Chapter 1 Flashcards
What is a proprietary insurance company?
A company owned by shareholders aiming for profit distribution.
What is a mutual insurance company?
A company owned by policyholders, where profits are reinvested or distributed.
What is a captive insurer?
A company owned by a business to insure its own risks.
What is Takaful insurance?
An Islamic insurance model based on risk-sharing instead of risk transfer.
What is reinsurance?
The process where an insurance company transfers risks to another insurer.
What are insurance distribution channels?
Methods of selling insurance, including brokers, direct sales, and online aggregators.
What is the London Market?
A global hub for specialty insurance and reinsurance, including Lloyd’s of London.
What is the Consumer Duty under the FCA?
A requirement for insurers to act in customers’ best interests, ensuring fair treatment.
What are ESG principles in insurance?
Environmental, Social, and Governance factors influencing ethical business decisions.
What is outsourcing in insurance?
Transferring business operations to third-party firms for cost efficiency and expertise.
Sarah owns a growing tech company and wants insurance tailored to her business risks while keeping costs low. She is considering setting up her own insurance company to cover these risks. Which type of insurer is most suitable?
A) Mutual insurer
B) Captive insurer
C) Reinsurance company
D) Lloyd’s syndicate
B) Captive insurer
An insurance company wants to spread its risk by purchasing coverage from another insurer. What type of arrangement does this describe?
A) Takaful insurance
B) Reinsurance
C) Self-insurance
D) Mutualisation
B) Reinsurance
Tom is looking to buy motor insurance and wants to compare multiple providers at once. Which distribution channel should he use?
A) Price comparison website
B) Independent insurance broker
C) Captive insurer
D) Direct insurer only
A) Price comparison website
A small business purchases insurance directly from an insurer rather than using a broker. What is this an example of?
A) Affinity scheme
B) Direct insurance
C) Mutual insurance
D) Reinsurance
B) Direct insurance
A global insurance company wants to expand by acquiring another insurer. What type of growth is this?
A) Organic growth
B) Mutual growth
C) Non-organic growth
D) Self-insurance
C) Non-organic growth
A bank offers home insurance policies under its brand name, but the actual insurance is underwritten by a separate insurer. What is this an example of?
A) White labelling
B) Reinsurance
C) Self-insurance
D) Takaful insurance
A) White labelling
James is concerned about unethical practices in his insurer’s operations. Which of the following best describes a framework to guide ethical conduct in insurance?
A) GDPR
B) Lloyd’s Franchise Board
C) CII Code of Ethics
D) Financial Ombudsman Service
C) CII Code of Ethics
A UK-based insurer wants to expand into the BRICS market. What is one potential challenge they may face?
A) Over-regulation in emerging markets
B) Lack of demand for insurance in BRICS countries
C) Existing strong brand recognition in BRICS
D) High insurance penetration in those markets
A) Over-regulation in emerging markets
A company wants to outsource its claims handling. What is the primary benefit of this decision?
A) Greater control over claims decisions
B) Reduced compliance obligations
C) Lower operating costs and increased efficiency
D) Increased brand recognition
C) Lower operating costs and increased efficiency
A policyholder submits a large claim that exceeds the insurer’s risk appetite. How does the insurer manage this exposure?
A) It transfers part of the risk through reinsurance
B) It increases premiums for the policyholder retroactively
C) It declines the claim due to high risk
D) It refers the case to the FCA for guidance
A) It transfers part of the risk through reinsurance
A supermarket starts offering pet insurance under its brand name, but another company underwrites the policies. What is this an example of?
A) Lloyd’s syndicate
B) Captive insurance
C) Affinity scheme
D) Direct insurance
C) Affinity scheme
An insurer fails to consider customers’ needs when selling policies. What FCA principle does this violate?
A) Principle of indemnity
B) Consumer Duty
C) Principle of utmost good faith
D) Principle of subrogation
B) Consumer Duty
Which factor has not significantly impacted the UK and global insurance industry?
A) Climate change
B) Cyber risks
C) Increase in paperwork
D) Automation and AI
C) Increase in paperwork
Why would an insurance company choose to operate from an offshore location like Bermuda?
A) Lower insurance demand
B) Less availability of insurance professionals
C) Favourable tax and regulatory environment
D) Lack of reinsurance options
C) Favourable tax and regulatory environment
A newly formed insurance company wants to enter the London Market. What is one key reason to do so?
A) Limited access to international business
B) Strong regulatory restrictions
C) High market competition
D) Global reputation for complex risk solutions
D) Global reputation for complex risk solutions
Why do companies buy reinsurance?
A) To increase their policyholder base
B) To reduce their exposure to large claims
C) To eliminate their underwriting department
D) To avoid FCA regulations
B) To reduce their exposure to large claims
What is the main advantage of a mutual insurance company?
