Chapter 1 Flashcards
Within the UK, what three broad types can all insurance companies be put in?
A composite company
A life company
A general insurance company
What is a composite company
They transact both long term business (life) and general business such a motor, household
What is a life company?
Only able to transact long term business
What is a general insurance company
Only able to transact general business
According to the ABI the UK insurance industry is what?
The largest in Europe and fourth largest in the world
Accounted for 21.2% of the total EU premium income
Like any other market, insurance market comprises of what
Sellers : insurance companies and Lloyds
Buyers: general public, industry and commerce and public authorities
Middleman: insurance brokers and intermediaries
What do you insure
The financial interest in that asset which is at risk
What is an intermediary
An agent who is appointed by a party to seek the best cover and price and recommend an insurance company and or insurance policy
A - What is a proprietary company
Company owned by shareholders, most insurers
Do proprietors companies have an authorised and issued share capital
Yes and the shareholders get the profit after expenses and reserves
What is the shareholders liability Limited to
To the nominal value of the shares hence the term limited liability
What types of insurance companies are under propriety companies
A composite company And a general insurance company
What is meant by the term risk transfer
Well they charge relatively small premiums in comparison to the exposed risk to large numbers of the same type of customers
 Why would insurance purchase reinsurance
To limit annual fluctuations in the losses that affect their underwriting account
To be protected in the case of a catastrophe
A - What is a mutual company
They are Policyholder owned and a surplus is reinvested in a company or to reduce the premiums
How are mutual companies formed
Buy deed of settlement or registration under the companies act
What is sector do mutual companies operate in
In the long-term sector alongside proprietary companies offering their customers at the full benefits of saving over a long period of time between 10 to 25 years
What is the demutualisation
Where mutual companies become proprietary companies
Who owns companies limited by guarantee and without the word mutual in the title
Policyholders
What business will mutual companies transact
Life or general insurance business
What are these examples of
Life and annuity
Permanent health
Critical illness
Long-term business
What are these and example of
Accident and health
Motor
Liability
Insurance and reinsurance classes
A - In Lloyds what does a franchisor do
Approving business plans and making sure members are compliant
Do you Lloyds transact insurance
No as this is a business of the underwriting member of Lloyds to make up the Lloyds market
What are syndicates
Members who underwrite the rain profit and loss in administrative groups
What are managing agents
Where underwriting members appoint independent companys known as managing agents to carry out the underwriting business on their behalf
What are syndicates
Insurers
Can a managing agent have more than one syndicate
Yes
Under Lloyds of london Who acts as franchisor and franchisee is
Lloyds acts as a franchisor and managing agents and the members for whom they act are the franchisees
A - What is captive insurance
One policyholder only. This is Self insurance/the policyholder is the company owner
Who would be more likely to do captive insurance
Large National and multinational companies
What does it mean by captive insurance In large companies
The parent company formed a subsidiary company to underwrite a certain of its own insurable risks
What are these are benefit of:
Obtaining full benefits of the groups risk control techniques by paying premiums based on its own loss experience
Captive insurance company
What are these an incentive off
Avoidance of a direct insurance overheads
Captive insurance company
What is it an incentive of:
Obtaining a lower overall risk premium level by purchasing reinsurance at a lower cost than that required by the conventional or direct insurance
Captive insurance
What is this an incentive of
To achieve risk financing objectives
Captive insurance
A - What is takaful insurance companies
Based on the rulings of Sharia law. Muslim insurance. Main market place in some part of the world.
A - What does takaful mean in Arabic
Guaranteeing each other
What three things for insurance are fundamentally against the principles of Islam
Uncertainty
Gambling
Interest
What are these principles of Mutuality and cooperation Shared responsibility Joint indemnity Common interest Solidarity
Takaful insurance
A - What do reinsurers do
Extending the risk transfer mechanism
A - What is the difference between facultative and Treaty
Treaty can be divided into proportional and nonproportional
What sort of underwriting approach must a reinsurer have
They must assess the overall underwriting approach of a direct insurance to have Some assurance of risks are carefully assessed and priced
What is treaty reinsurance
Where is reinsurer agreed to take a part of all the insurances that the direct insurer underwrites
What is usually the contract for treaty reinsurance
An annual contract agreed in advance and its terms are fixed Sophie insurer and reinsurer have certainty
A - What are the two main types of treaty
Proportional and nonproportional
What is a proportional treaty
Where the insurer and reinsurance take a stated proportion of each risk and share the premium/claims on the same basis
What is a non-proportional treaty
Allows an insurer to retain the first part of cover and transfer the balance to the reinsurers
What is facultative reinsurance
Where each requirement is negotiated individually.
