Chapter 2 - Role of the broker in meeting client need (20 Qs))

Question 1

What is the most important activity all insurance brokers undertake?

Answer 1

Meeting their client’s needs - Legal duty to act in the best interest of their clients.

Question 2

What are the 5 core broking functions? e.g. Role of the broker in meeting client needs

Answer 2

• Provision of products and services
• Negotiation and placement
• Selection of Insurers
• Claims negotiation, collection & payment
• Design and operation of insurance programmes

Question 3

How do brokers understand their client’s insurance requirements?

Answer 3

• Identify and clarifying a client’s requirements (demands & needs)
• Identify an insurance product which best matches the requirements
• Providing information and advice on the products available
• Explaining the result of purchasing a particular product to their client in simpler terms

Question 4

How do brokers establish a client’s demands and needs?

Answer 4

Ask lots of questions! - Often requires completion of a proposal form.

Question 5

In an ideal situation, when is the point a broker should commence the search for the most suitable insurance policy for their client?

Answer 5

Once the demands and needs have been established and agreed upon in the demands and needs statement

Question 6

Describe in 6 steps the process of providing an insurance product (process of broking)

Answer 6

1. Establish clients wants
2. Complete data capture
3. Confirm clients demands and needs & prop form
4. Source appropriate product
5. Recommend product and show how it suits demands and needs in suitability statement (but also sometimes, if/how it doesn’t)
6. Formally arrange cover and bring insurer and client into contact

Question 7

How does a broker fulfil their duty to explain their recommendation and how it will deliver the client’s wants and needs?

Answer 7

Suitability statement - which records:
a) Customers demands and needs
b)How the recommendation addresses the demands and needs
c)The reasons for the recommendation

Question 8

Explain what PPL is in reference to electronic placement

Answer 8

Platform Placing Limited (PPL) - electronic placement platform for the London market. Takes all paper out of the process and records digital information flow and audit trail.

Question 9

What are insurance contracts contracts of? and why?

Answer 9

Utmost good faith - as the Underwriters knows nothing but the broker knows everything so underwriter needs to be aware of all the material circumstance

Question 10

Roughly define material fact

Answer 10

Every circumstance which would influence the judgement of a prudent Insurer in fixing the premium or determining whether he will take the risk. So anything which has the bearing on a risk

Question 11

What was the impact of Consumer Insurance (Disclosure and Representations) Act 2012?

Answer 11

Changed utmost good faith to ‘required to take reasonable care not to make a misrepresentation’ = put the onus on the Insurer to get the information and now just need to take reasonable care to answer their questions fully and accurately.

Question 12

What is a key piece of material fact which should always be disclosed to UWs?

Answer 12

Claims experience - should include claims made and also any uninsured losses that have occurred, e.g. unintentionally uninsured (where not covered)

Question 13

What are the 5 ways brokers can compline underwriting information through?

Answer 13

1. Proposal forms
2. Insurers’ questionnaires
3. Brokers’ questionnaires
4. Survey reports
5. Statement of facts

Question 14

What is the Insurance Act of 2015? Who does it impact and what does it apply to?

Answer 14

IA 2015 applies to commercial insurance policies. Impacts 3 areas:
- Pre-contractual duty of disclose
- Effects of warranties contained in the policy
- Insurers’ remedies for fraudulent claims

Question 15

What is the impact of IA 2015 on the duty to make a fair presentation of a risk?

Answer 15

Modifies utmost good faith to duty of ‘fair presentation’ for commercial insurance. So duty to volunteer information still remains on the insured and must disclose:
- Every ‘material circumstance’ which insured knows or ought to know
- Provide insurer with ‘sufficient information’ to make a prudent insurer make further enquiries

Question 16

Define a material circumstance (set out by IA 2015)

Answer 16

A circumstance or presentation is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and if so, on the terms it would

Question 17

What is an example of something which is not a material circumstance?