A) Shareholder profits
B) Higher policyholder dividends
C) Policyholder ownership and profit reinvestment
D) No requirement to comply with regulations
C) Policyholder ownership and profit reinvestment
A business chooses not to buy insurance and instead sets aside funds for potential losses. What is this an example of?
A) Takaful insurance
B) Self-insurance
C) Reinsurance
D) Affinity scheme
B) Self-insurance
The FCA enforces strict requirements to ensure customers are treated fairly. What is one core expectation?
A) Insurance companies must eliminate all claims disputes
B) Companies must charge the same premium for all customers
C) Customers should receive clear, transparent policy information
D) Insurers must provide unlimited coverage
C) Customers should receive clear, transparent policy information
A company is developing AI-driven insurance products to automate underwriting. What industry trend does this represent?
A) Compliance risk
B) Technological disruption
C) Market stagnation
D) Mutualisation
B) Technological disruption
A UK-based insurer is looking to enter a new overseas market with strict government regulations, local insurance protection laws, and foreign ownership restrictions. What is the most viable entry strategy?
A) Setting up a captive insurer in the UK and selling policies remotely
B) Establishing a wholly owned subsidiary in the target country
C) Partnering with a local insurer through a joint venture
D) Using a direct-to-consumer online distribution model
C) Partnering with a local insurer through a joint venture
An insurer specializing in high-net-worth clients is experiencing volatility in its claims ratio due to increasing natural catastrophes. What is the most strategic approach to manage this risk?
A) Ceasing to offer coverage in high-risk areas
B) Increasing deductibles and restricting policy coverage
C) Using proportional reinsurance to share risk exposure
D) Lowering premiums to attract a larger pool of policyholders
C) Using proportional reinsurance to share risk exposure
A multinational insurer wants to expand into the BRICS markets but faces low consumer awareness about insurance. What is the biggest challenge it must address?
A) Difficulty in obtaining reinsurance
B) Underdeveloped regulatory oversight
C) Low insurance penetration and trust in financial institutions
D) Lack of global insurers operating in those markets
C) Low insurance penetration and trust in financial institutions
A mid-sized insurer is struggling to compete with larger insurers due to limited financial resources. Which strategy would be least effective in strengthening its market position?
A) Specializing in niche insurance products
B) Partnering with larger insurers for reinsurance support
C) Expanding globally without significant financial backing
D) Forming strategic alliances with brokers and affinity groups
C) Expanding globally without significant financial backing
Following a major data breach, an insurer is found to have failed in protecting sensitive customer data. Under UK insurance regulations, what are the potential consequences?
A) Immediate revocation of its FCA license
B) Lawsuits but no regulatory consequences
C) Regulatory fines and reputational damage
D) Forced merger with another insurer
C) Regulatory fines and reputational damage
A UK-based life insurance mutual company is considering converting into a proprietary insurer. What is the biggest potential benefit of this demutualisation?
A) The ability to raise capital through stock markets
B) Reduced regulatory oversight
C) Stronger loyalty from policyholders
D) Lower operational costs
A) The ability to raise capital through stock markets
An insurer decides to expand its operations into London’s specialty insurance market. What key advantage does the London Market offer?
A) Protection from FCA regulations
B) Government-backed insurance guarantees
C) Access to large, complex international risks
D) Lower operational costs
C) Access to large, complex international risks
A takaful insurance provider is setting up in the UK. What is its biggest challenge in operating successfully in a Western market?
A) Competing with conventional insurers on price and profitability
B) Lack of availability of Sharia-compliant investment products
C) Limited understanding of reinsurance in Islamic finance
D) Lack of government recognition of Islamic finance principles
A) Competing with conventional insurers on price and profitability
An insurer is considering whether to self-insure certain risks rather than purchasing coverage. Which factor is the most important when making this decision?
A) Whether the insurer has a large enough capital reserve to cover unexpected losses
B) The ability to negotiate lower premiums in the commercial market
C) The cost of external claims adjusters
D) Regulatory restrictions preventing self-insurance
A) Whether the insurer has a large enough capital reserve to cover unexpected losses
A new digital insurance startup is using AI-driven underwriting to assess risk and offer personalized pricing. Which key challenge might it face when entering the UK market?
A) FCA restrictions on using AI for pricing decisions
B) Consumer resistance to AI-based pricing models
C) High operational costs compared to traditional insurers
D) Lack of access to reinsurance markets
B) Consumer resistance to AI-based pricing models
What is a composite company?
An insurance company that transacts both long-term business (life) and
general business, such as motor, household, aviation and public liability.
What is a life company ?
A life insurance and pensions company that is only able to transact long-term business.
What is a general insurance company
An insurance company that is only able to transact general business.
What does the insurance market comprise off?
- sellers: insurance organisations and providers;
- buyers: general public, industry and commerce, and public authorities;
- distributors: insurance brokers, appointed representatives, price comparison sites and
other intermediaries, including tied agents.
