Chapter 2 - Role of the broker in meeting client needs Flashcards
What are the 5 core broking functions (traditional broking services)?
Provision of products and services - demands and needs
Negotiation and placement
Selection of insurers
Claims negotiation, collection and payment
The design and operation of insurance programmes
How does a broker establish a client’s demands and needs?
Asking questions via a proposal form (a demands and needs statement) - agreed by all parties and for regulator
Informal basis - telephone calls, clients visits
What is the purpose of a suitability statement?
Customers can make an informed choice about whether or not to buy a specific insurance contract and whether a contract continues to meet their needs
The customer’s demands and needs;
How the recommendation addresses these demands and needs; and
The reasons for the recommendation
Are insurance contracts, contracts of utmost good faith (uberrimae fidei)?
Yes - Rozanes v. Bowen (1928)
What is the definition of a material fact under Marine Insurance Act 1906?
Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk
aka A material fact was something that had a bearing on the risk insured
Why did the Consumer Insurance (Disclosure and Representations) Act 2012 come into force?
Marine Insurance Act 1906 was perceived as unclear and unfair
Insurers able to avoid settlement of claims
What does the Consumer Insurance (Disclosure and Representations) Act 2012 say?
Consumers are only required to take reasonable care not to make a misrepresentation when providing information before a contract is entered into
Insurers can avoid settlement of claims if misrepresentation was either deliberate, reckless or careless
If you are in doubt whether a topic of material facts is material, should you disclose anyway?
Yes
Should a client’s loss experience need to be disclosed to underwriters?
Yes - claims and uninsured losses that have occurred
When was the Insurance Act 2015 effective from?
12 August 2016
Who does the Insurance Act 2015 apply to?
Commercial (non-consumer) insurance policies
What does the Insurance Act 2015 do?
Amends insurance law in three main areas:
Pre-contractual duty of disclosure and the effect of misrepresentations at that stage;
The effect of warranties contained in the policy; and
Insurers’ remedies for fraudulent claims
How does the Insurance Act 2015 modify the duty of utmost good faith in insurance contracts?
Introduces the duty of ‘fair presentation’
Commercial proposer must:
Disclose to insurers ‘every material circumstance’ which the insured knows or ought to
know; or
Provide the insurer with ‘sufficient information’ to put a prudent insurer on notice that it
needs to make further enquiries into those ‘material circumstances’
What is the definition of a material circumstance?
A circumstance or representation is material if it would influence the judgement of
a prudent insurer in determining whether to take the risk and, if so, on what terms
Include information known by the insured’s senior management and the persons responsible within the business for arranging insurance - also broker
What is an example of what is not a material circumstance?
Confidential information acquired through a business relationship unconnected to the contract of insurance
Must be made in ‘good faith’
When does an insured not need to disclose material circumstances?
Already known, or ought to have been known, by the insurer i.e., readily available or info that should have been passed on within an underwriters
When will an insurer be entitled to avoid a policy entirely under the Insurance Act?
Fraud - there are statutory remedies for insurer’s in the Act
Breach of duty of fair presentation is ‘deliberate or reckless’
Insurer can show that it would not have entered into the contract had it known the information or would only have done so on different terms
Can an insurer contract out of the Insurance Act 2015?
Yes - previous law on disclosures would apply
Need to be transparent about impact of contracting out otherwise will not apply
What is the impact on warranties under the Insurance Act 2015?
Insurer’s liability will be suspended from the time of the breach until the breach is remedied
Breach has to be in relation to the claim/loss - insured has to prove there was no impact
When are proposal forms used to gather client information?
Specialised risks e.g., professional indemnity
What are the advantages and disadvantages of a proposal form?
Advantages:
Comprehensive method of collecting data - client signs
Remind client of duty of disclosure, consequences of non-disclosure, material facts
Discuss other needs - new business
Disadvantages:
Clients dislike completing a form - broker responsibility
Standardised questions may not be relevant
When is a statement of fact used to gather client information?
Home, car, straightforward SME business
What are the advantages and disadvantages of a statement of fact?
Advantages:
Selling and buying insurance is simpler
Disadvantages:
Assumptions can be made by insured or insurer
When is an insurer’s questionnaire used to gather client information?
Risk is too large or complex for standard proposal form
What are the advantages and disadvantages of using an insurer questionnaire when collecting client info?
Advantages:
Ensure all correct info is corrected for the risk
Irrelevant questions can be avoided
Disadvantages:
Tailor-made to the risk so time consuming to structure and complete
What are the advantages and disadvantages of broker questionnaires when gathering client info?
Advantages:
Sent in advance of face-to-face meeting
Saves time and reduces errors
Disadvantages:
Can’t be the only source of capturing data
Time time-consuming and expensive for broker
May not capture all the requirements
When are survey reports used when collecting client info?