When is facultative Reinsurance used
When insurer wishes to transfer cover that is outside of the treaty arrangements such as when an individual building value is very high
A - Is the government a policyholder when taking risk
Both policyholder owner and government do have an input but not that much
A - Where does the Pool re sit
Acts as a reinsurer and insurers add 100% reinsured back to the pool re
What happens if the Pool re ever runs out of money
The government act as a guarantor and will step in and pay claims
A - Can everyone access reinsurance for flood re
Everyone in the applicable postcodes can access this reinsurance. Those houses that are built in 2010 onwards cannot access this as it is deemed a known issue then.
What kind of insurance company is Poole re
A mutual reinsurance company
What does flood re reinsurance cover
It provides reinsurance cover at a subsidised fix rate resulting in an expected underwriting lost each year the company finances this through a levy on UK household insurers
How does flood re work?
There is a small levy on every household premium going towards the risk
A - What is self insurance
A business has taken the decision to create a budget line for a risk instead of using a captive of an insurer
Why would organisations decide to self insure
They are large enough financially to carry the losses and because the cost Of any potential losses would be lower than commercial premium levels
A - What is the difference between a captive insurer and a non-insurer when self insuring
With a captive it cost money to set up
A captive set aside money for long time reserves And must be run like an insurer
Non-insurers have no provision of the risk and no budget set for it
What is a multi national company
Operate in a number of different countries but still have a Homebase
What is a global company
Where a company see the whole world as one potential market the aim is to be regarded as a global singular brand
What countries are insurance market targeting
BRICS Brazil, Russia, India, China and South Africa
A - What does the London market comprise off
Insurance and reinsurance Lloyd’s of London syndicates Marine protection Indemnity club Brokers
What sort of business Is traded at the London market
Exclusively nonlife (general insurance) and reinsurance with an increasing emphasis on high exposure risk
A - What are the seven participants in the London market
- Insurance companies that are members of the IUA including branches or subsidiaries of foreign companies
- Insurance companies within London underwriting offices
- P&I clubs
- Pools- International oil insurers and the British insurance committee
- Lloyds of London
- Contact offices of foreign companies not allowed to transact business in the UK
- Insurance brokers
What is the representative body of a London market
The London market group
A - What are the 10 factors of lloyds London to develop into a successful International Centre for insurance and reinsurance
- Political and economic stability
- Geographical location
- Quality transport system
- Highly qualified personnel
- Office space at competitive prices
- English is a business language
- Stable legal and regulatory environment
8. Time zone - Foreign presence
Developed financial centre
A - What are the different distribution channels used by insurers
Direct insurance independent intermediaries Banks and building societies retailers and affinity groups Travel agents and tour operators and aggregators
A - What is an example of a direct insurer
Aggregators are not direct Churchill would be an example or Hiscox
A - What is an example of independent intermediaries
Previous HA
A - What is an agent
Agent can only be put forward their insurers terms not independent. Tied to one insurer
Why would you become a direct insurance
Can be set up anywhere in the world So saves on accommodation and proximity of a suitable workforce
What is known in the industry as aggregators
Price comparison websites
Why would consumers use price comparison websites
There simplicity and opportunity save money
A - Can banks become intermediaries
Yes They can set up partnerships with selected insurance or Lloyds syndicates for the provision of household, motor and travel insurance
Can banks because their own insurance companies
Yes
What types of personal insurance can be offered by Banks
Creditor insurance when agreeing a loan for a customer
Household when granting a mortgage
Their own schemes for cover such as household motor hospital plans and travel
What product building societies offer
Loans of property, including estate agency services
What is white labelling
Where an organisation offers insurance products branded with their own name but under written by an insurance company with the Lloyds syndicate
What sort of products will be available under white labelling
Personal insurance products
Specific products such as extended warranty insurance in relation to white goods
What are the three distribution channels for travel insurance
Threw themselves as package holidays
Through an agent scheme so they can earn commission
At the point of departure
What are independent intermediaries
Expert insurance who can offer vpersonal and commercial insurance products with a range of insurers
Who do independent intermediaries work on behalf
The client to source the best price, product feature, and negotiating with the insurer
Ie hettle andrews
What are intermediary affinity schemes
Where intermediaries offer a broader cover and are responsible for both policy issue and claims handling so will receive a higher rate of commission
What are agents
Also known as captive agents they are limited to offering policies from one particular insurance company
