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I10 - Insurance broking fundamentals > Chapter 1 - The insurance broking market > Flashcards

Chapter 1 - The insurance broking market Flashcards

1
Q

What are the 3 types of broker?

A

Independent intermediary

Introducer appointed representatives (IARs)

Appointed representatives (ARs)

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2
Q

What is an insurance intermediary/broker?

A

Mediation on behalf of a contractually tied company e.g., insurer

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3
Q

What type of broker is an insurance broker?

A

Independent intermediary

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4
Q

In common law, what are you known as if you act on behalf of another person?

A

Agent

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5
Q

What is an agent?

A

Authorised by the ‘principal’ to bring them into a contractual relationship with another (third party)

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6
Q

What is the difference between an insurance broker and other intermediaries?

A

When placing business, clients are their principal, not insurer or third party that they are introducing business to

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7
Q

What was the Insurance Brokers (Registration) Act 1977 designed for?

A

‘Insurance broker’ became recognised from a regulatory perspective

Prevent broker acting as representative of one or more insurance companies

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8
Q

Was the 1977 Act repealed?

A

Yes - No legal recognition of the term ‘Insurance broker’

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9
Q

Who are insurance broking firms regulated by?

A

Financial Conduct Authority (FCA)

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10
Q

Who provides life insurance, pensions and investment advice?

A

Independent financial advisers (IFAs)

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11
Q

What are the benefits of an insurance broker to a client?

A

Convenience - do not have time or inclination to quote/compare themselves

Expert knowledge / complex products - ensure client and insurer needs are met

Independent quotation - size and influence of brokers to obtain better terms

Claims assistance - negotiate favourable outcome

Existing relationship - loyalty of broker or company

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12
Q

What are the benefits of an insurance broker to a insurer?

A

Convenience - reduce client interaction, admin, complaints, risk info in agreed format

Technical expertise - explain complex policies

Peace of mind - explain non-disclosure of material facts

Cost benefits - fee for issuing policy and collecting premium

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13
Q

What is British Insurance Brokers’ Association (BIBA)?

A

Major non-statutory trade association for insurance intermediaries - open to all independent intermediaries

> 2000 regulated firms

Rules = conduct business with good faith and to represent the interests of their customers

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14
Q

What is the London Market Regional Committee (LMRC)?

A

Integrated into BIBA’s existing regional committee structure

Members advise the areas they want to develop its strategy and objectives

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15
Q

What is London and the International Insurance Brokers’ Association (LIIBA)?

A

Independent trade body

Representing the interests of insurance and reinsurance brokers who operate in London and international markets

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16
Q

What are LIIBA’s key priorities?

A

Regulatory framework

Modernise business processes

Legislative and technical changes

Strengthening relationships with Lloyd’s, the London Market Association (LMA) and the International Underwriting Association (IUA) on a range of market issues

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17
Q

What are the 3 major classes of business?

A

Personal lines

Commercial

Specialties

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18
Q

Who are personal lines insurance products purchased by? Examples?

A

Private individuals - consumers (FCA)

e.g., Household buildings and contents, private motor, travel, private medical

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19
Q

Are all commercial insurances purchased via a broker?

A

No

Small commercial - direct to insurer
Large complex commercial - via a broker

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20
Q

Do insurance brokers owe a higher duty of care to consumers than to commercial customers? Why?

A

Yes

Consumer is defined as acting for purposes which are outside their trade or profession

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21
Q

What classes are examples of specialist risks? Are all via a broker?

A

Marine, Aviation, Construction

Yes

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22
Q

Why are some classes of business more suited to insurance brokers?

A

Complexity of risk e.g., high value jewellery/fine art, performance cars, marine, aviation, construction

Size of risk - value of the asset or sum insured

Location of risk - high risk areas or e.g., flood plains, storms

Availability of cover - e.g., K&R, motor track

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23
Q

How many different types of insurance broker are there?

A

8

Global firms

UK-only-based firms

Consolidators

Niche sector businesses

Wholesale brokers

Reinsurance brokers

Online brokers

Lloyd’s brokers

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24
Q

What makes an insurance brokers a global firm?

A

Large organisations employing thousands of people in different countries (>100 territories)

