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chapter 1 Flashcards

1
Q

Composite Company

A

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

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2
Q

Life Company

A

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

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3
Q

General Insurance Company

A

An insurance company that is only able to transact general business.(eg motor)

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4
Q

Proprietary Companies

A

Majority of insurance sellers.

Shareholders’ profits after expenses and bonuses.

Limited liability for shareholders.

Company liable for debts; risks liquidation if insolvent.

Public deals directly or through brokers.

Keen competition with other market sectors.

Mostly composite or general insurance companies.

Operate by spreading risk across many customers.

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5
Q

Mutual Companies

A

Financial mutuals supply financial services products and are owned by customers/members. No shareholders, so focus is on customer needs.

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6
Q

Mutual vs. Proprietary Companies

A

Proprietary company shareholders receive dividends.

Mutual company policyholders may get lower premiums or higher bonuses as profits are returned to them.

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7
Q

Demutualisation

A

Process where mutual companies register as proprietary companies, sometimes retaining “mutual” in their title.

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8
Q

who are mutual companies owned by

A

policyholders

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9
Q

Captive Insurance Companies

A

Tax-efficient method of transacting risk transfer. Parent company forms a subsidiary to underwrite its own or its group’s insurable risks

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10
Q

What is Customer Relationship Management (CRM)?

A

CRM uses customer information to build stronger relationships by predicting future needs based on past purchases and interactions.

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11
Q

What are the three key elements of the Consumer Duty?

A

Consumer Principle
Three cross-cutting rules
Four outcomes

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12
Q

What are the three cross-cutting rules under Consumer Duty?

A

Act in good faith toward retail customers.

Avoid foreseeable harm to retail customers.

Enable and support customers to pursue their financial objectives.

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13
Q

What is a stakeholder?

A

A stakeholder is anyone who has a vested interest in a company and can affect or be affected by its operations and performance.

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14
Q

What are the six principal stakeholders of a business?

A

Customers
Shareholders
Government & Regulators
Intermediaries
The Public
Employees

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15
Q

What does ESG stand for?

A

Environmental, Social, and Governance – measures used to assess a company’s sustainability practices.

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16
Q

What are the five key ethical principles in the CII Code of Ethics?

A

Comply with the Code and all relevant laws & 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, regardless of personal characteristics (e.g., age, gender, race, disability, etc.).

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17
Q

What is the difference between a merger and an acquisition?

A

A merger occurs when two companies agree to join forces.

An acquisition happens when one company gains control by purchasing a majority shareholding.

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18
Q

What are the two types of M&As?

A

Horizontal Integration – Merging with a company in the same market to improve performance, scale, or competitiveness.

Vertical Integration – Gaining control of a different stage in the supply chain (closer to the manufacturer or customer).

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19
Q

What are the benefits of horizontal integration in M&As?

A

Improves market position
Achieves economies of scale
Enhances competitiveness
Creates diversification opportunities

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20
Q

What are the benefits of vertical integration in M&As?

A

Reduces costs through economies of scale
Increases market control over supply chains

Enhances customer experience (e.g., an insurer acquiring a back-office service provider)

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21
Q

What are some reasons for insurance M&As?

A

Achieve global market growth
Gain efficiency through synergies & cost reduction
Overcome IT costs by sharing expensive platforms
Use surplus capital for investment
Spread risk between two companies

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22
Q

Which regulatory sourcebooks cover outsourcing requirements for regulated businesses?

A

Senior Management Arrangements, Systems and Controls (SYSC) sourcebook (section 8)
PRA Rulebook
FCA Handbook

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23
Q

What is ‘material outsourcing’, and what must firms do before engaging in it?

A

Significant outsourcing that could impact operations. Firms must notify regulators in advance.

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24
Q

What rights do regulators and auditors have regarding outsourced functions?