What is an insurance Broker ?
An insurance broker, regulated by the Financial Conduct Authority, helps buyers access the market by providing independent advice, researching coverage options, and recommending suitable policies, earning a fee or commission for their services.
What is an Appointed representative?
An insurance broker or other agent that works under the direction of an authorised firm (their Principal). They are exempt from regulation themselves as their Principal
bears full responsibility for them.
What is a Tied Agent?
Generally sells the products of a single insurer only.
Who are insurance companies regulated by?
- FCA
- PRA
How do insurance companies operate in relation to risk and premiums?
Insurance companies operate by charging relatively small premiums in comparison to the exposed risk to large numbers of the same type of customers – in other words, the losses of the few are paid for by the premiums of the many (risk transfer).
What is a Managing General Agent (MGA) and how does it differ from a typical insurance broker?
A Managing General Agent (MGA) is an insurance broker with binding authority from an insurer, allowing it to distribute products and perform tasks usually handled by insurers, such as risk assessment, premium collection, policy issuance, and claims handling. However, an MGA does not carry the risk itself—the insurer remains responsible for claims payments.
What is the role of reinsurance companies in the insurance market?
Reinsurance companies insure insurance companies against unexpected or large losses, helping them manage risks and enabling the market to handle large or accumulated risks. In major catastrophes, insurers claim part of their losses from reinsurers, who may also be reinsured. This global risk-sharing system provides stability and security.
What are the two basic needs insurers purchase reinsurance ?
• To limit (as much as possible) annual fluctuations in the losses that affect their
underwriting account, often referred to as ‘smoothing the underwriting result’.
• To be protected in case of a catastrophe (both man-made and natural).
What is a key characteristic of a mutual insurance company?
A) It is owned by shareholders who receive dividends.
B) It is owned by its customers or members, with profits returned to them.
C) It raises capital by issuing additional shares.
D) It only transacts life insurance business.
B) It is owned by its customers or members, with profits returned to them.
What is demutualisation in the context of mutual insurance companies?
A) The process of converting a mutual company into a proprietary company.
B) The act of merging two mutual companies.
C) The method mutual companies use to issue additional shares.
D) The process of increasing policyholder dividends in a mutual company.
A) The process of converting a mutual company into a proprietary company.
What is a captive insurer and where do they typically operate?
A) A company that insures its own risks, operating mainly in onshore locations.
B) A subsidiary created by a parent company to underwrite its own risks, often operated from offshore locations like Bermuda or Gibraltar.
C) A type of reinsurance company offering services to other insurers.
D) A company that sells insurance policies directly to the public.
B) A subsidiary created by a parent company to underwrite its own risks, often operated from offshore locations like Bermuda or Gibraltar.
What are the main incentives for companies to use captive insurance?
A) To avoid paying premiums entirely.
B) To gain control over insurance coverage, reduce overheads, and access lower reinsurance costs.
C) To sell insurance to the public at competitive rates.
D) To achieve higher profits through underwriting more policies.
B) To gain control over insurance coverage, reduce overheads, and access lower reinsurance costs.
Why is the captive insurance market growing, and what is a key benefit for businesses?
A) Due to increasing insurance costs and the desire for more control over coverage.
B) Because of the decrease in premiums and risk factors.
C) Because captive insurers offer higher returns on investments.
D) Due to government regulations promoting captive insurance.
A) Due to increasing insurance costs and the desire for more control over coverage.
What are the two main types of reinsurance treaties?
A) Direct and Indirect
B) Proportional and Non-Proportional
C) Primary and Excess
D) Local and Global
B) Proportional and Non-Proportional
How does a proportional treaty work in reinsurance?
A) The insurer and reinsurer share a stated proportion of each risk and split the premium and claims equally.
B) The reinsurer covers the first part of each risk while the insurer takes the rest.
C) The insurer retains all the risks and only transfers a small premium.
D) The reinsurer provides coverage for only catastrophic risks.
A) The insurer and reinsurer share a stated proportion of each risk and split the premium and claims equally.
How does a non-proportional reinsurance treaty differ from a proportional one?
A) It allows the insurer to retain the first part of the coverage and transfer the rest to the reinsurer.
B) It requires the reinsurer to cover the entire risk.
C) It splits the risks equally between the insurer and reinsurer.
D) The insurer pays a flat fee regardless of the claims.
A) It allows the insurer to retain the first part of the coverage and transfer the rest to the reinsurer.
What Countries are BRICS
Brazil
Russia
India
China
South Africa
Multinational companies
• Operate in a number of different countries but may still have a home base.
• Have the ability to respond to local demands, as the business is a series of
semi-independent operations all working under a global brand.
• National subsidiaries are likely to solve their operational tasks and activities.
• With this business approach, each of the various national and regional markets
will be separately identified from a strategic point of view.
• An example of this type of organisation is Prudential plc.
Global companies
• See the whole world as one potential market.
