Chapter 1

Question 1

What is customer service?

Answer 1

Activities that a company and its employees do to satisfy customer needs.

These encourage them to keep doing business with them.

Combines marketing, planning, people, research & systems learning what the customer wants and takes reasonable steps to get it and provide the best service possible

Question 2

What did the customer service satisfaction survey confirm regarding customer service

Answer 2

The highest performing organisations deliver a consistent quality of experience to their customers but they also protect an authentic customer ethos, emotional connection and ethical commitment.

34% of customers prefer excellent customer service, even if it costs more.

Question 3

Why has customer service become such a dominant issue?

( 3 key areas)

Answer 3

1. Consumer awareness
2. Customer expectations
3. Competition

Question 4

What is consumer awareness?

Answer 4

Consumers are increasingly aware of their rights. Legal rights have increased in areas such as unfair contract conditions.

Question 5

Why is insurance, particularly susceptible to potential disputes?

Answer 5

The intangible nature & the fact that a policy as a legal document must reflect what are often complex situations and can therefore be difficult to remain jargon free

Question 6

How does the FCA explain it’s vision for markets that function well for it’s consumers?

(4 points)

Answer 6

1) It will take action to achieve it’s vision
2) It will use it’s resources to protect consumers
3) It will identify, diagnose & remedy harm (and potential harm) and evaluate it’s impact
4) It will use it’s most effective powers and tools to address harm or potential harm

Question 7

Name 2 legal requirements and explain them

Answer 7

Consumer Rights Act 2015
Sets out requirements of law when supplying services that are not already subject to legislation. The key requirement it so provide a service within reasonable time

Enterprise Act 2016
Insurers must pay any sums due to their insured within reasonable time. If not done, he insured is able to enforce payment of the claim and pursue claims for damages

Question 8

Why have expectations of service increased?
What is expected now?

Answer 8

Consumers are better educated & more financially aware so expect value added services such as:
* 24 hour helplines
* Complaint handling mechanisms
* Uninsured loss recovery services

Question 9

Better service standards are a way to compete in the market. Organisations should therefore consider how to what?

2 points

Answer 9

1. Develop the customer service skills of it’s employees
2. Build employee confidence & professionalism

Question 10

What are some examples of customer service?

Answer 10

• Agents providing services to customers in their own homes
• A free phone number
• A communication network that allows for 24/7 access
• A high quality turnaround time on new business applications
• A complaints handling mechanism

Question 11

What are the 6 main groups that make up the structure of the insurance market?

Answer 11

1. Buyers - AKA proposers, policyholders, insureds
2. Intermediaries - Bring buyers and sellers together
3. Aggregators - Price comparison
4. Insurers - Sellers
5. Reinsurers - To further spread the risk
6. Suppliers - Provide services to the insurance market such as loss adjusters or claim handling services

Question 12

What are the 2 main types of buyers?

Explain them

Answer 12

Private Individuals = Purchase insurance in their own private capacity to protect their assets and liabilities

Commercial Organisations = Purchase insurance to protect their business. These can be:
* Companies
* Partnerships
* Public bodies
* Clubs and associations

Question 13

What are the 2 main classifications of insurer?

Explain them

Answer 13

Composite companies
* AKA general insurers
* Accept several classes of business
* Represent most of the market

Specialist insurers
* Have expertise in niche areas
* Accepts one class of business
* Represents minor portion of the market

Question 14

Explain the process of placing risk in the Lloyds Market

Answer 14

Group of private individuals or corporate members form themselves into syndicates.
Each syndicate employes a managing agent who appoints an underwriter to accept risks on its behalf.

The broker summarises the risk on an MRC (or “slip”) which is shown to the underwriters who indicate the % of risk that they will accept.
Once the risk has been fully placed (i.e the required percentage, usually 100% has been met by the UW’s) the policy is prepared, checked and signed via Xchanging.

The broker collects the premium and passes it to Lloyds minus any agreed commission (brokerage).

Question 15

Define:

Syndicates
Managing agents
MRC

Answer 15

Syndicates = Group of private individuals or corporate members who carry risk (provide the financial backing)

Managing agent = Companies specifically established to manage the underwriting of one or more syndicates

MRC = Market Reform Contract

Question 16

Define intermediary

Answer 16

An agent, authorised to bring their principal (usually an insurance customer) into a contractual relationship with another (usually an insurer)

Question 17

Under FCA fules, all persons that carry out insurance distribution activities must be what?