A

They must have access to:

Business premises (with or without notice)
Books and records of the outsourced provider

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25
How does Solvency II impact outsourcing management?
It requires insurers to manage outsourced contracts effectively, following EIOPA guidelines.
26
What are the key contract requirements for outsourcing under EIOPA rules?
Clearly stated duties & responsibilities of both parties. Service provider must comply with laws & regulations. Disclosure of material developments affecting service delivery. Adequate termination notice for business continuity. Regulators, auditors & firms must have access to outsourcing records. Service provider must have risk management & internal controls.
27
What is market disruption?
A profound change in the business landscape that forces organisations to undergo significant transformation, rather than slow, incremental changes.
28
What are market disruptors?
Companies that introduce substantial innovation in products and services, breaking down barriers to entry and challenging existing suppliers.
29
If an insurer is experiencing severe delays settling its claims, this is most likely to be seen as a failure to:
act to deliver good outcomes for customers.
30
How might a customer benefit from buying insurance using an aggregator, rather than direct from an insurer? a. They would only need to input their details once to get quotations from several insurers. b. They can do so knowing that the price quoted always reflects the final price from each insurer. c. They would get the best advice possible. d. They would have access to all insurers.
a. They would only need to input their details once to get quotations from several insurers.
31
A UK bank looking to enter the UK insurance market without setting up its own insurance company is most likely to offer: a. personal lines insurance with selected insurers but branded in its own name. b. personal lines insurance as an appointed representative of an insurer, selling products in the insurer's name. c. personal lines insurance by acting as an insurance broker to get the best possible insurance solution. d. commercial lines insurance with selected insurers but branded in its own name.
a. personal lines insurance with selected insurers but branded in its own name.
32
The organic growth of a UK insurer is most likely to be best for the business because it: a. often offers a better investment return. b. is the quickest way to grow. c. is the easiest way to achieve economies of scale. d. offers a high risk/high reward strategy.
a. often offers a better investment return.
33
What are the main distribution channels for insurance?
Direct insurers (sell policies directly to customers) Insurance brokers (independent intermediaries) Price comparison websites (aggregators) Banks & building societies (sell insurance alongside financial products) Affinity groups & retailers (offer white-labelled insurance products)
34
What are the different types of insurance company structures?
Proprietary companies – Owned by shareholders. Mutual companies – Owned by policyholders. Lloyd’s syndicates – Groups of underwriting members. Captive insurers – Owned by businesses to insure their own risks. Takaful insurance – Based on Islamic finance principles. Reinsurers – Provide insurance to insurance companies.
35
What are the key regulatory requirements for outsourcing in insurance?
Must comply with SYSC 8 in the FCA Handbook & PRA Rulebook. Outsourcing should not increase operational risk. Firms remain responsible for compliance, even if outsourced. Regulators must be notified of material outsourcing.
36
What is a market disruptor in the insurance industry?
A company that introduces major innovations, breaking down barriers and forcing competitors to adapt (e.g., digital insurers, InsurTech startups).
37
What are the requirements for an international insurance market?
Political and economic stability Geographical location & transport links Skilled workforce Stable legal & regulatory environment Global financial hub (e.g., London, New York) Time zone advantages for global trade
38
What is Pool Re, and what does it cover?
A UK Government-backed mutual reinsurer. Covers terrorism-related losses that commercial insurers cannot handle alone. Helps ensure businesses can get affordable terrorism insurance.
39
What is an insurance broker?
A: A professional firm, usually authorised and regulated by the FCA, that helps buyers access the insurance market and recommend suitable coverage.
40
What is an appointed representative?
A: An insurance broker or agent that operates under an authorised firm (the Principal) and is exempt from direct FCA regulation.
41
Do price comparison sites sell insurance directly?
A: No. They link buyers to sellers and are funded through fees from sellers when a sale is made.
42
What is a tied agent in insurance?
A: An agent that only sells products from a single insurer.
43