• While some specialisation of the product or service will be made to suit local markets, the aim is to be regarded as a global, singular brand.
• Very much centralised businesses; as the whole world is viewed as one
market, the competitive advantage comes from the common global brand.
• An example of this (while not being a company but a ‘Society’) is Lloyd’s.
Why are BRICS countries a major target for multinational insurance companies?
A) Due to their high average income and well-established insurance markets.
B) Due to their low insurance penetration rates and rapidly growing economies.
C) Because they have already reached peak insurance market growth.
D) Due to their highly developed insurance industries.
B) Due to their low insurance penetration rates and rapidly growing economies.
What is the London Market, and where is it located?
A) It is a small regional insurance market based in Europe.
B) It is a part of the UK insurance and reinsurance industry, centered in the City of London, and includes companies, Lloyd’s syndicates, P&I (marine protection and indemnity) clubs, and brokers.
C) It is a global insurance market located in New York.
D) It is a government-run insurance system in the UK.
B) It is a part of the UK insurance and reinsurance industry, centered in the City of London, and includes companies, Lloyd’s syndicates, P&I clubs, and brokers.
What is the main focus of the London Market’s insurance and reinsurance business?
A) Life insurance and retirement products.
B) Primarily non-life insurance and reinsurance, particularly marine and aviation, with a focus on high-exposure risks.
C) Personal insurance and local residential coverage.
D) Small-scale regional insurance markets for local businesses.
B) Primarily non-life insurance and reinsurance, particularly marine and aviation, with a focus on high-exposure risks.
Why is the London Market facing increasing challenges?
A) Because it has the largest share of global insurance business.
B) Due to global reinsurers performing well against it and the impact of Brexit, with some insurers moving business away from London.
C) Because it is not regulated by any authority.
D) Due to a lack of specialized insurance products.
B) Due to global reinsurers performing well against it and the impact of Brexit, with some insurers moving business away from London.
Agents can be referred by as the following two:
- tied agent ( distributes 1 insurance product)
- appointed representatives (someone who works under a regulated firm who acts as their principle (customer)
What is white labelling in the context of insurance?
A) When an insurer creates a custom product for a retailer to sell under its own brand.
B) When an insurer rebrands their product to sell under a different name without the retailer’s involvement.
C) When retailers or affinity groups use their own name in advertising to introduce insurance products to customers.
D) When an insurer sells insurance only through brokers.
C) When retailers or affinity groups use their own name in advertising to introduce insurance products to customers.
What is the main benefit of white labelling for insurers?
A) It allows them to bypass regulation.
B) It gives them access to a retailer’s established customer base and brand reputation.
C) It reduces the cost of creating new insurance products.
D) It makes their products cheaper.
B) It gives them access to a retailer’s established customer base and brand reputation.
What is an affinity scheme in insurance?
A) A loyalty program for insurance customers.
B) A common membership or association, such as a trade body or group of property owners, which offers insurance to its members.
C) A government-run insurance system for certain professions.
D) A product offered to high-net-worth individuals.
B) A common membership or association, such as a trade body or group of property owners, which offers insurance to its members.
What are the key focuses of a CRM ?
Relationship, not transaction – Focus on building long-term relationships with customers rather than one-time transactions.
Understanding buying patterns – Analyzing customers’ buying habits to expand and deepen business relationships.
Proactive approach – Anticipating customer needs and addressing them before they arise, rather than reacting to issues after they occur.
Multiple communication channels – Engaging customers through various means such as direct mail, phone calls, emails, and face-to-face meetings.
Enhancing revenue generation – Using customer insights to generate additional revenue by offering relevant products or services.
What is the purpose of the FCA’s Consumer Duty, which came into force on 31 July 2023?
A) To lower the standards of consumer protection.
B) To set higher and clearer standards of consumer protection, focusing on good outcomes for retail clients.
C) To focus on large firms only.
D) To eliminate consumer rights in certain contracts.
B) To set higher and clearer standards of consumer protection, focusing on good outcomes for retail clients.
Which of the following is a key element of the Consumer Duty?
A) A focus on exploiting consumer behavioral biases.
B) The Consumer Principle and three cross-cutting rules.
C) Lowering prices for all products.
D) Encouraging firms to avoid supporting consumers’ financial goals.
B) The Consumer Principle and three cross-cutting rules.
Which of the following is NOT an Outcome area under the Consumer Duty?
A) Products and services
B) Price and value
C) Consumer understanding
D) Reducing customer support levels
D) Reducing customer support levels
What are the three cross-cutting rules under the FCA’s Consumer Duty:
Act in good faith towards retail customers – Firms must treat customers fairly and with integrity.
Avoid foreseeable harm to retail customers – Firms must take steps to prevent harm from occurring to customers.
Enable and support retail customers to pursue their financial objectives – Firms must help customers achieve their financial goals by providing the necessary support and information.
