Chapter 1 Flashcards
Insurance Market
Consists of:
- sellers (insurers)
- buyers (general public, etc)
- middlemen (brokers and intermediaries)
Proprietary Companies
Owned by shareholders aiming for profit
Mutual Companies
Owned by its customers, or members
Captive Insurers
Owned by parent company
Takaful Insurance Companies
Under Sharia (Islamic Law), traditional insurance policies are seen by Muslims to break:
- Gharar (uncertainty)
- Maisir (gambling)
- Riba (interest)
Lloyd’s
The members underwrite for their own profit and loss in groups called syndicated
The underwriting members appoint independent companies known as managing agents to carry out the underwriting business
Proportional Treaty Reinsurance
Where the insurer and reinsurer take a stated proportion of each risk and share the premium and claims on the same basis
Non-Proportional Treaty Reinsurance
Allows an insurer to retain the first part of cover and transfer the balance to the reinsurers
Facultative Reinsurance
Where each reinsurance requirement is negotiated individually
Flood Re
- a not-for-profit scheme launched in 2016 to promote the availability and affordability of flood insurance
- financed through a £180m levy on household insurers
Multinational Companies
- operate in multiple countries but has a home base
- national subsidiaries handle their own tasks
- each market is identified separately for strategic purpose
Example: Prudential Plc
Global Companies
- view the whole world as one market
- aim to be seen as a global, singular brand
- centralised operations with competitive advantage from the global brand
Example: Lloyd’s
Business conducted in the London Market
Mostly non-life insurance and reinsurance, particularly marine and aviation
London Market Group (LMG)
An organisation established to represent the London Market
Target Operating Model (TOM)
A model established by LMG in 2016 to deliver solutions like electronic risk binding and standardised data collection
Sellers and Distributors of Insurance
- direct insurers
- independent intermediaries
- agents
- aggregators
- banks and building societies
- affinity groups
- market disruptors
Customer Relationship Management (CRM)
- reliability
- responsiveness
- accessibility
- safety
- courtesy
- consideration
- communication
- recognising customer
- competence
Consumer Duty Cross Cutting Rules
- products and services
- price and value
- consumer understanding
- consumer support
Stakeholders
- customers
- shareholders
- the government and regulators
- intermediaries
- the public
- employees
Environmental, Social and Governance (ESG)
Shows a companies impact on the environment and is increasingly required by regulations like the Companies Act 2006
CII Code of Ethics
- comply with the code and all relevant laws and regulations
- act with the highest ethical standards and integrity
- act in the best interests of each client
- provide a high standard of service
- treat people fairly
Why would a company not want to grow?
- increasing consumer incomes
- ready availability of finance
- low interest rates
- buoyant markets
- opportunities for product development
- export opportunities
Organic Growth
Where a company develops and expands by increasing its sales, revenue and output
Benefits and Disadvantages of Organic Growth
Benefits
- involves less risk
- can be financed through internal funds
- builds on existing strengths
- allow business to grow at a sensible rate
Disadvantages
- requires employees who can handle the growth
- building a business organically will take longer to achieve than a purchase of an original business
Merger and an Acquisition
- a merger is when two companies agree to join forces
- an acquisition is when one company gains control of another
Horizontal Integration
When two companies in the same market merge to improve performance, achieve economies of scale, improve competitiveness or diversify
Vertical Integration
When a company merges with another to control a stage closer to the source of manufacturing or the customer
Benefits and Disadvantages of M&As
Benefits - efficiency and improved performance
Disadvantages - reduced customer choice, impact on staff morale and redundancies
Regulatory Requirements for outsourcing
SYSC handbook, PRA rulebook and FCA handbook
FCA 2015 review on outsourcing
Insurers need better due diligence, focus on customer impact and oversight of product performance and service delivery
Material Outsourcing - PRA and FCA
Services so important that their failure would cast serious doubt on the firm’s regulatory compliance
European Insurance and Occupational Pensions Authority (EIOPA)
Details the expectations of insurers’ management of outsourced contracts
Market Disruption
A profound change in the business landscape that forces significant transformation
Forms of Market Disruption
- social change
- technological change
- climate change
- political and economic changes
Market Disruptors
- deliver substantial innovation
- break down market barriers
- overcome existing suppliers’ defences
FinTech
Financial technology offering new software solutions for financial services, including money transfers, loans and mobile payments
Malware
Malicious software that can spy on activities and steal data
Ransomware
Malware that encrypts data and demands a ransom for it’s return
Hacking
Unauthorised access to a computer system to steal data
Lloyd’s Product Launchpad
A program that supports innovation for non-standard risks
Products - insurance for IVF failure, BI for cloud service outages and reputational risk insurance
Cryptocurrency Wallet Insurance
Insurance that protects against theft due to security failures in cryptocurrency
