chapter 1 Flashcards
Composite Company
An insurance company that transacts both long-term business (life) and general business, such as motor, household, aviation, and public liability.
Life Company
A life insurance and pensions company that is only able to transact long-term business.
General Insurance Company
An insurance company that is only able to transact general business.(eg motor)
Proprietary Companies
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.
Mutual Companies
Financial mutuals supply financial services products and are owned by customers/members. No shareholders, so focus is on customer needs.
Mutual vs. Proprietary Companies
Proprietary company shareholders receive dividends.
Mutual company policyholders may get lower premiums or higher bonuses as profits are returned to them.
Demutualisation
Process where mutual companies register as proprietary companies, sometimes retaining “mutual” in their title.
who are mutual companies owned by
policyholders
Captive Insurance Companies
Tax-efficient method of transacting risk transfer. Parent company forms a subsidiary to underwrite its own or its group’s insurable risks
What is Customer Relationship Management (CRM)?
CRM uses customer information to build stronger relationships by predicting future needs based on past purchases and interactions.
What are the three key elements of the Consumer Duty?
Consumer Principle
Three cross-cutting rules
Four outcomes
What are the three cross-cutting rules under Consumer Duty?
Act in good faith toward retail customers.
Avoid foreseeable harm to retail customers.
Enable and support customers to pursue their financial objectives.
What is a stakeholder?
A stakeholder is anyone who has a vested interest in a company and can affect or be affected by its operations and performance.
What are the six principal stakeholders of a business?
Customers
Shareholders
Government & Regulators
Intermediaries
The Public
Employees
What does ESG stand for?
Environmental, Social, and Governance – measures used to assess a company’s sustainability practices.
What are the five key ethical principles in the CII Code of Ethics?
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.).
What is the difference between a merger and an acquisition?
A merger occurs when two companies agree to join forces.
An acquisition happens when one company gains control by purchasing a majority shareholding.
What are the two types of M&As?
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).
What are the benefits of horizontal integration in M&As?
Improves market position
Achieves economies of scale
Enhances competitiveness
Creates diversification opportunities
What are the benefits of vertical integration in M&As?
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)
What are some reasons for insurance M&As?
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
Which regulatory sourcebooks cover outsourcing requirements for regulated businesses?
Senior Management Arrangements, Systems and Controls (SYSC) sourcebook (section 8)
PRA Rulebook
FCA Handbook
What is ‘material outsourcing’, and what must firms do before engaging in it?
Significant outsourcing that could impact operations. Firms must notify regulators in advance.
What rights do regulators and auditors have regarding outsourced functions?
They must have access to:
Business premises (with or without notice)
Books and records of the outsourced provider
How does Solvency II impact outsourcing management?
It requires insurers to manage outsourced contracts effectively, following EIOPA guidelines.
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.
What is market disruption?
A profound change in the business landscape that forces organisations to undergo significant transformation, rather than slow, incremental changes.
What are market disruptors?
Companies that introduce substantial innovation in products and services, breaking down barriers to entry and challenging existing suppliers.
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.
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.
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.
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.
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)
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.
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.
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).
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
A UK Government-backed mutual reinsurer.
Covers terrorism-related losses that commercial insurers cannot handle alone.
Helps ensure businesses can get affordable terrorism insurance.
What is Pool Re, and what does it cover?