The cross-cutting rules relate to four Outcomes what are they?
- products and services
- price and value
- consumer understanding
- consumer support
What are business ethics?
A) The legal requirements a company must follow.
B) The moral conduct and standards a company sets for itself in its internal and external dealings.
C) The financial decisions made by a company.
D) The way a company markets its products.
B) The moral conduct and standards a company sets for itself in its internal and external dealings.
What is the stakeholder focus in business ethics?
A) A company’s role goes beyond legal requirements to contribute to society through sponsorships, community projects, and other initiatives.
B) A company focuses only on maximizing profits for shareholders, ignoring societal contributions.
C) A company solely cares about shareholder returns and disregards consumer needs.
D) A company avoids any involvement in social and environmental issues.
A) A company’s role goes beyond legal requirements to contribute to society through sponsorships, community projects, and other initiatives.
What is the shareholder perspective in business ethics?
A) A company believes its primary responsibility is to focus solely on society and social welfare.
B) A company prioritizes maximizing shareholder profits and does not take responsibility beyond legal requirements.
C) A company participates in community projects and social issues in addition to focusing on profits.
D) A company invests in environmental and ethical causes beyond the interests of shareholders.
B) A company prioritizes maximizing shareholder profits and does not take responsibility beyond legal requirements.
Why is business ethics important in management?
A) Ethical issues impact decisions that affect not only a company’s profits but also employees, consumers, and the community.
B) Ethics only affect consumer perception and have little impact on financial success.
C) Ethical issues are irrelevant to the success of a business.
D) Ethical management focuses solely on reducing costs and increasing profits.
A) Ethical issues impact decisions that affect not only a company’s profits but also employees, consumers, and the community.
What do terms like ‘sustainability’, ‘corporate responsibility’, and ‘corporate social responsibility’ commonly refer to?
A) Strategies or programmes related to ESG (Environmental, Social, and Governance) activities.
B) Only the financial profit of a company.
C) Marketing efforts to increase consumer awareness.
D) Short-term business goals for increasing shareholder value.
A) Strategies or programmes related to ESG (Environmental, Social, and Governance) activities.
What is the current requirement for ESG disclosures in the UK?
A) All companies must report ESG disclosures annually.
B) Only companies with more than 500 employees or £5m annual turnover, or those listed, must report ESG disclosures annually.
C) ESG disclosures are not required for any companies.
D) ESG disclosures are required only for companies with over 100 employees.
B) Only companies with more than 500 employees or £5m annual turnover, or those listed, must report ESG disclosures annually.
Which law in the UK requires annual ESG disclosures for larger companies, including those listed, with more than 500 employees, or exceeding £5m in annual turnover?
A) The Companies Act 2006
B) The Financial Services Act 2021
C) The Environmental Protection Act 1990
D) The Corporate Governance Code 2018
A) The Companies Act 2006
What are the key principles of the CII Code of Ethics for its members?
A) Comply with laws, act with integrity, act in clients’ best interests, provide high service, and treat people fairly.
B) Maximize profits, provide low-cost services, and treat clients equally.
C) Focus only on client interests, ignoring legal requirements.
D) Act with the highest integrity, regardless of client satisfaction.
A) Comply with laws, act with integrity, act in clients’ best interests, provide high service, and treat people fairly.
What should members do under the CII Code of Ethics?
A) Act in the best interests of clients, comply with the code and laws, maintain high service standards, and treat everyone fairly.
B) Focus solely on maximizing profits and minimizing service costs.
C) Ignore legal requirements as long as clients are satisfied.
D) Only provide service based on personal interests, ignoring client needs.
A) Act in the best interests of clients, comply with the code and laws, maintain high service standards, and treat everyone fairly.
What is organic growth in business?
A) Growth through mergers and acquisitions.
B) Growth through increasing sales, revenue, and output using current business efforts.
C) Growth by acquiring a competitor.
D) Growth through external funding only.
B) Growth through increasing sales, revenue, and output using current business efforts.
What is non-organic growth in business?
A) Growth through mergers or acquisitions of other businesses.
B) Growth through increasing output and sales of current products.
C) Growth by developing new products internally.
D) Growth through increasing market share organically.
A) Growth through mergers or acquisitions of other businesses.
Question:
Why can organic growth be more economical than mergers or acquisitions?
A) It involves higher capital investment.
B) It can be financed through internal funds and is more gradual.
C) It always results in immediate financial gain.
D) It requires fewer resources and less time to implement.
B) It can be financed through internal funds and is more gradual.
Which of the following is a benefit of organic growth compared to external growth?
A) Higher risk.
B) Lower risk.
C) Increased market uncertainty.
D) Employee layoffs.
B) Lower risk.
What is a key benefit of organic growth?
A) It involves higher risk compared to mergers and acquisitions.
B) It encourages innovation and builds strong customer relationships.