Answer 17

Directly authorised
or
Exempt
* Become an appointed representative (AR)
* Become and introducer appointed representative (IAR)
* Be a member of a professional body that has the equivalent rules to the FCA (designated professional body)

Question 18

What are 3 examples of insurance distribution activities?

Answer 18

• Insurance sales
• Advice
• Promotion

Question 19

What is an authorised person?

Answer 19

Someone who has been directly authorised by the FCA to offer independant advice and recommend policies based on a fair analysis of the market. They act on behalf of the client not the insurer when introducing business

Question 20

What is an appointed representative & introducer appointed representative?

Who takes regulatory responsibility?

Answer 20

Both are individuals or companies that are appointed by an authorised person under the terms of a TOBA to determine their roles and responsibilities.

The authorised person takes regulatory responsibility

Question 21

Why does a less rigorous regime apply to IARs as apposed to ARs

Answer 21

The contract with their principal limits them to introductions and distributing non real time financial promotions

Question 22

Lewis @ Hays Travel

What is an AII

Answer 22

Ancillary insurance intermediary
Organisations whos principal professional activity is not an insurance distribution and only distribute insurance products that are complimentary to the goods and services that they primarilly offer.

Question 23

What is a reinsurer?

Answer 23

An insurance firm that specialises in providing insurance for risks that an insurer has accepted.

Question 24

What is retroceeding?

Answer 24

When reinsurance is bought by another reinsurance company to spread the risk even further.

Question 25

What is Cedant / Cedant Office?

Answer 25

An insurer who buys reinsurance cover

Question 26

What are the 3 main types of reinsurers?

Answer 26

• Specialist reinsurance companies that do not transact original (direct) insurance business
• Lloyds syndicates
• Insurance companies that also act as reinsurers

Question 27

Distribution channels

What does the FCA’s consumer outcome 2 for the fair treatment of customers require?

Answer 27

Products and services marketed & sold in the retail market are designed to meet the needs of identified consumer groups and targeted accordingly.

Question 28

What are the 2 types of distribution channels?
Explain them

Answer 28

• Direct: Employees of the insurer (agents / call centre staff) sell insurance products or direct mailing techniques are used to promote sales and sales could be generated from phone or web queries
• Indirect: Intermediaries are paid by the insurer to promote products on the insurers behalf or the insurer sells products through a bank (bancassurance) or another organisation such as a supermarket.

Question 29

What is a binder?

Answer 29

When an insurer gives intermediaries authorisation to act on their behalf, aka a delegated authority scheme.

Question 30

Define good faith in insurance terms.

Answer 30

Disclosure must be made in a reasonably clear and accessible manner and material representations of face, expectation or belief must be substantially correct.

Question 31

When does the duty of disclosure apply?

Answer 31

Prior to the contract coming into existence and it revived again at renewal or if the policy needs to be changed (e.g risk increases such as adding another driver to car insurance)

However, insurers may want to know about changes to information during the life of the policy and thus may include a condition in the policy to make the duty of disclosure ongoing.

Question 32

How does the insurer have a duty of disclosure to the insured?

Answer 32

• To notify an insured of possible entitlements to a premium discount from a good previous insurance history
• To only take risks that they are registered to accept
• Ensuring statements made are true (Kettlewell v Refuge Assurance Company outlines that misleading an insured about policy cover is a breach of good faith).

Question 33

The position of disclosure is governed by which 2 legislations?

Answer 33

CIDRA (Consumer Insurance Disclosure & Representations act 2012)

Insurance Act 2015 for non consumer insurance contracts

Question 34

Outline the Consumer Insurance Disclosure & Representations act (CIDRA)

Answer 34

Consumers are required to take reasonable care not to make a misrepresentation when answering the insurers questions

Question 35

What is a misrepresentation?

Answer 35

A false statement of fact that induces the other party to enter into a contract

Question 36

Outline the Insurance Act

Answer 36

The insured must make a fair presentation of the risk.

Question 37

Presentation = non consumer/ IA

What makes a fair presentation of the risk?

Answer 37

• Disclosure of every material circumstance which the insured knows or gives sufficient information to alert a prudent insurer that it needs to make further queries to reveal those circumstances
• Disclosures are in a manner that is reasonably clear and accessible to prudent insurers
• Every material representation as to a matter of fact is substantially correct

Question 38

What is a material circumstance?
Who defines it?

