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M92 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Within the UK, what three broad types can all insurance companies be put in?

A

A composite company
A life company
A general insurance company

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2
Q

What is a composite company

A

They transact both long term business (life) and general business such a motor, household

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3
Q

What is a life company?

A

Only able to transact long term business

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4
Q

What is a general insurance company

A

Only able to transact general business

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5
Q

According to the ABI the UK insurance industry is what?

A

The largest in Europe and fourth largest in the world

Accounted for 21.2% of the total EU premium income

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6
Q

Like any other market, insurance market comprises of what

A

Sellers : insurance companies and Lloyds
Buyers: general public, industry and commerce and public authorities
Middleman: insurance brokers and intermediaries

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7
Q

What do you insure

A

The financial interest in that asset which is at risk

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8
Q

What is an intermediary

A

An agent who is appointed by a party to seek the best cover and price and recommend an insurance company and or insurance policy

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9
Q

A - What is a proprietary company

A

Company owned by shareholders, most insurers

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10
Q

Do proprietors companies have an authorised and issued share capital

A

Yes and the shareholders get the profit after expenses and reserves

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11
Q

What is the shareholders liability Limited to

A

To the nominal value of the shares hence the term limited liability

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12
Q

What types of insurance companies are under propriety companies

A

A composite company And a general insurance company

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13
Q

What is meant by the term risk transfer

A

Well they charge relatively small premiums in comparison to the exposed risk to large numbers of the same type of customers

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14
Q

 Why would insurance purchase reinsurance

A

To limit annual fluctuations in the losses that affect their underwriting account
To be protected in the case of a catastrophe

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15
Q

A - What is a mutual company

A

They are Policyholder owned and a surplus is reinvested in a company or to reduce the premiums

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16
Q

How are mutual companies formed

A

Buy deed of settlement or registration under the companies act

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17
Q

What is sector do mutual companies operate in

A

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

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18
Q

What is the demutualisation

A

Where mutual companies become proprietary companies

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19
Q

Who owns companies limited by guarantee and without the word mutual in the title

A

Policyholders

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20
Q

What business will mutual companies transact

A

Life or general insurance business

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21
Q

What are these examples of
Life and annuity
Permanent health
Critical illness

A

Long-term business

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22
Q

What are these and example of
Accident and health
Motor
Liability

A

Insurance and reinsurance classes

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23
Q

A - In Lloyds what does a franchisor do

A

Approving business plans and making sure members are compliant

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24
Q

Do you Lloyds transact insurance

A

No as this is a business of the underwriting member of Lloyds to make up the Lloyds market

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25
Q

What are syndicates

A

Members who underwrite the rain profit and loss in administrative groups

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26
Q

What are managing agents

A

Where underwriting members appoint independent companys known as managing agents to carry out the underwriting business on their behalf

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27
Q

What are syndicates

A

Insurers

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28
Q

Can a managing agent have more than one syndicate

A

Yes

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29
Q

Under Lloyds of london Who acts as franchisor and franchisee is

A

Lloyds acts as a franchisor and managing agents and the members for whom they act are the franchisees

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30
Q

A - What is captive insurance

A

One policyholder only. This is Self insurance/the policyholder is the company owner

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31
Q

Who would be more likely to do captive insurance

A

Large National and multinational companies

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32
Q

What does it mean by captive insurance In large companies

A

The parent company formed a subsidiary company to underwrite a certain of its own insurable risks

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33
Q

What are these are benefit of:

Obtaining full benefits of the groups risk control techniques by paying premiums based on its own loss experience

A

Captive insurance company

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34
Q

What are these an incentive off

Avoidance of a direct insurance overheads

A

Captive insurance company

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35
Q

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

A

Captive insurance

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36
Q

What is this an incentive of

To achieve risk financing objectives

A

Captive insurance

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37
Q

A - What is takaful insurance companies

A

Based on the rulings of Sharia law. Muslim insurance. Main market place in some part of the world.

