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chapter 1 Flashcards

1
Q

Key Points in Claims Handling:

A

If a firm handles both the arranging of a policy and claims, it must inform the customer and avoid breaching its duty to either party.

Conflicts are common in delegated authority situations (e.g., brokers handling claims). Firms must disclose conflicts and get consent from customers.

An intermediary’s remuneration based on business volume/profitability can create an incentive to prioritize profitability over the customer’s interests.

In these cases, insurers must regularly audit intermediaries and ensure compliance with ICOBS rules to protect policyholders.

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2
Q

What is the main goal of the Financial Policy Committee (FPC)?

A

To identify and reduce systemic risks, enhancing the resilience of the UK financial system.

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3
Q

What are the three objectives of the Prudential Regulation Authority (PRA)?

A

Promote the safety and soundness of regulated firms.

Protect insurance policyholders.

Facilitate effective competition.

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4
Q

What are the three operational objectives of the Financial Conduct Authority (FCA)?

A

Consumer protection.
Ensure the integrity of the financial system.
Promote effective competition in the interests of consumers.

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5
Q

What does ICOBS 8.1.1 require insurers to do?

A

Handle claims promptly and fairly, provide guidance and information, not unreasonably reject claims, and settle claims promptly.

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6
Q

What is the definition of a complaint according to the FCA Handbook?

A

Any oral or written expression of dissatisfaction, whether justified or not, relating to a financial service, causing financial loss, material distress, or inconvenience.

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7
Q

Who is eligible to take a complaint to the Financial Ombudsman Service (FOS)?

A

Consumers, micro-enterprises, small businesses, charities, trustees, and guarantors.

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8
Q

What are the six consumer outcomes required by the FCA for fair treatment of customers?

A

Fair treatment is central to the firm’s culture.
Products meet the needs of targeted consumers.
Consumers receive clear information.
Advice is suitable for their circumstances.
Products perform as expected.
No unreasonable post-sale barriers.

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9
Q

What is the overarching objective of the Financial Conduct Authority (FCA)?

A

To ensure that relevant markets function well.

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10
Q

What is ICOBS 8 about?

A

ICOBS 8 outlines the rules for claims handling, requiring insurers to handle claims promptly, fairly, and provide guidance to policyholders.

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11
Q

What is Principle 6 of the FCA’s Principles for Businesses?

A

A firm must pay due regard to the interests of its customers and treat them fairly.

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12
Q

What is a key responsibility of insurers when outsourcing claims handling to TPAs or MGAs?

A

Insurers remain responsible for ensuring claims handling meets ICOBS standards, even when outsourced.

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13
Q

Who can bring complaints to the Financial Ombudsman Service (FOS)?

A

Eligible complainants such as consumers, micro-enterprises, small businesses, charities, and trustees of small trusts.

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14
Q

What are the time limits for bringing complaints to the FOS?

A

6 months from the firm’s final decision.
6 years from the event.
3 years from when the complainant knew they had a reason to complain.

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15
Q

What is the role of the Dispute Resolution: Complaints (DISP) Sourcebook?

A

It outlines how firms should handle complaints, requiring them to have written procedures and notify complainants of their right to go to the FOS.

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16
Q

What is the Consumer Rights Act 2015’s key requirement for insurers?

A

Insurers must perform services within a reasonable time, adding a dimension to prompt claims handling under ICOBS.

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17
Q

What is the significance of the Enterprise Act 2016 for insurers?

A

It amended the Insurance Act 2015 to require insurers to pay claims within a reasonable time, allowing policyholders to claim damages for delays.

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18
Q

What are the eligible complainants categories for the Financial Ombudsman Service (FOS)?

A

Consumers.
Micro-enterprises.
Small businesses.
Charities.
Trustees of small trusts.
Guarantors.

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19
Q

What happens if a complaint is resolved informally within 3 days?

A

The firm must provide a summary resolution and remind the complainant of their right to contact the FOS.

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20
Q

What are the two types of awards the FOS can issue to resolve disputes?

A

Money award: Specific monetary compensation for financial loss.
Directions award: Actions the firm must take to put things right, such as paying a claim or offering redress.

21
Q

What is the importance of ICOBS 8.1.3 regarding consumer misrepresentation?

A

It addresses qualifying misrepresentations made by consumers, holding them responsible if they breach the duty to take reasonable care in providing information.

22
Q

What key conflict of interest scenario can arise in claims handling?

A

A broker handling claims may have a financial incentive based on business volume, creating potential conflicts between the insurer’s interests and fair treatment of the policyholder.

23
Q

What is the Chartered Insurance Institute (CII) Code of Ethics?

A

A set of principles that ensure CII members act with integrity, serve clients’ best interests, and maintain high ethical standards.

24
Q

What must insurers ensure regarding outsourcers handling international claims?

A

Insurers must ensure that outsourcers or TPAs comply with local rules, as the insurer remains responsible for compliance with ICOBS.

