Chapter 2 - The insurance market Flashcards
What groups of people is the insurance market made from?
Buyers Intermediaries Aggregators Insurers Reinsurers
What types do buyers come under?
Private individuals, partnerships, companies, public bodies, associations and clubs
What is a partnership?
This is when several individuals pool resources in a business each partner has joint and several liability for their actions
Identify six different types of insurer
- Proprietary
- Mutual companies
- Mutual indemnity associations
- Captives
- Protected Cells
- Lloyd’s
What is a proprietary company?
This company is owned by the shareholders
What is the difference between a mutual company and a mutual indemnity company?
A mutual company is owned by the policyholders and mutual indemnity association while still owned by policyholders have their origins in being a self-managed pool.
Where are mutual indemnity associations usually found?
In marine insurance where protection and indemnity clubs insure certain aspects of marine hull liability
What is a captive insurance company?
Insurance owned by a large non-insurance company that insures the risks of its parent company only and not others.
What is a protected cell company?
This company is similar to the captive company but differs in that it operates in two parts the core which manages the PCC as a single entity and then cells within the PCC in to which the cell owners can insure their risks in the same way as if they owned their own captive insurance company.
What are the 2 different insurer designed functions?
Composite and specialist
What is a composite insurer?
These insurers accept several types of business.
What is a specialist insurer?
These only accept one class of business
What are the 3 different groups at Lloyd’s?
Syndicates
Managing agents
Members agents
What is a syndicate?
A group of private individuals (names) or corporate members who provide financial backing for risks in Lloyd’s..
What is a managing agent?
A managing agent is employed by Lloyd’s syndicates to employ underwriters who accept risks on behalf of the syndicate.
What is a member agent?
Members agents advise investors on the advantages and disadvantages of investing in the Lloyd’s market, syndicate selection and performance, reserve requirements and compliance issues.
Who are the managing agents in Lloyd’s regulated by?
They are dual regulated by Lloyd’s itself but also by the PRA and FCA
What is the document used to place business called at Lloyd’s?
A ‘Slip’ (Market Reform Contract)
What is the process called of and underwriter signing a slip?
‘Scratching the slip’
Which organisation checks and issues Lloyd’s policies and collects premium on behalf of syndicates?
‘Xchanging’
What is the percentage of the premium called that a broker receives for his services?
Commission also known as a ‘Brokerage’
What restriction was removed by the Legislative reform (Lloyd’s) Order 2008?
The restriction allowing only Lloyd’s brokers to place business at Lloyd’s.
What is contract certainty?
The complete and final agreement of terms (including signed down lines) between the insured and the insurer before inception.
What does it refer to when a broker places more than 100% of a slip and proportionally reducing Lloyd’s syndicates or the insurers share?
Signing down the line.
What is an intermediary?
Known as an agent authorized by one party the ‘principal’ to bring that principal into a contractual relationship with another, termed the third party.
What do the FCA require all ‘persons’ to be that carry out insurance mediation activities?
They must either be authorized by the FCA or Exempt.
What does it mean by Exempt?
To be exempt you must adopt a status of ‘Appointed representative’ or Introducer Appointed Representative , or be a member of a professional body that has equivalent rules to the FCA.
What is an Authorized persons?
An individual or firm which is authorized by the FCA to engage in regulated activities.
What is an appointed representative?
An individual or company that is appointed by an authorized person (the principal) under the terms of a contract. They may be acting for an insurer or intermediary that is regulated by the FCA and PRA eg a garage selling extended warranty insurance for a customer.
Who is responsible for making sure that an appointed representative follows all the FCA Rules?
The authorized persons.
What is an introducer appointed representative?
Persons who are only authorized to distribute ‘non-real time financial promotions’ such as brochures eg a vet giving customers leaflets about pet insurance
Who is responsible for the introducer appointed representative?
The authorized persons.
Who are Lloyd’s insurance brokers? and who are the regulated by?
These are brokers that have proved their knowledge and expertise to the council of Lloyd’s they are regulated by Lloyd’s and the FCA.
Identify seven services provided provided by independent intermediaries to clients ?
- Find best market
- Negotiate terms
- Advise on policy wordings
- Review client needs
- Negotiate renewals
- Negotiate claims
- Risk management advice
What further services can be provided by an independent intermediary under the Terms of Business Agreement with the Client?
