chap 9 - types of broker Flashcards
the diversity of broking firms
- large global firms
- uk based only firms from single principal to 2 or 3 employees
- consolidators that have built large businesses from acqisition of many small firms
- firms that concentrate on niche sectors, media risks, alarm companies
- brokers that acts as wholesalers for other brokers
- pure reinsurance brokers
- brokers that complete with direct marketers by exploiting call centres and e-processing
- brokers operating a total online prescence to private and commercial customers and other brokers
sysc and condition 4
sysc = senior management arrangements and systems and controls
threshold condition 4 expects brokers to be organised and managed properly so firms comply with regulations
many firms but especially larger firms segment their business and used SPECIALISATION in a number of ways
\+'s reduced costs more consistency of communication the client knowing the service team rather than passing off to diff divisions consistency of service
- structure based on classes of ins
- practices organised globally on a virtual basis
- divisions of client trade segments eg retail, constuction, property owners
4, specialists in management of the overall account eg lighthouse - segment by client size eg sme, middle market, large
- personal lines - further segmented by high networth groups etc
global programmes
centralisation
challenges for brokers
dealing with data- systems incur costs and could put barriers between brokers and insurers
+s
specialisation means work done more efficiently
greater level of expertise in team
stronger r.ships built due to reg contact with the brokers overseas networks and understanding their capabilities
a more compelling proposition for new clients
-‘s
service may be impaired by lack of ownership
risk that costs will increase
reduced opportunity for client service team to gain global servicing expertise
wholesaling
london market brokers specialise in dealing with other producing brokers, known traditionally as the wholesale market
challenges;
producing brokers have to be treated in same way as clients
reg contact - socialsing- rapid response#
tobas are not mandatory but are regarded as ‘best practice’
tobas with insurers known as ‘risk transfer agreements’
- market cycle- hard/soft affects flow of business- when the market is soft less business flows to london
- currency- most business is usd however as london is £ there is a currency risk, sometimes mitigated by processing business /issuing in lower cost locations eg india
- dominance of the big 3 global brokers - 50% of the lloyds market goes through them
- lloyds and the large lloyds syndicates- opening foreign offices and creating further competiton
- the role of london- competiton from new markets- singapore has become a mini london for asian business
sources of conflict in risk transfer
- premium financier attempts to cancel the policies for non payment - conflict between client interest and broker. if financier attempts to recover the money from the broker but it is the property of the insurer and cant be returned. conflict between broker who received com and the financier,
- prem finance from 3rd party - lien will be seeked over the financed policy or agreement from the broker to repay prems that have been paid for onward transmission to isnurer-lien enables financier to cancel the policy /return the prems
- if insurer goes insolvent- prems held by the broker on risks transfer arrangement become property of the estate- conflict betweem broker and client
holding of client money subject to CASS (client asset sourcebook)
when is brokerage earned? (velos group vs harbour insurance)- brokerage is earned in full on CONCLUSION of the policy. but in the uk commonly insurers return prem in full so all the brokerage is lost, however brokers try and insert a clause with client and insurer following velos ruling
broker has to comply with premium collection procedures and will not be liable if they follow the procedures but there is one class of insurance is an exception for this;
- fca requires broker to seek permission to hold money as agent as opposed to risk transfer basis
the class of insurance that is the exception for resposibility/liability over prem collection is MARINE INSURANCE
mga’s and da’s
broker with sig sme business- attraction of the mga is that they can eliminate the duplicated costs between broker and insurer- and its an attractive model for the insurer who does not compete in the current sme market
mga’s - arrangement by which uw’s delegate underwtiting and claims functions- there are limited delegation and full authorities - in a full aithority the mga stands in the place of the insurer
why insurers support mgas and das
- insuers wish to enter a market but do not wish to build their own distribution infrastructure, do not have the experience or do not want to spend the costs
- reinsurers use them to access direct markets- (without appearing to compete directly with their clients)
- to offer a diff proposition to small brokers- some mgas set up to deal with small brokers in a way that insurers found difficult
- groups of ppl who have the marketing uw and entepreneur skills but do not wish to work for an insurer
- as a marketing device
challenges for brokers
- regulation
- efficiency
- service standards
- data
- scope of business
- staff
- resources
- conflicts
- contractual obligations
- clash with insurers
what influences the impact of public opinion
- the perceived crisis of trust and rise of public scrutiny
- the specific problem in financial services
alderbury declaration
…..
chartered broker status
- sharpens competitive edge
- enhances business performance
- promotes and supports reg compliance
- provides tangible evidence of reg status
- helps attract and retain talent