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25
Do UK-only based firms usually conduct business on a retail basis?
Yes - single, regional or national brokers
26
What is a consolidator insurance brokers?
Mergers and acquisitions - acquire smaller firms
27
What are niche sector businesses?
Small businesses in specialist areas e.g., delegated authority for their client base Affinity scheme - an agreement with an organisation whose members have a common purpose or risk profile such as a workplace federation, or club
28
What is a sub-broker?
Producing broker
29
What is the purpose of reinsurance?
Smooth peaks and troughs in claims experience Protect the portfolio of risks being insured Provide improved customer service Provide support for insurers entering new areas of business
30
What is a catastrophic loss?
Very large loss on an individual risk Loss resulting from an accumulation of losses arising from a single catastrophic event
31
What are the three types of reinsurer?
Specialist reinsurance companies e.g., Swiss Re Lloyd’s syndicates Insurance companies that also act as reinsurers
32
How is a risk transferred from client to retrocessionaire?
Client > Insurer/cedant > Reinsurer > Retrocessionaire
33
Who do online brokers compete with?
Insurers via call centres and full cycle electronic processing
34
Is service more important than price for online brokers?
Yes - high 'churn' ’ (turnover of clients from one insurer to another at renewal)
35
Who should Lloyd's brokers be registered with to act as Lloyd's brokers?
Council of Lloyd's Satisfy the council with expertise, financial standing, integrity
36
What are the factors distinguishing Lloyd's brokers from other insurance brokers?
The market in which they operate Methods of transacting business The type of risks they place
37
Is the Lloyd's market dual-regulated? What does it mean?
Yes Approved by the Prudential Regulation Authority (PRA) to carry on PRA-regulated activities Business conduct activities are regulated by the Financial Conduct Authority (FCA)
38
What are the methods of transacting business at Lloyd's?
Face-to-face Delegated authority Businesses set up outside Lloyd's by syndicates
39
What does PPL stand for? What is the aim?
Placing Platform Ltd (PPL) Support more flexible negotiation, faster placement, accurate document production
40
What are broker networks?
Collective buying power of independent brokers Obtain better terms and conditions for their clients, improve service standards from insurers, achieve higher levels of brokerage and develop own-branded products
41
What is a common term for the segmented group in an organisation?
Division
42
What are typical methods of segmentation in an organisation?
Class of insurance Trade - retail or property owners Client size Premium size
43
How do brokers tend to offer terms for larger commercial accounts?
Net of commission and charge a fee for service
44
What are the main services offered by insurance brokers?
Traditional broking services Risk management Added value services Services to insurers
45
What are traditional broking services?
Responsibility is to the client so: Review client demands and needs Decide on the market for the risk - level of cover, cost of contract, terms, financial security of insurers, claims service Negotiate terms and conditions with insurer Provide advice to client - measure of a brokers expertise Negotiate renewals - premium deduction, better coverage, claims outside of terms Advise and assist clients when they have a claim Design and operation of insurance programmes - multiple assets in >1 country
46
What are the FCA rules on renewal transparency for insurers and intermediaries for retail general insurances? When was the change? What was the aim?
Disclose last years premium (incl MTBC) Encourage consumers to shop around Additional message to 4 year clients to shop around When: April 2017 Aim: Encourage competition and levels of consumer engagement
47
What are 2 reasons that brokers offer additional services to their clients?
Risk management Added value services
48
What is the definition of risk management?
The identification, analysis and economic control of those risks which threaten the assets or earning capacity of an enterprise
49
What are the 3 areas of risk management?
Identifying risk Evaluating the risk Controlling or eliminating risk (includes risk transfer to an insurer)
50
Can larger companies have their own risk management departments run by a dedicated risk manager?
Yes
51
Do most companies rely on external specialists to offer advice and support on risk management?
Yes including insurance brokers, insurers, specialist risk management firms or independent consultants
52
If a company can demonstrate that it is managing its risks well, can the insurer offer more favourable terms (regarding price and cover)?
Yes
53
What are added value services also known as?
Specialist risk consultancy services
54
What are examples of added value services a broker might offer their clients?
Property surveys Business continuity planning Business interruption reviews Health and safety consultation Liability surveys Motor fleet risk management Environmental risk surveys Post-loss control surveys Disaster recovery services
55
Do insurers offer added value services? Why?
Yes e.g., property services For their own benefit - improve data capture, exact sum insureds
56
What are the key services brokers offer insurers?
A cost-effective distribution network Technical expertise in data capture and risk presentation Assistance with preparation and issuing of documentation Checking the accuracy of an insurer’s documentation, including pricing Premium collection First contact for all the insured administrative issues Technical expertise to explain cover issues to clients Support with claims management Support with client’s risk management Holding regulatory responsibility in terms of sanctions checking and handling client money
57
What are the 2 ways that brokers can be remunerated?
By insurer (commission/brokerage) By client (fees)
58
Can a broker be paid fees and commission/brokerage?
No
59
What does the law of agency say about disclosing a brokers earnings?
Must tell principal and/or consumer Many brokers volunteer their earnings
60
Where would a commission be stated?
TOBA Slip - per case basis at quote stage Elsewhere - Seperate doc or website
61
When is commission earnt?
New policy is issued Additional cover arranged At renewal
62
Do brokers refund commission?
Might do when return premium is paid Depends on TOBA
63
Why does a level of commission vary?
Depends on insurer Or class of business
64
Are higher commissions paid by insurers where a broker operates a delegated authority?
Yes - doing activities an insurer would be doing e.g., underwriting, producing docs
65
Is commission paid net of Insurance Premium Tax (IPT)? What does this mean?
Always IPT is first calculated and deducted before applying the commission rate to establish the commission payment due
66
What are volume overriders or contingent commissions?
Paid by the insurer on a whole account basis Vary depending on profitability and/or growth of the account
67
What is the risk of enhanced brokerage?
Conflicts of interest
68
When should a fee be agreed?
Prior to the contract How the fee is calculated should be explained to the client
69
Are fees generally reimbursed to clients following mid-term adjustments?
No Results in lower premium Not payable for increased covers
70
What is an example of a broker charging a fee for services to insurers?
Client behaviour data Fee is paid by the insurer to the broker for the provision of information on their clients
71
What are work transfer fees?
Paid by insurers for certain work the broker carries out on their behalf, e.g., invoicing premiums for individual tenants on block property polices, administration of delegated authorities, issuing policies and conducting underwriting surveys
72
Can brokers earn fees or commissions from premium finance companies?
Yes
73
What are the main roles within an insurance broking organisation?
Client service e.g., account manager per class of business - renewals - producing broker New business or business development Broking - placing brokers only. Agency management with insurers Claims - Service teams or specialists Management - flat or hierarchical/pyramidal structures. Team leader, managing director, CEO Compliance - broking procedures/regulations are in place, adhered to Product development - gaps in products and services to clients. Work with client service Back office functions - Finance, IT, HR, Marketing

I10 - Insurance broking fundamentals (7 decks)

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