Answer 17

Confidential information unconnected to the contract of insurance

Question 18

What are the following examples of?
- matters known to individuals who participate on behalf of the insurer in
deciding whether to take the risk and on what terms (for example,
underwriting teams);
- knowledge which is held by the insurer and is readily available to the
person deciding whether to take the risk; and
- matters known by an employee or agent of the insurer, which should
reasonably have been passed on to the person deciding whether to take
the risk (for example, the claims department).

Answer 18

What the insured does not need to disclose as material circumstance, and the insurer ought to know

Question 19

Under IA 2015, what are the two types of breaches of disclose?

Answer 19

• Deliberate or reckless -> can avoid the contract all together (must show would not have entered into the contract)
• Innocent or negligent -> less severe (reflects what the insurer would have done had it known the information beforehand)

Question 20

Is it possible for the parties to the insurance contract to agree that the provisions of the
Insurance Act 2015 will not apply?

Answer 20

Yes - its called ‘contracting out’ and the previous law on disclosures would apply

Question 21

What is the impact of IA 2015 on warranties?

Answer 21

• Breach of warranty does not automatically terminate contract but the liability of insurer is suspended from time of breach until breach is remedied
• Insurers cannot avoid claims where the breach is unrelated to the loss, but insured must show non-compliance with the term did not increase the risk of loss which occurred
• basis of contract law abolished (where if any information is given and incorrect insurer can void a claim)

Question 22

Short Questions relating to information capture:
1. When would a broker/insurer use a prop form?
2. When would you use a SOF?

Answer 22

1. For standardised risks - provides standardised info for insurer & signed so provides basis for the contract of insurance
2. Straight forward SME business or car insurance

Question 23

What must the broker ensure they provide during the submission of a risk to an insurer?

Answer 23

• An accurate specification of cover (cover required, when, limits and policy wording)
• All material UW information

Question 24

What are the following qualities related to?

• influencing the underwriter positively (reassuring them that the broker knows the
  risk well);
• positively and accurately presenting the key features of the risk;
• understanding what information the underwriter needs;
• comprehensively and fully presenting all material, providing an explanation for anything
  that may need further clarity in a concise way; and
• ensuring the client’s best interests are represented

Answer 24

A good risk submission

Question 25

What are the timelines by which a full documentation must be sent issued to consumers/commercial customers?

Answer 25

Consumer = 7 days
Commercial customer = 30 days

Question 26

What does contract certainty mean as a concept?
How does the broker ensure this happens during negotiations?

Answer 26

All terms & conditions of the insurance contract have been agreed before any insured or insurer commits to the contract.

• Agreed wordings with insurers are central to negotiation process
• All clauses are specified in full
• Clauses that affect premium are separated from those which are standard and require specific negotiation

Question 27

What are some of the limiting factors considered by a broker when choosing an insurer to trade with?

Answer 27

• Regulation (limited number of insurers which they can go to)
• Financial security of the insurer
• Class of business
• Administration
• Broker selection

Question 28

What are some of the positive factors considered by a broker when choosing an insurer to trade with?

Answer 28

• Credit facilities
• Additional income
• Ease of payment
• Provision of support & sales literature
• Reputation & experience

Question 29

For a ‘fair analysis’ to take place, the broker must:

Answer 29

• consider an adequate number of insurers, large enough for the broker to demonstrate
  their knowledge of the insurers operating in the relevant market sector; and
• be able to evidence the analysis by adhering to and documenting a set process.

Question 30

Is it necessary for a broker to annotate every potential insurer in the class of business?

Answer 30

No - but must show why the insurers reviewed at the shortlist stage did not go to the final list of insurers which were approached

Question 31

In a very brief summary, how should an insurer be selected by the broker

Answer 31

Product feature, premiums and service offered

Question 32

What are the main criteria for assessing which insurers to approach?

