 3 types of provisions included in historic warranties, which complied with would reduce risk:

A
  1. Particular types of losses
  2. Losses in particular locations
  3. Losses at particular times
37
Q

Sources of wordings and clauses

A

The codes applied to clauses often indicate the origin of the wording and follow these conventions:

  • LSW: London Standard Wording
  • ISO: International Standards Organisation
  • LMA: Lloyd’s Market Association
  • NMA: Non-Marine Association (now part of LMA)
  • AVN: Aviation Market
38
Q

Standard Wordings

A

Are freely changeable within the context of any individual contract as they are treated as a starting point for specific negotiations.

39
Q

How the London Market uses other markets policy forms/wording

A

There are number of wordings London Market insurers try to ensure that key elements are covered and for primary and excess placement try to make sure that they are the same terms

40
Q

Contract certainty is achieved:

A
  • By the complete and final agreement
  • of all terms between the insured and the insurer
  • at the time that they enter into the contract
  • with contract documentation provided promptly thereafter
41
Q

Delegated underwriting

A

Asking and authorising another party to do something on your behalf.

42
Q

Lloyds Brussels

A

Lloyds Insurance Company S.A is referred to Lloyds Brussels, a Belgian insurance company which is a wholly owned subsidiary of Lloyds itself.

Set up - UK left EU, syndicated operating within Lloyds market could still enjoy benefits of mutual recognition by regulators that allows them to operation across the border.

Can write direct and reinsurance in EEA and Monaco

43
Q

Insurers workings within the EU (including Lloyds Brussels) it allows them to operate in 2 different ways:

A
  • Services: insurers can stay within their own country and write risks coming out of other counties on what is known as a cross-border basis. They are reg only by their home reg.
  • Establishment: Insurers can choose to set up office in another country and write the risk from there
44
Q

Service companies

A

Traditionally syndicates operating within Lloyds Market been reliant on Lloyds broker network to obtain business.

45
Q

Branch Offices

A

Advantage of Lloyds market is Lloyds obtain regulatory permission centrally in various countries for syndicates to write risks coming from those counties.

Insurance companies have obtained permission individually and will only get permission if have branch office in that country

46
Q

Basis of contract clauses

A

Under Consumer Insurance (Disclosure and Representation) Act 2012, the Insurance Act 2015 removes the insurers ability to use basis of contract clauses to convert representations made at the time of placement into warranties

LM2 (6 decks)

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