Chapter 1: The insurance broking market Flashcards
What is the difference between an independent intermediary and an intermediary?
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)
Why might an insured buy insurance from an insurance broker?
- Convenience
- Expert Knowledge
- Independent Quotation
- Complexity of Product
- Assistance with Claims
- Existing Relationship/Connected business
List the types of Insurance Brokers
- Global firms
- U.K Only
- Consolidators
- Niche Sector
- Wholesale
- Reinsurance
- Online
- Lloyd’s
What are the benefits of insurance brokers to insurers?
- Convivence
- Technical expertise
- Peace of mind
- Cost benefits
What is the British Insurance Brokers’ Association (BIBA)
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
What is the London and the International Insurance Brokers’ Association (LIIBA)
Independent trade body representing the interests of insurance and reinsurance brokers who operate in the London and international market
What are the 3 major classes of business?
- Personal lines
- Commercial
- Specialties
What has contributed to the trend of not using insurance brokers?
Internet and price comparison sites
Why are some classes of business more suited to insurance brokers?
- Complexity of risk
- Size of risk
- Location of risk
- Availability of cover
Is there a need for TOBA’s between a producing broker and a wholesale broker?
Yes
Which broker has direct contact with the insurer?
The wholesale broker
What is the purpose of reinsurance?
- 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
How do insurers share risk with reinsurers?
Risk by risk basis
What are the 3 type of reinsurer
- Specialist reinsurance companies who do not transact original insurance business
- Lloyd’s Syndicates
- Insurance companies that also act as reinsurers
When a reinsurance broker seeks to places reinsurance with another reinsurer this is known as
Retroceding
When a reinsurance broker seeks to places reinsurance with another reinsurer the risk placed is known as
Retrocession
Online brokers have a high degree of
churn (turnover of clients from on insurer to another at renewal)
What factors distinguish Lloyd’s brokers from other insurance brokers
- The market in which they operate in
- their methods of transacting business
- many of the risks they place
What are the methods of transacting business at Lloyd’s
- face to face
- through the use of delegated authority
- through businesses set up outside Lloyd’s by syndicates
What are Broker Networks?
To enable collective buying power to obtain better terms and conditions for their clients.
What are the main services offered?
- Traditional broking services
- Risk Management
- Services to insurers
What are Property Surveys?
Where the client’s property is surveyed to establish risk information or to offer risk reduction advice
Business Continuity Planning
Identifying exposure to internal and external threats and how they can continue operations.
Business Interruption Reviews
Client’s whole business model is examined to identify weakness or key dependencies on outside agencies or internal processes
Liability Surveys
Potential liability issue while conducting a survey.
Post Loss Control surveys
Broker will offer an ‘active involvement’ in the claims process and may assist clients in submitting claims, negotiating with adjusters and offer other assistance
Can brokers be paid both a fee and a commission for the same service they have provided?
No
What does the Law of Agency impose regarding broker remuneration?
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.
What is another name for a commission?
Brokerage
What is IPT?
Insurance Premium Tax = 12% or 20% (higher rate)
What are volume overriders/contingent commissions?
Paid by the insurer on a whole account and vary depending on profitability and/or growth of the account.
What is an Enhanced brokerage?
Paid where the broker operates a delegated authority agreement for admin services and profit commission.
Are fees reimbursed following mid-term adjustments?
No
Are additional fees applicable following a mid-term adjustment?
No
Can brokers earn fees/commissions from premium finance companies?
Yes