Complex risks - fully UW survery to understand the risk and clients approach to risk management
What are the advantages and disadvantages of using a survey to capture client info?
Advantages:
Captures the most physical risk info
Understanding how a risk/business is run
Disadvantages:
Insurers may only accept quotes from own surveyors - not brokers surveyors
Expensive and needed to be conducted by external experts
Is using a ‘joint survey’ the best approach to capture data about a client?
Yes
Insurer sends own expert to meet client along with broker, risk surveyor etc
How many sections are there in an MRC?
6
Risk details;
Information;
Security details;
Subscription agreement (the rules to be followed for processing transactions and
administrating amendments);
Fiscal and regulatory; and
Broker remuneration and deductions.
Does the Insurance Act 2015 allow ‘data dumping’ to insurers?
No
Brokers mustpresent the risk to the underwriter in a thorough, but concise and accessible manner i.e., MRC
What is the deadline for issuing full documentation to clients for consumer and commercial customers?
Consumer - 7 days
Commercial - 30 days
What are the limiting factors when brokers are selecting an insurer to trade with?
Regulation
Financial security - rating agencies
Class of business - appetite
Administration cost
Broker selection - TOBAs
What are the positive factors a broker should take into account when selecting an insurer?
Broker remuneration - brokerage/commission or fee
Credit facilities - SDD 30/60/90 days for client to pay
Additional income vis investment of premium
Ease of payment - monthly direct debits
Provision of support and sales literature
Reputation and experience - COB, service
Where does the FCA provide guidance on how brokers should select insurers and give advice to their clients?
Insurance: Conduct of Business Sourcebook (ICOBS) 4
How does a broker make a recommendation to a client if a large number of insurance contracts have been considered?
Fair analysis
Does a broker have to show why insurers reviewed at the shortlist stage did or did not go forward to the final list of insurers to be approached?
Yes - usually on broking form
What is the main criteria for assessing which insurers a broker should approach?
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
What is a suitability statement?
Includes: demands and needs statement
How the recommendation addresses the demands and needs
The reason behind the recommendation
What is required when designing an insurance programme?
Good knowledge of client:
Their business and their markets
Their exposures, loss experience, risk profile (frequency and severity of claims)
Their ability and appetite to retain risk
Risk management, claims handling, multi-site coordination
Organisation and management style
Should a broker consider the total insurance expenditure when recommending an insurance policy?
Yes
Risk it retains vs amount it transfers to an insurer
Increase excess in return of reduction in premium
What are the key issues in programme design?
Risk retention i.e., amt of excess/deductible
Packages and combining policies - number of risks are combined in a single policy with a single insurer
Programme term - e.g., three-year long-term agreement (LTA) is arranged instead of a one-year policy. Stable/better rate
Limits - do they need high limits of cover?
Specialist cover - structured to include e.g., terrorism, env liability, product financial loss cover
Insurers - what markets are interested and how will they respond to programme
When are global programmes used? What are the advantages and disadvantages?
Risks of a multinational company are consolidated into one insurance programme, arranged centrally by one insurance broking company
Advantages: consistency in cover, central control and potential savings through economies of scale
Disadvantages: less insurers to choose from, risk of upsetting local relationships, contentious allocation of premium between different sites
What is the insurance market cycle?
Insurers enter the market, increase capacity, write more business, competition lowers rate, claims exceed premiums = soft market
Capital markets withdraw, capacity decrease, competition increases rate, premiums exceed claims = hard market
What are the 4 ways for a broker to deal with a claim?
No service - no authority to deal. Pass notification to insurer promptly and inform client they cannot deal with claim
Claims advocacy service - insured deals with insurer. Broker assists and advises the client if there are any
problems with the claim or the policy cover
Full claims service - dealing entirely with the insurer on the client’s behalf, appointing loss adjusters, collecting claims payments from the insurer and paying the client directly. Time consuming, expensive = large complex risks only
Delegated authority claims handling - acting as the insurer and authorising claims payments on their behalf within limit
What are the brokers’ activities when dealing with claims?
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
What additional services may larger brokers offer when dealing with claims?
Post-loss surveys
Collection and presentation of claims documentation
Provision of specialist claims staff to assist the client in negotiating large, complex or technical claims
Providing a detailed claims analysis to assist in future insurance placement or the risk management process
Is it an offence if a broker pursues a claim on their client’s behalf if they know it is fraudulent?
Yes
The law of agency does not override a broker’s duty to comply with the law
What are the two main types of insurance fraud?
Opportunistic fraud - the individual or firm exaggerates or inflates a genuine claim to increase the value of a payout. An entire claim could be fabricated
Organised fraud - this is where a criminal gang takes out insurance policies with the specific intention of committing fraud