C) It is typically financed by external funds.
D) It results in immediate large-scale expansion.
B) It encourages innovation and builds strong customer relationships.
What is one disadvantage of organic growth in terms of time and resources?
A) It requires minimal investment in new personnel and equipment.
B) It can be quicker than acquiring an existing business.
C) It often demands significant time, recruitment, and training of staff.
D) It doesn’t need marketing efforts.
C) It often demands significant time, recruitment, and training of staff.
Why might organic growth not meet investors’ expectations?
A) It provides immediate returns.
B) It takes longer to achieve results compared to acquiring an existing business.
C) It requires less time and resources than acquisitions.
D) It has fewer financial risks.
B) It takes longer to achieve results compared to acquiring an existing business.
What is a potential disadvantage when expanding a business organically?
A) It doesn’t require any new premises or equipment.
B) It can take a longer time and substantial resources to expand.
C) It leads to immediate success in new markets.
D) It can result in quicker integration of new products.
B) It can take a longer time and substantial resources to expand.
What is the key difference between a merger and an acquisition?
A) A merger involves two companies joining together to form a new company, while an acquisition is when one company buys another.
B) A merger involves one company buying another, while an acquisition is when two companies combine into a new company.
C) A merger always results in the absorption of both companies, while an acquisition only involves the buyer company.
D) There is no difference between a merger and an acquisition.
A) A merger involves two companies joining together to form a new company, while an acquisition is when one company buys another.
What is horizontal integration?
A) A company merging with or acquiring a supplier in the production process.
B) A company expanding into a new market by acquiring a competitor at the same level of the supply chain.
C) A company acquiring a retailer to sell its products directly to customers.
D) A company buying raw materials to control its production process.
B) A company expanding into a new market by acquiring a competitor at the same level of the supply chain.
What is vertical integration?
A) A company acquiring other companies that provide similar products.
B) A company merging with others to expand into new markets.
C) A company buying suppliers or distributors to control its supply chain.
D) A company purchasing competitors in a related field.
C) A company buying suppliers or distributors to control its supply chain.
Reasons for Insurance M&As
Growth through Access to New Distribution Channels – Gaining access to new markets or distribution networks by purchasing locally-based insurance companies.
Acquiring Advanced IT Systems or Employee Know-How – Gaining advanced technological systems or expertise from the acquired company.
Local Licensing in Overseas Markets – Acquiring local licenses to operate in foreign countries.
Achieving Efficiency and Improved Performance – Gaining synergy and economies of scale by removing duplication, lowering unit costs, and streamlining processes.
Cost Reduction in IT – Sharing resources and reducing the cost of IT, especially with expensive IT platforms.
Providing Investment Opportunities – Offering new investment opportunities if the acquiring company has spare capital.
Spreading Risk – Diversifying risk by merging with a company from a different geographical region (e.g., USA and Europe), thus lowering solvency capital requirements.
Increasing Shareholder Value – The main reason for M&As is to increase shareholder value by creating larger operations that can compete effectively in the global market.
Creating Barriers to Entry for Competitors – Consolidating operations to make it more difficult for new competitors to enter the market.
Failure Risk – Some M&As fail to deliver on shareholder expectations due to unfulfilled promises.
Disadvantages of M&As
Reduced Customer Choice – Fewer organizations offering products may lead to reduced competition and less choice for customers.
Impact on Staff and Redundancies – Staff morale can decrease, and the costs of redundancies or redeployment may be high, leading to the loss of valuable experience, skills, and knowledge.
Clash of Corporate Cultures – If the cultures of the merging companies are very different, it can be challenging to agree on a unified approach for the organizations to work together effectively.
Loss of Focus on Core Activities – The merger or acquisition process often consumes a lot of senior management time, diverting attention away from business growth and delivering effective customer service.
Reduced Customer Service – During the transition period, factors such as low staff morale, lack of communication, and uncertainty about roles can lead to poor customer service, increased complaints, and loss of business.
Unrealized M&A Savings – Predicted savings and value improvements often do not materialize as expected, leading to disappointment in the results of the merger or acquisition.
What is a key characteristic of outsourcing in a business?
A) It does not require a contract between parties.
B) The outsourced company is responsible for delivering an agreed service.
C) Outsourced services can only be provided from an external site.
D) Businesses have no control over outsourced operations.
B) The outsourced company is responsible for delivering an agreed service.
Which of the following is an advantage of outsourcing?
A) The business has complete control over outsourced processes.
B) Customers will always be aware of the outsourcing arrangement.
C) Outsourced companies bring new skills and expertise.
D) The business can operate without contracts with outsourcing providers.
C) Outsourced companies bring new skills and expertise.
Which of the following is a disadvantage of outsourcing?
A) Outsourcing always improves customer satisfaction.
B) Businesses may lose control over certain processes.
C) Outsourcing eliminates all financial risks.
D) Data protection is less important for outsourced suppliers.