25
Q

What is the role of management information (MI) in monitoring customer outcomes?

A

Firms must use MI to monitor and assess customer outcomes, ensuring risks are identified and action is taken to improve fairness and compliance.

26
Q

How does the Financial Vulnerability Taskforce (FVT) help firms treat vulnerable customers fairly?

A

It provides resources and guidance to promote understanding of vulnerability, encourage appropriate behavior, and establish best practices.

27
Q

What is the Treating Customers Fairly (TCF) initiative, and how is it linked to the FCA’s work?

A

TCF is a framework ensuring that fair treatment of customers is central to business practices. It supports the FCA’s Principle 6: paying due regard to customers’ interests and treating them fairly.

27
Q

What does Principle 8 of the FCA’s Principles for Businesses require?

A

Principle 8 requires firms to manage conflicts of interest fairly, both between the firm and its customers and between different customers.

28
Q

What are the key elements of ICOBS 8.1.2 regarding the rejection of consumer claims?

A

A rejection of a consumer’s claim is unreasonable, except where there is fraud, or in cases of non-disclosure or misrepresentation not caused by negligence or unqualified misrepresentation.

29
Q

What is the significance of qualifying misrepresentation under the Consumer Insurance (Disclosure and Representations) Act 2012?

A

A qualifying misrepresentation occurs when a consumer fails to take reasonable care not to misrepresent facts to the insurer, and the insurer would not have entered the contract on the same terms if they had known the truth.

30
Q

What must a firm’s internal complaints procedure include according to DISP?

A

Procedures for receiving, responding, investigating complaints, and informing complainants about their right to go to the Financial Ombudsman Service (FOS) if unresolved.

31
Q

What are the time limits for firms to respond to complaints under DISP?

A

Firms must resolve complaints within eight weeks, providing a final response or allowing referral to the FOS if the complainant remains dissatisfied.

32
Q

What responsibility does the Senior Management Arrangements, Systems and Controls (SYSC) impose on firms regarding staff competence?

A

Firms must ensure staff are competent, receive appropriate training, are supervised, and regularly reviewed to maintain competence.

33
Q

How does the Insurance Distribution Directive (IDD) affect claims handlers?

A

The IDD requires staff involved in selling, advising, or transacting insurance to complete at least 15 hours of continuing professional development (CPD) annually.

34
Q

What is the FCA’s new Consumer Duty, and what does it require of firms?

A

The Consumer Duty requires firms to put consumers at the heart of their business, ensuring good outcomes, fair value, and proper support for customers throughout their financial journeys.

35
Q

What is the Enterprise Act 2016’s impact on insurance contracts?

A

It requires insurers to settle claims within a reasonable time and allows policyholders to claim damages if delays cause additional losses.

36
Q

What are management information (MI) and its importance under FCA rules?

A

MI refers to data used by firms to monitor customer outcomes and identify risks. It helps ensure firms are meeting the FCA’s standards for treating customers fairly.

37
Q

What is the Chartered Insurance Institute (CII) Code of Ethics, and why is it important?

A

The CII Code of Ethics sets principles for members to act with integrity, serve clients’ best interests, and promote fair dealing in the insurance profession, ensuring public trust.

38
Q

Why is it important for insurers to audit third-party administrators (TPAs) who handle claims?

A

Insurers remain responsible for ICOBS compliance, even when outsourcing claims, and must audit TPAs to ensure they meet the required standards.

39
Q

What does Principle 6 of the FCA’s Principles for Businesses focus on?

A

Principle 6 focuses on treating customers fairly and ensuring that their interests are considered throughout the firm’s operations.

40
Q

In carrying out its work, the PRA will:

A

seek to ensure that firms can fail without bringing down the entire financial system.

41
Q

The Consumer Duty has been formed under which of the FCA’s twelve Principles for Businesses [PRIN]?

A

Principle 12.

42
Q

An insurer has delegated the handling of household claims to a third party administrator [TPA]. What action does the insurer need to take to ensure that its regulatory responsibilities under ICOBS are not breached?

A

Carry out regular audits to monitor the TPA against agreed service standards.

43
Q

ICOBS 8 requires a firm to manage conflicts of interest in the claims handling process. A potential conflict of interest would NOT arise where:

A

an independently owned broker notifies a claim for one of its clients just before renewal. It asks the insurer to put a minimal reserve on the claim to minimise the impact on the insured’s renewal terms.

44
Q

Under the FCA rules, firms must ensure that complaints are handled by:

A

a person who is unrelated to the complaint, who has typically both the authority to settle complaints and has sufficient competence to do so.

45
Q

A UK based insurance company uses Swift Claims, a managing general agent, to handle its claims. If Swift Claims is based in and regulated in the USA:

A

the UK based insurer is answerable to the FCA in respect of how the claims are dealt with.

46
Q

Which of the FCA’s outcomes for the fair treatment of consumers is LEAST likely to affect the claims process?

A

Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.

47
Q
A

m85 (11 decks)

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