Answer 38

Marine insurance act= every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether they will take the risk

Insurance act = a circumstance or representation is material if it would influence the judgment of a prudent insurer in determining whether to take the risk, and if so, on what terms.

in non-life insurance, a material circumstance concerns either a physical or moral hazard in relation to the subject matter of the insurance.

Question 39

What facts do not need to be disclosed?

Answer 39

• Facts of law
• Facts of public knowlegde - e.g war
• Facts that lessen the risk - although possibly beneficial for the insured
• Facts where the insurer has waived its rights to the information - e.g insurer has not followed up on a half answered question
• Facts that a survey should reveal - only applies where the insurer has carried out a survey
• Facts that the insured does not know - although this depends on whether this is in a private or commerical capacity.
• Facts outside the scope of the specific questions - e.g if claims are queries for the last 3 years, there is no need to declare 5
• Spent convictions

Question 40

What are the concequences of a breach for consumer insurance contracts?

Answer 40

If the misrepresentation was

honest and reasonable: the insurer must pay the claim

careless the insurer can respond as it would have done had the consumer taken care to answer carefully

Deliberate or reckless the insurer can treat the policy as void and decline all claims. They can keep the premium unless there is a good reason as to why it should be returned

CIDRA

Question 41

What are the consequences of a breach for non consumer insurance contracts?

Answer 41

If it weren’t for the breach the insurers would have:

Not entered into the contract at all then they can avoid the policy, decline all claims but must return the premium

Entered into the contract but on different terms then they can treat the policy as if those terms applied e.g an increased XS

Entered into the contract but for a higher premium then they can reduce the claims proportionally

Insurance act

Question 42

Can compulsory insurance avoid a policy on the grounds of non disclosure?

Answer 42

No, the insurance exists to ensure that compensation is available to innocent victims but they can recover any claims paid against their insured.

Question 43

The Insurance Act states that an insurer ‘ought to know’ anything which what?

2 points

Answer 43

• The employee or agent of the insurer knows and ought reasonably to have passed it onto the underwriter(s)
• Is held by the insurer and is readily available to the individual(s) responsible for UW

Question 44

What does ICOBS stand for?

Answer 44

Insurance Conduct of Business Sourcebook

Question 45

How can an insurer ensure that the customer knows what they must disclose?

Answer 45

• explaining to a commercial customer the duty to disclose all material circumstances, what
  needs to be disclosed, and the consequences of any failure to make such a disclosure;
• ensuring that the commercial customer is asked clear questions about any matter the
  insurer considers material;
• explaining to a consumer their responsibility to take reasonable care not to make a
  misrepresentation and the possible consequences if they are either careless in answering
  the insurer’s questions or makes a misrepresentation recklessly or deliberately; and
• asking the customer clear and specific questions about the information relevant to the
  policy being arranged or varied.

Question 46

What are the FCA rules in relation to the duty of disclosure

Answer 46

Consumer Outcome 3 requires that consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
* Consumer Outcome 4 states where consumers receive advice, the advice is suitable and takes account of their circumstances.
* All customers must recieve an IPID (insurance product information document)

Question 47

How do organisations ensure regulatory compliance during sales calls?

Answer 47

By providing their customer service team with scripts and call guides.

Question 48

How do organisations ensure regulatory compliance for online quotes?

Answer 48

• Appropriate questions are asked on various screens.
• Warnings need to be clearly visible and explain the importance of disclosing all relevant information
• Showing a number of policy documents that show key features and a summary of cover provided as well as any exclusions

Question 50

What are the methods of obtaining material information

7 methods

Answer 50

• Proposal forms
• Statement of fact
• Surveys
• Supplimentary questionanires
• MRC
• Contacting the client
• Know your customer

Question 51

What is a proposal form?

Answer 51

A method used to obtain material information about the subject matter, proposer and overall risk.

This is mainly used for commercial classes of insurance.

Includes a declaration in regards to the duty of disclosure

Question 52

What is a statement of fact?

Answer 52

A method of obtaining material information about the subject matter, proposer and overall risk (similar to a proposal form).

Can be done over the phone, face to face or on an online questionnaire mainly used in consumer insurance.

Once complete, this is sent back to the customer to check that all information is correct and offer the opportunity for alterations if appropriate.