Chapter 2 Flashcards
The Market is made up of:
Buyers
Insurers
Intermediaries (brokers)
Aggregators (Price Comparison websites)
Reinsurers
Private Individuals
Household, contents and insurance
Companies
From large multinational to sole traders
Partnerships
Each individual is liable (medical, legal and veterinary)
Public Bodies
Local authorities, schools. Some public bodies are large enough to create their own insurance funds.
Charities, Associations and Clubs
unincorporated associations
PRA
Prudential Regulation Authority, focuses on Insurers solvency margins (the difference between assets and liabilities)
FCA
Financial Conduct Authority
Types of Insurers
Proprietary companies
Mutual Companies
Captive Companies
Protected Cell Companies
Lloyd’s
Proprietary Companies
Plc and Ltd companies
Mutual Companies
Owned by Policy Holders
Mutually indemnity Associations
Self-Managed pools of insurers. Mainly seen in Marine Insurance.
Captive Insurers
Insurance company set up by a parent company to provide insurance coverage to the company. It’s tax effective and allows the parent company to retain money not lost through claims, rather than paying a premium to an insurance carrier.
Protective Cell Company
Type of captive insurer which operates in two parts with a core and unlimited number of cells. Each protected cell company has a single board which will agree to create each cell. This ring fences the assets of each individual cell.
Composite Companies
Carriers which accept several types of business and represent the majority of the market
Specialist Insurers
Tend to issue policies for only one type of business.
Takaful
Islamic type of insurance to fit in with Sharia law, any transaction, risk and profit is shared between the participants. They have to be approved by scholars to insure the products are compliant.
The State
The state legislates certain insurances to be compulsory. Motor, EL, PL. It also acts a reinsurer for terrorism risks and flood risks.
Lloyd’s and the London Market
It is not an insurer, but a market place to obtain varies insurance products through the carriers provide capacity through the market
Syndicates
Group of private individuals or corporate investors who carry risk. The number of syndicates has reduced dramatically since the 90’s. This is due to individual organisations growing in size and their capacity to accept risk.
Managing Agents
A syndicate will outsource the day-to-day running of the insurance business to a managing agent. They are responsible for employing the underwriters and claims adjusters, as well as liaising with Lloyd’s and regulators.
Capital and Members
In order to invest in the market, members need to produce adequate means in forms acceptable to Lloyds. They need to be sure they can pay any claims made to them. No new individual names with unlimited liability are permitted to join Lloyd’s now, following large losses in the 80’s. The liability is now limited for individuals.
Members’ Agents
These agents advise potential corporate and individual members on the disadvantages and advantages of investing in the Lloyds market. They also receive reports on how the syndicate is running. There are only four active members agents. They are approved by the FCA.
Lloyd’s brokers
To become a Lloyd’s broker the broking firm must be regulated in the country they are registered in and must also satisfy certain requirements from Lloyd’s about capability, understanding of the market and ability to transact business using the central market systems.
Placing a risk D2B
The broker puts a summary of the risk and terms into a document called Market Reform Contract (MRC) or a slip. This ensures a set standard and clear conditions.
XIS (Xchanging Ins-sure Services)
This is the system used to submit risks once the broker has has found 100% of cover through various Underwriters.
The London Market
The London Market is a place for sizable complex risks and world recognised.
Contract Certainty
Complete and final agreement of all terms between the insured and insurers by the time they enter into the contract:
-Details of the contract
-Share of the risk and who is taking it
-Provision for the contract documents to be sent to the customers
Intermediaries
They must be regulated by the FCA if they are conducting activities on behalf of a principle (insurer)
Authorised Persons
A firm authorised by the FCA to engage in regulated activities, once authorised the firm is bound to abide by all FCA rules.
Appointed Representatives
They are often non-insurance main occupations, such as motor garages. They must abide by FCA regulations, but do not have the same authority as Authorised Persons.
Appointed Representative Status
FCA have recently introduced new rules designed to improve the oversight and responsibility of the AP and the principle
Introducer Appointed Representative
Brochures and marketing material distributors. Less demanding responsibilities from the FCA for IAR’s
Lloyd’s Brokers
Must adhere to additional set of standards set out by the Lloyd’s Council as well as FCA
Intermediaries Services for the Client
- decide the best market in which to place the risk;
- negotiate terms and conditions initially and for mid-term changes;
- provide advice to the client regarding the detail of the policy wording;
- review client needs;
- negotiate renewals; and
- advise the client on the validity of claims.
Services for insurers
- collecting the premium;
- committing the insurer to cover the risk (if authorised);
- settling claims on behalf of the insurer (if authorised); and
- issuing motor, or other cover notes to give evidence of cover.
Broker Networks
Allow smaller broking houses to access larger company resources to adhere to regulations set out by the FCA.
Legislative reform order 2008
Removed the strict need for broking and underwriting activities to be separate. This has allowed more acquisitions and mergers and puts more focus on the FCA monitoring conflicts of interests
Direct Distribution Channels
Employee of the insurer sells the insurance product and websites are used to promote sales.
