Chapter 1

Question 1

What is a composite company?

Answer 1

An insurance company that transacts both long-term business (life) and general business, such as motor, household, aviation and public liability.

Question 1

What is a life company?

Answer 1

A life insurance and pensions company that is only able to transact long-term business.

Question 2

What is a general insurance company?

Answer 2

An insurance company that is only able to transact general business.

Question 3

What does the insurance market comprise of?

Answer 3

• Sellers
• Buyers
• Middlemen

Question 4

What is a proprietary company?

Answer 4

Proprietary companies have an
authorised and issued share capital to which the original shareholders subscribed, and it is
to the shareholders that any profits belong after provision for expenses, reserves and, in the
case of life business, with-profit policyholders’ bonuses.

Question 5

Why do insurance companies purchase reinsurance?

Answer 5

• To limit fluctuations in losses
• To be projected against a catastrophe

Question 6

What is a mutual company?

Answer 6

A financial mutual is an organisation that supplies financial services products, and which is owned by its customers, or members. That means there are no shareholders to pay dividends to or account to, and a mutual can concentrate entirely on delivering products and services that best meet the needs of its customers.

Question 7

What is a captive insurance company?

Answer 7

Captive insurance is a tax-efficient method of transacting risk transfer, which has become
more common in recent years among the large national and multinational companies. The
parent company forms a subsidiary company to underwrite certain of its own or its group’s
insurable risks.

Question 8

What is a takaful insurance company?

Answer 8

Takaful is a type of insurance that has its roots in the Islamic financial services industry. The
model has been developed over a period of time and is based on the rulings of Sharia law on
financial and commercial transactions.

Question 9

Who is the largest insurer in the UK?

Answer 9

By far the largest ‘insurer’ in the UK is the Government. In 2019/20, the UK Government
collected over £145bn in National Insurance contributions, which funds income benefits
including the state pension, unemployment and disability benefits. National Insurance
contributions are based on a set percentage of income being contributed focussed on an
individual’s ability to pay rather an evaluation of the risk.

Question 10

What is self insurance?

Answer 10

As an alternative to purchasing insurance in the market, or as a supplement to it where the
first layer or proportion of a claim is not insured in the commercial market, some public
bodies and large industrial concerns set aside funds to meet insurable losses.

Question 11

What is a multinational company?

Answer 11

• Operate in a number of different countries but may still have a home base.
• Have the ability to respond to local demands, as the business is a series of
  semi-independent operations all working under a global brand.
• National subsidiaries are likely to solve their operational tasks and activities.
• With this business approach, each of the various national and regional markets
  will be separately identified from a strategic point of view.
• An example of this type of organisation is Prudential plc.

Question 12

What is a global company?

Answer 12

• See the whole world as one potential market.
• While some specialisation of the product or service will be made to suit local
  markets, the aim is to be regarded as a global, singular brand.
• Very much centralised businesses; as the whole world is viewed as one
  market, the competitive advantage comes from the common global brand.
• An example of this (while not being a company but a ‘Society’) is Lloyd’s.

Question 13

Who are the main participants within the london market?

Answer 13

• Insurers
• Contact offices
• P&I clubs
• Pools
• Lloyds
• Brokers

Question 14

Who represents the London market?

Answer 14

LMG

Question 15

Who are the main distributors of insurance?

Answer 15

• Direct insurers.
• Independent intermediaries and agents.
• The internet.
• Price comparison websites/aggregators.
• Banks and building societies.
• Affinity groups, including retailers and membership groups.
• Market disruptors.

Question 16

What are the types of personal insurance offered by banks?

Answer 16

• When agreeing a loan for a customer, a bank may provide creditor insurance.
• When a bank grants a mortgage, it may also offer life, household buildings and contents
  insurance.
• Banks have their own schemes for cover, such as household, motor, hospital plans and
  travel. Special covers are also available, such as for articles in safe custody, and for
  students and nurses living away from home.

Question 17

Who typically offers white label products?

Answer 17

Retailers have the opportunity of marketing insurance products to a very large customer base as an additional service to their normal business. This distribution channel is referred to as white labelling, where the organisation offers insurance products branded with their own name but underwritten by an insurance company or with a Lloyd’s syndicate.

Question 18

Why are affinity groups an attractive target for insurers?

Answer 18

Marketing insurance products to affinity groups offers insurers the opportunity to reach a large group of potential policyholders through existing communication channels. This allows targeted products to be developed and sold with lower
acquisition costs than in the open market.

Question 19

What is a stakeholder?

Answer 19

Stakeholders are people or groups of people who have an interest in the way a company
acts. Principal examples of stakeholders are:
* customers;
* shareholders;
* the Government and regulators;
* intermediaries;
* the public; and
* employees.

Question 20

What is organic growth?

Answer 20

Organic growth is where a company develops and expands by increasing its sales, revenue
and output through its own current businesses, activities, and effort, rather than through
mergers or acquisitions.