B) Businesses may lose control over certain processes.
What is a key consideration when selecting an outsourcing provider?
A) Ensuring the outsourcing provider has the lowest cost option.
B) Following best practice processes and corporate policy.
C) Avoiding redundancies at all costs.
D) Ensuring no delegation of tasks to external companies.
B) Following best practice processes and corporate policy.
What is a key regulatory requirement for firms when outsourcing?
A) They must completely transfer regulatory responsibilities to the outsourced provider.
B) They must ensure that outsourcing does not introduce undue operational risk.
C) They must only outsource functions that are not business-critical.
D) They are not required to notify regulators about outsourcing arrangements.
B) They must ensure that outsourcing does not introduce undue operational risk.
According to the FCA’s 2015 thematic review, what was a major concern regarding outsourcing in the insurance sector?
A) Firms did not always recognise delegated arrangements as outsourcing.
B) Outsourced firms were always more efficient than in-house teams.
C) Regulators did not have authority over outsourced functions.
D) Outsourcing had no impact on customer service.
A) Firms did not always recognise delegated arrangements as outsourcing.
According to the PRA and FCA, what defines “material outsourcing”?
A) Any outsourcing that involves hiring a third-party provider.
B) Services that could seriously impact a firm’s compliance with regulatory requirements if they fail.
C) Outsourcing any part of customer service operations.
D) Any service provided by an external company.
B) Services that could seriously impact a firm’s compliance with regulatory requirements if they fail.
Under Solvency II, which of the following is a required term in an outsourced contract?
A) Service provider must comply with all applicable laws and regulations.
B) The contract must allow the provider to operate without regulatory oversight.
C) The service provider is free to terminate the contract at any time without notice.
D) The firm must surrender control over outsourced functions.
A) Service provider must comply with all applicable laws and regulations.
What is market disruption?
A) A small adjustment in business practices to adapt to minor industry changes.
B) A gradual evolution in the business landscape with minimal impact.
C) A profound change that forces organisations to undergo significant transformation.
D) A temporary decline in a company’s profits due to competition.
C) A profound change that forces organisations to undergo significant transformation.
Which of the following is NOT a common cause of market disruption?
A) Social change and shifting customer expectations.
B) Technological advancements.
C) Climate change and environmental factors.
D) Minor pricing adjustments by a single competitor.
D) Minor pricing adjustments by a single competitor.
What is a key characteristic of market disruptors?
A) They make minor changes to existing products without significantly altering the market.
B) They introduce substantial innovation and overcome barriers to entry.
C) They focus only on reducing costs without investing in technology.
D) They exclusively operate within traditional business models.
B) They introduce substantial innovation and overcome barriers to entry.
How are some insurers responding to market disruption?
A) By focusing only on traditional risk mitigation services.
B) By transforming into broader financial services organisations.
C) By resisting technological advancements to maintain traditional practices.
D) By reducing investment in innovation and technology.
B) By transforming into broader financial services organisations.
What is Big Data in the context of insurance?
A) A small amount of customer data collected for marketing purposes.
B) A massive quantity of data that requires advanced analytics for competitive advantage.
C) A type of insurance policy specifically designed for large corporations.
D) A database containing only claims-related information.
B) A massive quantity of data that requires advanced analytics for competitive advantage.
How can Big Data help insurance companies?
A) By replacing the need for underwriting completely.
B) By improving areas like customer acquisition, pricing, underwriting, and risk selection.
C) By making human input obsolete in all areas of insurance.
D) By reducing the need for regulatory compliance.
B) By improving areas like customer acquisition, pricing, underwriting, and risk selection.
What is one major way AI is expected to impact the insurance industry?
A) AI will fully replace human decision-making in all aspects of insurance.
B) AI will be used to speed up routine processes like underwriting, claims, and fraud detection.
C) AI will have no significant impact on insurance operations.
D) AI will eliminate the need for data analytics in the industry.
B) AI will be used to speed up routine processes like underwriting, claims, and fraud detection.
What is a key concern regarding the use of AI in the insurance industry?
A) AI cannot be used for fraud detection.
B) AI reduces the need for Fintech applications in insurance.
C) Ethical concerns, job losses, regulatory compliance, and copyright issues.
D) AI will make insurance companies lose money.
C) Ethical concerns, job losses, regulatory compliance, and copyright issues.
What is the primary reason cyber risks have increased for businesses?
A) Companies are moving away from digital operations.
B) Organisations increasingly rely on technology to drive core business objectives.
C) Cyber threats are only targeted at large corporations.
D) Insurance companies have stopped covering cyber risks.
B) Organisations increasingly rely on technology to drive core business objectives.
Which of the following is a form of malware that encrypts data and demands payment for its release?
A) Phishing
B) Hacking
C) Ransomware
D) Spyware
C) Ransomware
Why are small and medium-sized enterprises (SMEs) a common target for cybercrime?