Indirect Distribution Channels
intermediaries paid to promote insurers product on their behalf.
Schemes and Delegated Authorities
Insurers often delegate authority to intermediaries, including managing general agents (MGAs), allowing them to issue cover, underwrite, and handle claims within defined criteria, providing tailored policies for specific client categories and benefiting from specialized expertise and streamlined operations.
Bancassurance
Insurance products sold through bank’s to their customers.
Price comparison websites
Used for gathering various quotes from providers and comparing cover in a digestible easy to understand format.
Reinsurance
Insurer transfers some of the risk to a reinsurance company. Individual basis, event basis or portfolio.
Purpose of Reinsurance
- smooth peaks and troughs in the trading results;
- protect the portfolio (class of business);
- provide improved customer service; and
- provide support for insurers entering new areas of business.
Facultative Reinsurance
Transferring risk from insurer to reinsurer for single known risk e.g. a high value site part of a larger portfolio
Catastrophe Reinsurance
Transferring risk from insurer to reinsurer for a single cause risk e.g. hurricane damage across multiple risks.
Types of reinsurer
- Specialist
-Lloyd’s market
-Insurance companies which also act as reinsurers
Retroceding
Reinsurer transferring risk to other reinsurers.
Underwriter
Assess risks, decide on risk acceptance, set terms and conditions, and calculate premiums.
Claims Personnel
Quickly and fairly handle claims, identify fraud, determine costs, involve necessary parties, and settle claims efficiently.
Loss Adjuster
Complex claims which require review of policy coverage, emergency measures, negotiate with specialist suppliers. They are independent of the customer and insured.
Loss Assessor
A loss assessor is an expert in dealing with insurance claims and acts for the insured/
policyholder, preparing and negotiating claims on their behalf
Surveyors
Carry out assessments related to the risk assessment. They can provide immediate advice, recommendations and assessing if requirements have been adhered to.
Actuaries
They review the financial aspects of the risk and ensure there is adequate funds for future liabilities
Risk Managers
They insure the organisation has adequate sight and understanding of risks throughout the business. They demonstrate to the regulator the business is being compliant.
Compliance officers
Ensure that their firm abides by the rules and regulations
set down by the regulator
Internal Auditors
work within a firm to monitor and evaluate how well risks are being managed and internal governance processes are running.
ABI (Association of British Insurers)
The ABI does various tasks like collecting market statistics, creating codes of practice, managing public relations to raise awareness about insurance, and consulting with the Government on issues important to its members.
BIBA (British Insurance Brokers Association)
BIBA, the major trade association for insurance intermediaries with just under 2,000 regulated firms as members, emphasizes the need for its members to comply with laws, act with integrity and honesty, prioritize client interests, and perform with skill, care, and diligence, aiming to maintain high standards of business behavior and protect its members’ interests for the public’s benefit.
LMA (Lloyd’s Market Association
Split into LIIBA (London and Insurance Brokers’ Association) and IUA (international Underwriting association)
CII (Chartered Insurance Institute)
Insurance education
Airmic
Airmic promotes the interests of corporate insurance buyers and those involved in risk
management and insurance for their organisation. Members include company secretaries,
finance directors, internal audit, and risk and insurance managers. Large customers are usually members
Personal Lines
insurance protects a policyholder from loss or damage to personal property
or from damages for which the policyholder may be held personally responsible.
Commercial Lines
insurance protects a business from loss of its business property or
damages for which the company may be held liable.
IPT
Insurance premium tax. Standard rate of 12% and higher rate of 20%. Long term insurances are exempt. This must be submitted to HMRC via the insurer when they collect the premium.
Motor insurance
Compulsory and most common insurance
Home insurance
Buildings/contents
Travel insurance
Traveling over seas, multi or single trip
Pet Insurance
Covers injury or accident to pet. Or in case of dogs potential damage to third parties or property.
Health
Personal accident, Sickness, Private medical Insurance, Short-term income protection, Critical Illness
PPI
Payment Protection Income: designed to cover the debts/loans if a person can no longer work. Huge scandal and now not really sold.
Liability insurance
Employers Liability, Public Liability, Products Liability, Directors and Officers Liability, Professional Indemnity
Commercial Property Insurance
perils (all risk), Engineering breakdown, Glass, livestock, money
Pecuniary Insurance (relating to money)
Fidelity guarantee (fraud or dishonesty, Legal expenses, Credit, business interruption, political risk, guaranteed asset protection
Marine
Hull- damage to the ship
cargo - loss or damage of goods on board
freight - sums paid for transporting goods/vessel hire
Cyber insurance
First and third party losses. Investigation, recovering lost data, business shutdown from attackers. Also damages claimed by third parties.
Commercial packaged
designed to suit a particular business and will fit the needs of a vast majority of customers. Usually at a discounted rate
Commercial Combined
combines multiple types of insurance products and allows customers to have one insurer and one renewal for ease.