What is a Managing General Agent (MGA)?
A: An insurance broker with binding authority from an insurer to act on its behalf in distributing products.
44
How is an MGA different from a typical insurance broker?
A: Unlike standard brokers, MGAs can assess risk, calculate and collect premiums, issue policies, and pay claims.
45
Can mutual companies transact both life and general insurance?
A: Yes, mutual companies may transact life or general insurance business.
46
What is demutualisation?
A: The process by which a mutual organisation converts into a proprietary company.
47
What happens during demutualisation?
A: The mutual registers under the Companies Acts and becomes a shareholder-owned company, though it may still use “mutual” in its name.
48
What is the most common format of reinsurance?
A: A treaty, where the reinsurer agrees to take a part of all the insurer’s underwritten risks.
49
What is a proportional treaty?
A: The insurer and reinsurer share a stated proportion of each risk, including premiums and claims.
50
What is a non-proportional treaty?
A: The insurer retains the initial part (or layer) of the risk, and the reinsurer covers losses above that.
51
What is facultative reinsurance?
A: A form where each risk is negotiated individually, often used when a risk is outside treaty terms.
52
What is a shareholder?
A: A shareholder is someone who owns part of a company by holding its shares (also known as stock).
53
What is the UK's largest 'insurer'?
A: The UK Government, through systems like National Insurance and the NHS.
54
What is Flood Re?
A: A not-for-profit scheme launched in 2016 to make flood insurance more affordable.
55
Who is excluded from Flood Re?
A: Homes built after 2009, some flats, and small businesses.
56
What is an independent intermediary?
A: An insurance broker who offers products from various insurers and provides expert, personalised advice and service.
57
What services do independent intermediaries provide?
A: They compare insurers, negotiate on behalf of clients, issue policies, handle claims, and collect premiums.
58
What is brokerage?
A: The commission paid to intermediaries by insurers for placing business with them.
59
What is an affinity scheme?
A: A scheme targeted at a specific group (e.g. profession or club), offering tailored insurance with often broader cover and higher commissions for the intermediary.
60
What is an appointed representative (AR)?
A: An agent who works under a regulated principal firm, which is responsible for their actions.
61
What is white labelling in insurance?
A: When retailers or affinity groups sell insurance under their own brand name, backed by an insurer or broker.
62
What are ESG measures?
A: ESG stands for Environmental, Social, and Governance – used to assess sustainability practices.
63
What ESG-related requirements are set by the Companies Act 2006?
A: Large UK companies must report on ESG disclosures if they are listed, have over 500 employees, or exceed £5 million turnover.
64
What are Sustainability Disclosure Requirements (SDRs)?
A: Introduced in 2023, SDRs provide a framework for managing sustainability risks, opportunities, and set measurable ESG goals.
65
What is 'greenwashing'?
A: Making false or misleading environmental claims to appear more sustainable than the company actually is.
66
Describe three main types of insurance company.
a. Proprietary companies: Owned by shareholders and aim to make a profit. Profits are distributed to shareholders via dividends. b. Mutual companies: Owned by policyholders. Any profit is usually reinvested or used to reduce premiums. They can't raise capital by issuing shares. c. Lloyd’s syndicates: Operate within the Lloyd’s market. Groups of underwriters form syndicates to write specialist insurance, such as marine or aviation.
67
What does limited liability mean in relation to an insurance company?
Limited liability means that the shareholders of the company are only responsible for the company’s debts up to the amount they invested. Their personal assets are protected.
68
What types of business will mutual companies usually transact?
Mutual companies often focus on: Life insurance General insurance (e.g. home or motor) Specialist covers for particular professions or affinity groups They tend to serve specific communities or member-based organisations.
69
Describe the differences between organic and non-organic growth.
Organic growth: Growth from within the business, such as increasing sales, launching new products, or improving service. Non-organic growth: Growth through acquisitions or mergers – buying or combining with other businesses to expand market share or capability.
70
Provide a definition of 'business ethics'.
Business ethics are the principles and values that guide how a business behaves and makes decisions. It includes acting with honesty, integrity, fairness, and respect for stakeholders such as customers, employees, and society.

m92 (8 decks)

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