Chapter 1: The insurance broking market

Question 1

What is the difference between an independent intermediary and an intermediary?

Answer 1

Independent intermediary conducts insurance mediation without being contractually tied to the other organisation. (Brokers)

Intermediary - contractually ties to an organisation and are able to conduct insurance mediation on their behalf . (Solicitors, travel agents)

Question 2

Why might an insured buy insurance from an insurance broker?

Answer 2

• Convenience
• Expert Knowledge
• Independent Quotation
• Complexity of Product
• Assistance with Claims
• Existing Relationship/Connected business

Question 3

List the types of Insurance Brokers

Answer 3

• Global firms
• U.K Only
• Consolidators
• Niche Sector
• Wholesale
• Reinsurance
• Online
• Lloyd’s

Question 4

What are the benefits of insurance brokers to insurers?

Answer 4

• Convivence
• Technical expertise
• Peace of mind
• Cost benefits

Question 5

What is the British Insurance Brokers’ Association (BIBA)

Answer 5

Major non-statutory trade association for insurance intermediaries. Seeks to maintain and improve the highest standards of business behaviour and to protect and enhance the interests of its members for the benefit of the general public

Question 6

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

Answer 6

Independent trade body representing the interests of insurance and reinsurance brokers who operate in the London and international market

Question 7

What are the 3 major classes of business?

Answer 7

• Personal lines
• Commercial
• Specialties

Question 8

What has contributed to the trend of not using insurance brokers?

Answer 8

Internet and price comparison sites

Question 9

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

Answer 9

• Complexity of risk
• Size of risk
• Location of risk
• Availability of cover

Question 10

Is there a need for TOBA’s between a producing broker and a wholesale broker?

Answer 10

Yes

Question 11

Which broker has direct contact with the insurer?

Answer 11

The wholesale broker

Question 12

What is the purpose of reinsurance?

Answer 12

• To smooth peaks and troughs in claims experience
• to protect the portfolio of risks being insurers
• to provide improved customer service
• to provide support for insurers entering new business areas

Question 13

How do insurers share risk with reinsurers?

Answer 13

Risk by risk basis

Question 14

What are the 3 type of reinsurer

Answer 14

• Specialist reinsurance companies who do not transact original insurance business
• Lloyd’s Syndicates
• Insurance companies that also act as reinsurers

Question 15

When a reinsurance broker seeks to places reinsurance with another reinsurer this is known as

Answer 15

Retroceding

Question 16

When a reinsurance broker seeks to places reinsurance with another reinsurer the risk placed is known as

Answer 16

Retrocession

Question 17

Online brokers have a high degree of

Answer 17

churn (turnover of clients from on insurer to another at renewal)

Question 18

What factors distinguish Lloyd’s brokers from other insurance brokers

Answer 18

• The market in which they operate in
• their methods of transacting business
• many of the risks they place

Question 19

What are the methods of transacting business at Lloyd’s

Answer 19

• face to face
• through the use of delegated authority
• through businesses set up outside Lloyd’s by syndicates

Question 20

What are Broker Networks?

Answer 20

To enable collective buying power to obtain better terms and conditions for their clients.

Question 21

What are the main services offered?

Answer 21

• Traditional broking services
• Risk Management
• Services to insurers

Question 22

What are Property Surveys?

Answer 22

Where the client’s property is surveyed to establish risk information or to offer risk reduction advice

Question 23

Business Continuity Planning

Answer 23

Identifying exposure to internal and external threats and how they can continue operations.

Question 24

Business Interruption Reviews

Answer 24

Client’s whole business model is examined to identify weakness or key dependencies on outside agencies or internal processes

Question 25

Liability Surveys

Answer 25

Potential liability issue while conducting a survey.

Question 26

Post Loss Control surveys

Answer 26

Broker will offer an ‘active involvement’ in the claims process and may assist clients in submitting claims, negotiating with adjusters and offer other assistance

Question 27

Can brokers be paid both a fee and a commission for the same service they have provided?

Answer 27

No

Question 28

What does the Law of Agency impose regarding broker remuneration?

Answer 28

Agent to account to their principle for their earnings. Consumers can request amount of commission the broker is earning. Brokers must discloseWh their commission if asked by a commercial customer.

Question 29

What is another name for a commission?

Answer 29

Brokerage

Question 30

What is IPT?

Answer 30

Insurance Premium Tax = 12% or 20% (higher rate)

Question 31

What are volume overriders/contingent commissions?

Answer 31

Paid by the insurer on a whole account and vary depending on profitability and/or growth of the account.

Question 32

What is an Enhanced brokerage?

Answer 32

Paid where the broker operates a delegated authority agreement for admin services and profit commission.

Question 33

Are fees reimbursed following mid-term adjustments?

Answer 33

No

Question 34

Are additional fees applicable following a mid-term adjustment?

Answer 34

No

Question 35

Can brokers earn fees/commissions from premium finance companies?

Answer 35

Yes