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38
Q

A - What does takaful mean in Arabic

A

Guaranteeing each other

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39
Q

What three things for insurance are fundamentally against the principles of Islam

A

Uncertainty
Gambling
Interest

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40
Q 
What are these principles of
Mutuality and cooperation
Shared responsibility
Joint indemnity
Common interest
Solidarity
A

Takaful insurance

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41
Q

A - What do reinsurers do

A

Extending the risk transfer mechanism

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42
Q

A - What is the difference between facultative and Treaty

A

Treaty can be divided into proportional and nonproportional

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43
Q

What sort of underwriting approach must a reinsurer have

A

They must assess the overall underwriting approach of a direct insurance to have Some assurance of risks are carefully assessed and priced

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44
Q

What is treaty reinsurance

A

Where is reinsurer agreed to take a part of all the insurances that the direct insurer underwrites

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45
Q

What is usually the contract for treaty reinsurance

A

An annual contract agreed in advance and its terms are fixed Sophie insurer and reinsurer have certainty

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46
Q

A - What are the two main types of treaty

A

Proportional and nonproportional

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47
Q

What is a proportional treaty

A

Where the insurer and reinsurance take a stated proportion of each risk and share the premium/claims on the same basis

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48
Q

What is a non-proportional treaty

A

Allows an insurer to retain the first part of cover and transfer the balance to the reinsurers

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49
Q

What is facultative reinsurance

A

Where each requirement is negotiated individually.

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50
Q

When is facultative Reinsurance used

A

When insurer wishes to transfer cover that is outside of the treaty arrangements such as when an individual building value is very high

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51
Q

A - Is the government a policyholder when taking risk

A

Both policyholder owner and government do have an input but not that much

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52
Q

A - Where does the Pool re sit

A

Acts as a reinsurer and insurers add 100% reinsured back to the pool re

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53
Q

What happens if the Pool re ever runs out of money

A

The government act as a guarantor and will step in and pay claims

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54
Q

A - Can everyone access reinsurance for flood re

A

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.

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55
Q

What kind of insurance company is Poole re

A

A mutual reinsurance company

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56
Q

What does flood re reinsurance cover

A

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

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57
Q

How does flood re work?

A

There is a small levy on every household premium going towards the risk

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58
Q

A - What is self insurance

A

A business has taken the decision to create a budget line for a risk instead of using a captive of an insurer

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59
Q

Why would organisations decide to self insure

A

They are large enough financially to carry the losses and because the cost Of any potential losses would be lower than commercial premium levels

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60
Q

A - What is the difference between a captive insurer and a non-insurer when self insuring

A

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

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61
Q

What is a multi national company

A

Operate in a number of different countries but still have a Homebase

62
Q

What is a global company

A

Where a company see the whole world as one potential market the aim is to be regarded as a global singular brand

63
Q

What countries are insurance market targeting

A

BRICS Brazil, Russia, India, China and South Africa

64
Q

A - What does the London market comprise off

A 
Insurance and reinsurance
Lloyd’s of London syndicates
Marine protection
Indemnity club
Brokers
65
Q

What sort of business Is traded at the London market

A

Exclusively nonlife (general insurance) and reinsurance with an increasing emphasis on high exposure risk

66
Q

A - What are the seven participants in the London market

A
  1. Insurance companies that are members of the IUA including branches or subsidiaries of foreign companies
  2. Insurance companies within London underwriting offices
  3. P&I clubs
  4. Pools- International oil insurers and the British insurance committee
  5. Lloyds of London
  6. Contact offices of foreign companies not allowed to transact business in the UK
  7. Insurance brokers
67
Q

What is the representative body of a London market

A

The London market group

68
Q

A - What are the 10 factors of lloyds London to develop into a successful International Centre for insurance and reinsurance

A
  1. Political and economic stability
  2. Geographical location
  3. Quality transport system
  4. Highly qualified personnel
  5. Office space at competitive prices
  6. English is a business language
  7. Stable legal and regulatory environment
    8. Time zone
  8. Foreign presence
    Developed financial centre
69
Q

A - What are the different distribution channels used by insurers

A 
Direct insurance 
independent intermediaries
Banks and building societies 
retailers and affinity groups
Travel agents and tour operators and aggregators
70
Q

A - What is an example of a direct insurer

A

Aggregators are not direct Churchill would be an example or Hiscox

71
Q

A - What is an example of independent intermediaries

A

Previous HA

72
Q

A - What is an agent

A

Agent can only be put forward their insurers terms not independent. Tied to one insurer