A) They typically store customer data but have lower levels of protection.
B) Cybercriminals cannot attack large corporations.
C) SMEs have the most valuable financial data.
D) SMEs do not use cybersecurity measures at all.
A) They typically store customer data but have lower levels of protection.
According to the ABI, what is the projected global gross written premium (GWP) for cyber insurance by 2025?
A) $7 billion
B) $15 billion
C) $20.6 billion
D) $30 billion
C) $20.6 billion
What is the purpose of the EU’s Digital Operational Resilience Act (DORA)?
A) To replace all existing cyber insurance policies in the UK.
B) To strengthen the IT security of banks and insurance companies in Europe.
C) To eliminate all cyber threats in Europe by 2025.
D) To introduce fines for businesses that fail cyber security audits.
B) To strengthen the IT security of banks and insurance companies in Europe.
What does cyber business interruption loss coverage protect against?
A) The loss of income due to an IT failure or cyber-attack.
B) Claims of infringement of privacy after a data breach.
C) The cost of replacing physical assets after a hack.
D) Compensation for employees who fall victim to phishing scams.
A) The loss of income due to an IT failure or cyber-attack.
What does privacy breach costs protection cover?
A) Only the cost of hiring a forensic IT team.
B) The cost of notifying customers, hiring PR advisors, and legal fees.
C) The reimbursement of all stolen funds from a business bank account.
D) The cost of paying the ransom in a ransomware attack.
B) The cost of notifying customers, hiring PR advisors, and legal fees.
How does a cyber insurance policy help with cyber extortion?
A) By immediately blocking any ransom payments.
B) By allowing companies to recover lost funds without negotiation.
C) By reimbursing ransom payments and covering consultant fees for negotiation.
D) By guaranteeing that hackers will return stolen data.
C) By reimbursing ransom payments and covering consultant fees for negotiation.
What is the main challenge climate change poses to the insurance industry?
A) Decreasing premium rates.
B) An increase in the number and severity of catastrophic weather events.
C) A reduction in global warming regulations.
D) A lack of government intervention in weather-related events.
B) An increase in the number and severity of catastrophic weather events.
What must insurers do in light of climate change and its effects on catastrophic weather events?
A) Ignore the impacts of climate change on risk management.
B) Provide coverage for all severe weather events without limitations.
C) Complete specific modelling and forecasting to assess risk exposure.
D) Only focus on claims made in relation to flooding.
C) Complete specific modelling and forecasting to assess risk exposure.
How does climate change affect insurers’ investments?
A) Insurers’ investments are unaffected by climate change.
B) Insurers’ investments can be exposed to risks due to climate-related events.
C) Investments in the energy sector are guaranteed to grow due to climate change.
D) Only property investments are at risk from climate change.
B) Insurers’ investments can be exposed to risks due to climate-related events.
What was the outcome of the FCA’s business interruption test case regarding COVID-19?
A) The FCA lost the case, and no claims were paid.
B) The Supreme Court allowed the FCA’s appeal, resulting in many claims being paid.
C) The case was dismissed with no impact on policyholders.
D) The test case was related to fraud rather than business interruption.
B) The Supreme Court allowed the FCA’s appeal, resulting in many claims being paid.
What is the role of Lloyd’s Lab in the insurance market?
A) To provide a platform for traditional insurance policies only.
B) To facilitate innovation in product development, including coverage for new and non-standard risks.
C) To restrict innovation and limit new products.
D) To create policies only for major corporations.
B) To facilitate innovation in product development, including coverage for new and non-standard risks.
What type of risks does Lloyd’s Product Launchpad support in its innovation efforts?
A) Only property damage and motor risks.
B) Non-standard risks, including those related to intangible assets and new technologies.
C) Risks related only to traditional industries.
D) Only personal life insurance risks.
B) Non-standard risks, including those related to intangible assets and new technologies.
What is an example of a new product developed by Lloyd’s Lab?
A) A policy covering only property damage.
B) An insurance policy against the risk of IVF failure.
C) A traditional health insurance policy.
D) A policy for travel cancellation due to weather events.
B) An insurance policy against the risk of IVF failure.
What does cryptocurrency wallet insurance protect against?
A) Theft due to market crashes.
B) Theft resulting from security failure in cryptocurrency systems.
C) Loss of profits from cryptocurrency market fluctuations.
D) Theft from physical wallets containing cryptocurrency.
B) Theft resulting from security failure in cryptocurrency systems.
How does cryptocurrency wallet insurance adjust its coverage?
A) It provides a fixed coverage amount for the entire policy period.
B) The coverage amount is based on the original value of the cryptocurrency at the time of purchase.
C) The coverage amount increases or decreases in line with the price changes of crypto assets.
D) The coverage amount remains unchanged regardless of market conditions.
C) The coverage amount increases or decreases in line with the price changes of crypto assets.