What are examples of agents
Travel agents, estate agents, electrical retailers who arrange extended warranty cover and veterinary surgeons who arrange pet insurance
When it comes to customer focus what does the FCA require
Insurance to pay do you regard to the interest of its customers and treat them fairly
What are customer champions
All managers, supervisors and team leaders all the way up to the back office and front office
A - What does customer relationship management do
Uses information about individual customers to build stronger relationships between a business and its clients
Why is CRM important
It is less expensive than winning the new customers as the information is used to pre-empt a customers future buying needs
A - What five things does CRM entail
Offering a relationship rather than a transaction focus
2. A better understanding of buying patterns
3. Move into a proactive rather than reactive environment
4. Communicating with customers are variety of ways
5. Enhancing additional revenue generation efforts

What are the characteristics associated with delivery of excellent CRM
Reliability, responsiveness, accessibility, safety, courtesy, consideration, communication, recognising the customer, competence
What are the challenges of CRM capability
Developing effective computer systems in keeping data up-to-date
A - What are the six outcomes are treating customers fairly under the FCA
- They can be confident by dealing with firms with a fair treatment of customers is central to the corporate culture
- Services and products are designed to meet the needs of identified consumer groups
3 Consumers are provided with clear information And are kept informed - All advice is suitable
- Customers are provided with products perform as firms have led them to expect
- Consumers do not bite unreasonable post sale barriers imposed by firms to change product, switch providers etc
A - What are stakeholders
People or groups of people who have an interest in the way a company act
What is this an example of
Customers
Stakeholder
What is it an example of
Shareholders
Stakeholders
What is it in example of
The government and regulators
Stakeholders
What is this an example of
Intermediaries
Stakeholders
What is this an example of
The public
Stakeholders
What is this an example of
Employees
Stakeholders
What are these an example of
Creditors/suppliers, consumer advocates, the law and unions
Stakeholders
A - Why are stakeholders important
They have a vested interest in the organisation such as investment or employment they will want something from the company and will often want to apply some influence in one way or another
A - What type of interest would a customer have as a stakeholder
Quality, value for money, service standards and fairness
A - What kind of interest what does shareholder have as a stakeholder
Return and performance
A - What kind of interest does the government and regulators have as a stakeholder
Tax, VAT, legal and regulatory compliance
A - What type of interest does a public have as a stakeholder
Social responsibility and responsible environmental considerations
A - What type of interest does employees have as a stakeholder
Rewards, training, Career progression
A - What type of interest to intermediaries have as a stakeholder
Commission and service standards
A - What factors do strategic planners have to take into account when trying to truly reflect the interest of its stakeholders
Composition and significance of each group
Power that each group can exert
Legitimate claims that each group may have
Degree to which these claims conflict and significant areas of concern
Extent to which the organisation is satisfying claims
Overall mission of the organisation
A - What are business ethics
Standards and moral conduct the company says itself its dealings within the organisation and outside
A - What are the reasons that ethical issues now playing important role in management
Large companies operate in small nations and I have a large revenue income their wealth can have implications
Responsibility and power are closely interlinked
Consumers now increasingly judge organisations
Strategic business decisions are partly determined by the cultural influences of societies
What does it mean when a company works with a clear shareholder focus
The company‘s purpose is unlikely to include any comment on business ethics
They take the view that society is quite capable of looking after itself and the key responsibility for business is to look after it shareholders
What is the stakeholder perspective
Where companies take the view that it is in a long-term interest to play a role in society beyond what is required by the law
What is corporate social responsibility
Where businesses a good corporate citizen and go beyond the laws requirements in protecting environment and contributing to social welfare
What are the 5 CII code of ethics
Comply with the code and all relevant laws and regulations
Act to the highest ethical standards and integrity
Act in the best interest of each client
Provide a high standard of service
Treat people fairly regardless of age, pregnancy, disability, sexual orientation et cetera
What are the two ways that a company can grow
Organically alternatively by merger or acquisition
What is the impact of a company growing organically
It is often more profitable and less risky but slow
A - What is the impact of the company growing by merger or acquisition
It is fast and achieves the economies of scale needed in insurance but has more risk
A - Why can organic growth be negative
As it shows a business is contracting
A - What is the definition of organic growth