Answer 32

• Quality of service
• Breadth of cover
• Flexibility
• Innovation
• Capacity
• Geographical spread
• Technical advice and specialist expertise
• Claims service
• Price
• Survey and risk control
• Premium financing
• Continuity
• Reputation and experience

Question 33

When presenting and explaining terms to the client, the objectives are to:

Answer 33

• convey the terms accurately and concisely;
• ensure the client understands the cover and the terms and conditions that may apply;
• ensure that the client understands where the cover may not match their requirements;
• provide a record of the advice to the client;
• bring special payment or standard credit terms to the client’s attention; and
• provide full details of the insurers

Question 34

What is a good opportunity for the broker to provide guidance and meaning of:
- disclosing material facts;
* the importance of having up-to-date sums insured; and
* warranties and policy conditions such as security or fire protection requirements and
storage of property

Answer 34

When presenting and explaining terms to the client

Question 35

What does a suitability statement record and when is it presented?

Answer 35

Presenting when confirming terms/explaining terms to client. it shows:
1. The client’s demands and needs
2. How the recommendation addresses those demands and needs
3. The reason behind the recommendation

Question 36

What would be included in a good presentation to the client at renewal?

Answer 36

• last year’s terms with last year’s values;
• last year’s terms on this year’s values;
• this year’s terms on this year’s values;
• competing or alternative terms on this year’s values;
• percentage differences by line and in total; and
• a mention of any key differences between this year and last year’s terms, such as cover
  or excess changes.

Question 37

What does designing an insurance programme involve?

Answer 37

Expert matching of client’s risk needs, risk appetite and budget with an insurers capabilities and preferences

Question 38

What is meant by an insurance programme and designing one?

Answer 38

When a client’s risks become more complex and increase in value, may be necessary to bring a number of policies together. But need to analyse level of risk retained by the client and amount transferred to the Insurer from a cost perspective.

Question 39

What are the key issues in programme design?

Answer 39

• Risk retention -> amount of risk which should be maintained e.g. excesses
• Packaging and combining policies
• Programme term - LTA agreements
• Limits
• Specialist cover
• Insurers

Question 40

What is an Long-term agreement?

Answer 40

Where risk is covered for a longer agreed period with similar terms.

Question 41

What is a global insurance programme and what are some of their benefits?

Answer 41

Where risks of a MNC are consolidated into one programme.
ADV: Economies of scale, consistency in cover and central control
Dis-ADV: Reduced number of insurers to choose from,

Question 42

What are the 4 ways for a broker to deal with a claim?

Answer 42

1. No service (no authority) - notifies the insurer & client noting inefficient for broker to be involved or sometimes insurer prefers to deal with directly due to timeline requirements
2. Claims advocacy role - broker assists and advices client if any problem with claims or policy cover
3. Full claims service - does everything, more for larger clients or specialist risks
4. DA claims handing - broker takes full responsibility for claims handling to a limit but most be aware of conflicts of interest

Question 43

What do the following basic activities relate to the actions of a broker:

• advising the client as to whether the claim is insured or not;
• giving immediate notification of losses to insurers;
• advising the client of their rights and obligations under the policy;
• arranging for the completion of appropriate claims forms;
• ensuring that where necessary, adjusters are appointed and briefing the client on the role
  of the adjuster;
• assisting the client in preparing the necessary documents and information in support of
  the claim in order to best present the claim to the insurer;
• collecting claim payments from insurers; and
• attending site meetings with the adjuster and the insurer’s personnel.

Answer 43

Brokers when dealing with claims

Question 44

According to the ABI, what is the value of fraudulent claims detected by insurers in 2020?
What is the percentage that the cost of fraudulent claims adds to policyholders?

Answer 44

£1.1bn
5%

Question 45

What are the two main types of fraud?

Answer 45

1. Opportunistic fraud - where a individual or firm exaggerates or inflates genuine claim to increase payout
2. Organised fraud - where a criminal gang takes out insurance policies with specific intention of committing fraud