73
Q

Why would you become a direct insurance

A

Can be set up anywhere in the world So saves on accommodation and proximity of a suitable workforce

74
Q

What is known in the industry as aggregators

A

Price comparison websites

75
Q

Why would consumers use price comparison websites

A

There simplicity and opportunity save money

76
Q

A - Can banks become intermediaries

A

Yes They can set up partnerships with selected insurance or Lloyds syndicates for the provision of household, motor and travel insurance

77
Q

Can banks because their own insurance companies

A

Yes

78
Q

What types of personal insurance can be offered by Banks

A

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

79
Q

What product building societies offer

A

Loans of property, including estate agency services

80
Q

What is white labelling

A

Where an organisation offers insurance products branded with their own name but under written by an insurance company with the Lloyds syndicate

81
Q

What sort of products will be available under white labelling

A

Personal insurance products

Specific products such as extended warranty insurance in relation to white goods

82
Q

What are the three distribution channels for travel insurance

A

Threw themselves as package holidays
Through an agent scheme so they can earn commission
At the point of departure

83
Q

What are independent intermediaries

A

Expert insurance who can offer vpersonal and commercial insurance products with a range of insurers

84
Q

Who do independent intermediaries work on behalf

A

The client to source the best price, product feature, and negotiating with the insurer
Ie hettle andrews

85
Q

What are intermediary affinity schemes

A

Where intermediaries offer a broader cover and are responsible for both policy issue and claims handling so will receive a higher rate of commission

86
Q

What are agents

A

Also known as captive agents they are limited to offering policies from one particular insurance company

87
Q

What are examples of agents

A

Travel agents, estate agents, electrical retailers who arrange extended warranty cover and veterinary surgeons who arrange pet insurance

88
Q

When it comes to customer focus what does the FCA require

A

Insurance to pay do you regard to the interest of its customers and treat them fairly

89
Q

What are customer champions

A

All managers, supervisors and team leaders all the way up to the back office and front office

90
Q

A - What does customer relationship management do

A

Uses information about individual customers to build stronger relationships between a business and its clients

91
Q

Why is CRM important

A

It is less expensive than winning the new customers as the information is used to pre-empt a customers future buying needs

92
Q

A - What five things does CRM entail

A

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


93
Q

What are the characteristics associated with delivery of excellent CRM

A

Reliability, responsiveness, accessibility, safety, courtesy, consideration, communication, recognising the customer, competence

94
Q

What are the challenges of CRM capability

A

Developing effective computer systems in keeping data up-to-date

95
Q

A - What are the six outcomes are treating customers fairly under the FCA

A
  1. They can be confident by dealing with firms with a fair treatment of customers is central to the corporate culture
  2. Services and products are designed to meet the needs of identified consumer groups
    3 Consumers are provided with clear information And are kept informed
  3. All advice is suitable
  4. Customers are provided with products perform as firms have led them to expect
  5. Consumers do not bite unreasonable post sale barriers imposed by firms to change product, switch providers etc
96
Q

A - What are stakeholders

A

People or groups of people who have an interest in the way a company act

97
Q

What is this an example of

Customers

A

Stakeholder

98
Q

What is it an example of

Shareholders

A

Stakeholders

99
Q

What is it in example of

The government and regulators

A

Stakeholders

100
Q

What is this an example of

Intermediaries

A

Stakeholders

101
Q

What is this an example of

The public

A

Stakeholders

102
Q

What is this an example of

Employees

A

Stakeholders

103
Q

What are these an example of

Creditors/suppliers, consumer advocates, the law and unions

A

Stakeholders

104
Q

A - Why are stakeholders important

A

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

105
Q

A - What type of interest would a customer have as a stakeholder

A

Quality, value for money, service standards and fairness

106
Q

A - What kind of interest what does shareholder have as a stakeholder

A

Return and performance

107
Q

A - What kind of interest does the government and regulators have as a stakeholder

A

Tax, VAT, legal and regulatory compliance

108
Q

A - What type of interest does a public have as a stakeholder

A

Social responsibility and responsible environmental considerations

109
Q

A - What type of interest does employees have as a stakeholder

A

Rewards, training, Career progression

110
Q

A - What type of interest to intermediaries have as a stakeholder

A

Commission and service standards

111
Q

A - What factors do strategic planners have to take into account when trying to truly reflect the interest of its stakeholders