The rate of business expansion for increasing output and sales
A - What Reasons are there why company would want to grow
Increasing consuming incomes Ready availability of finance Low interest rates Buoyant markets Opportunities for product developments Export opportunities Economies of scale for lower operating costs The opportunity of increased revenue, profits and shareholder value
A - What are the benefits of growing organically
It is less expensive And can offer improved returns and also forces a company to build a strong base for further growth
A - What are the disadvantages of growing organically
Have to examine closely own resources, assets and finances
Heavy demands on management as creativity and innovation will be essential to achieve a high level of growth
A - What are the key examples of organic growth drivers
Provides a sound means to measure progress and success
More profitable route with a better investment return
Demonstrates a long-term commitment to a business by building it through the effective use of internal resources
Management can fully focus on growing the business and the achievement of goals
A - Why is organic growth more difficult for an insurer
The lag between putting business on the books and the emergence of a true pattern of claims disguised as a true underline profitability of the business being written
A - What is a disadvantage of mergers or acquisitions
Employees expect Staff reductions and cost savings which will introduce uncertainty among staff
What are the benefits of organic growth
Involves less risk than external growth
Can be financed through internal funds
Builds on a business existing strengths
Allows the business to grow at a more sensible rate in the long run
Can be more economic compared with acquisitions
What are the disadvantages of organic growth
It takes longer and an enormous commitment of time and resources
A - What is a merger
Where to companies agreed to join forces on a strategic basis
A - What is an acquisition
Where company gains control of another company by purchasing a majority shareholding
A - What are the benefits of horizontal integration
What are two companies in the same market and integration is aimed at:
Improving a mediocre performance
Achieving economies of scale
Improving competitiveness
Possible opportunities for diversification
A - What is vertical integration
Where a company is attempting to control a stage either closer to the source of the manufacturer or closer to the source of a customer
What are the benefits of a vertical integration
Reduce costs
Gain more control of the market
Add greater value to the whole customer proposition
What are the reasons for a merger and acquisition
Gain access to new distribution channels
Acquire advanced IT systems
Employee know how
Licensing in an overseas country
What is this an example of
To improve performance and efficiency through synergy of processes or economies of scale by lowering unit cost
A merger and acquisition
What is this an example of:
Overcoming the cost of IT for sharing of resources
A reason for mergers and acquisitions
What is this an example of
Providing investment opportunities of insurance companies spare capital
A reason for mergers and acquisitions
What is this an example of
Two companies join together to spread the risk
A reason by mergers and acquisitions
A - What are the disadvantages of mergers and acquisitions
Reduce customer choice
Impact on staff affected and cost of redundancies
Clash of corporate cultures
Energies may be directed toward to change process is there a growing the business
Reduce customer services
Expected merger and acquisition savings not actually being realised
A - What do outsourcing services include
IT and data processing, employee benefits Administration and payroll processing, actuarial, Risk management, audit, accounting, claims management, customer enquiries and customer helpline
What is a key benefit of outsourcing
Means a company can focus on its core activity uses those are revenue earning
A - What should be an insurers basis for selection of an outsourcer
Can the outsourcer do better than you can?
Price is a secondary decision
A - What do the FCA and pra a state on outsourcing
Brokers regulated by the FCA only. When you outsource you don’t outsource your regulatory responsibility
It is imperative that the business has what effective controls of the outsourcing relationship
Regulatory, operational and reputational risks
A - What are the advantages of outsourcing
Focus on what are you are good at
Don’t worry about staffing issues and service level agreements
Specialist so will likely be more efficient and cheaper
Can operate from cheaper offices
A - What are the disadvantages of outsourcing
The poor service will reflect on your brand
Control and direction may be lost
Extra care needs to be taken with confidential information
If the outsourced company gets into financial problems you will need to source an alternative provider
Why are insurance stopping outsourcing
Service standards are not being met resulting in customer complaints, cost a greater and expected gains have not been achieved
Under the senior management arrangements, this is systems and control what three reasonable steps should firms take when outsourcing
One. There is no onto additional operation risk in outsourcing
2. The quality of internal control is not impaired
3.
The ability of the regulators to monitor the firms regulatory compliance is not hampered
What is the stakeholder theory
CEO has to be the juggler stakeholder interests don’t work in harmony CEO/board to work out the main requirements and try and satisfy the better ones
What is a difficulty of being a mutual company
Raising capital