A

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

112
Q

A - What are business ethics

A

Standards and moral conduct the company says itself its dealings within the organisation and outside

113
Q

A - What are the reasons that ethical issues now playing important role in management

A

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

114
Q

What does it mean when a company works with a clear shareholder focus

A

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

115
Q

What is the stakeholder perspective

A

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

116
Q

What is corporate social responsibility

A

Where businesses a good corporate citizen and go beyond the laws requirements in protecting environment and contributing to social welfare

117
Q

What are the 5 CII code of ethics

A

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

118
Q

What are the two ways that a company can grow

A

Organically alternatively by merger or acquisition

119
Q

What is the impact of a company growing organically

A

It is often more profitable and less risky but slow

120
Q

A - What is the impact of the company growing by merger or acquisition

A

It is fast and achieves the economies of scale needed in insurance but has more risk

121
Q

A - Why can organic growth be negative

A

As it shows a business is contracting

122
Q

A - What is the definition of organic growth

A

The rate of business expansion for increasing output and sales

123
Q

A - What Reasons are there why company would want to grow

A 
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
124
Q

A - What are the benefits of growing organically

A

It is less expensive And can offer improved returns and also forces a company to build a strong base for further growth

125
Q

A - What are the disadvantages of growing organically

A

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

126
Q

A - What are the key examples of organic growth drivers

A

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

127
Q

A - Why is organic growth more difficult for an insurer

A

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

128
Q

A - What is a disadvantage of mergers or acquisitions

A

Employees expect Staff reductions and cost savings which will introduce uncertainty among staff

129
Q

What are the benefits of organic growth

A

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

130
Q

What are the disadvantages of organic growth

A

It takes longer and an enormous commitment of time and resources

131
Q

A - What is a merger

A

Where to companies agreed to join forces on a strategic basis

132
Q

A - What is an acquisition

A

Where company gains control of another company by purchasing a majority shareholding

133
Q

A - What are the benefits of horizontal integration

A

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

134
Q

A - What is vertical integration

A

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

135
Q

What are the benefits of a vertical integration

A

Reduce costs
Gain more control of the market
Add greater value to the whole customer proposition

136
Q

What are the reasons for a merger and acquisition

A

Gain access to new distribution channels
Acquire advanced IT systems
Employee know how
Licensing in an overseas country

137
Q

What is this an example of

To improve performance and efficiency through synergy of processes or economies of scale by lowering unit cost

A

A merger and acquisition

138
Q

What is this an example of:

Overcoming the cost of IT for sharing of resources

A

A reason for mergers and acquisitions

139
Q

What is this an example of

Providing investment opportunities of insurance companies spare capital

A

A reason for mergers and acquisitions

140
Q

What is this an example of

Two companies join together to spread the risk

A

A reason by mergers and acquisitions

141
Q

A - What are the disadvantages of mergers and acquisitions

A

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

142
Q

A - What do outsourcing services include

A

IT and data processing, employee benefits Administration and payroll processing, actuarial, Risk management, audit, accounting, claims management, customer enquiries and customer helpline

143
Q

What is a key benefit of outsourcing

A

Means a company can focus on its core activity uses those are revenue earning

144
Q

A - What should be an insurers basis for selection of an outsourcer

A

Can the outsourcer do better than you can?

Price is a secondary decision

145
Q

A - What do the FCA and pra a state on outsourcing

A

Brokers regulated by the FCA only. When you outsource you don’t outsource your regulatory responsibility

146
Q

It is imperative that the business has what effective controls of the outsourcing relationship

A

Regulatory, operational and reputational risks

147
Q

A - What are the advantages of outsourcing

A

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

148
Q

A - What are the disadvantages of outsourcing

A

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

149
Q

Why are insurance stopping outsourcing

A

Service standards are not being met resulting in customer complaints, cost a greater and expected gains have not been achieved

150
Q

Under the senior management arrangements, this is systems and control what three reasonable steps should firms take when outsourcing

A

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

151
Q

What is the stakeholder theory

A

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

152
Q

What is a difficulty of being a mutual company

A

Raising capital

M92 (12 decks)

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