- Risk management advice
- Assisting with presentation of claims
- Assisting with recovery of uninsured losses.
Why has the insurance market consolidated?
- Regulation
- Pressure on earnings
- Age of brokers selling
What are consolidators?
Companies that grow through the formal acquisition of others within the insurance market.
What are the two different types of distribution channels?
Direct and indirect.
What is a direct distribution channel?
Employees of the insurer sell the insurance products/ direct mailing techniques / selling through a website,
What is a indirect distribution channel?
Intermediaries sell products on insurers behalf being paid by the insurer to promote their products on the insurers behalf.
What are some features of direct marketing channels?
Reduced costs for sales staff, greater sense of ease for the buyer
What are some disadvantages of direct marketing?
No independent advice
What is delegated authority?
Where an insurer gives a intermediary the authorization act on their behalf may be full underwriting authority or only to issue cover notes and make changes to current policies on the insurers’ behalf.
What is an aggregator?
A website that allows buyers to compare quotes from cooperating insurance brokers and companies.
What is reinsurance and what is it’s purpose?
Reinsurance is a risk transfer mechanism for insurers to be able to insure risks that may be too large and the insurer is poised to lose financial in the even of a claim.
What are the benefits of reinsurance?
- Improved customer care
- Support for insurers moving into new business areas
- Protects portfolios against large losses/catastrophes
- Smoothes peaks and troughs in loss experience
What is the insurer known as when reinsuring?
Cedant or ceding office
What are the three different types of reinsurers?
- Specialist reinsurance companies
- Lloyd’s syndicates,
- Insurance companies that also act as re-insurers.
What is it called when a reinsurer, reinsures a peril?
Retroceding and the risk transfer is called retrocession
What are the 2 main reinsurance centres?
Lloyd’s and International Underwriters Association
What is the role of the Underwriter?
To manage the pool as effectively and profitably as possible by
- Assessing risk
- Decide whether or not to accept risk
- Determine the terms and conditions
- Set the premium
What is the role of claims personnel?
- deal with all claims quickly and fairly
- differentiate between real and fraudulent claims
- assess the realistic cost of the claim and put aside an amount in the accounts - reserving
- determine when experts eg loss adjusters need to be involved
- settle claims with minimum expense
What is a loss adjuster?
A person hired by the insurer to investigate a claim determine whether the policy covers the loss, facilitate emergency recoveries and negotiate settlement on behalf of the insurer,
What is a loss assessor?
A person hired by the insured to prepare and negotiate claims on their behalf.
What is an actuary?
A person who applies statistical and probability theories to problems of insurance and help insurance companies with pricing and claims reserving.
What is a risk manager?
A person who creates effective control methods of companies to control the various risks that effect businesses.
What is a compliance officer?
A person that makes sure companies abide by the rules set out by the FCA and PRA
What is an internal auditor?
A person(s) that monitor and evaluate how well risks are being managed.
Who are the ABI?
Association of British Insurers represent the interests of UK insurance companies
Who are the IUA?
International Underwriters Association - the largest representation organisation for international and wholesale insurance and reinsurance companies.
Who are BIBA?
British Insurance Brokers Association - trade association for independent insurance intermediaries - brokers promoting members views and encouraging the provision of training
Who are LMRC?
London market regional commitee a regional committee of BIBA which works with other London market bodies
Who are LIIBA?
London International Insurance Brokers Association independent trade association representing the interests of London market brokers
Who are LMA?
Lloyd’s Market Association represents and provides technical information on behalf of Lloyd’s managing agents
Who are MIB?
Motor Insurance Bureau - run fund to compensate victims of uninsured or untraced drivers,
Who are UKIC?
UK Information Centre - subsidary of MIB operate the Motor Insurance Database which matches the registrations of vehicles with motor insurance policy details as required by 4th Motor Insurance Directive.
When can property damage be claimed under the MIB untraced drivers agreement?
When the vehicle is identified but the driver is untraced
What are four advantages of setting up a captive insurance company
- Tax efficient
- Benefit from own risk control
- Lower premium as avoid insurance company’ overheads
- Lower premium by accessing reinsurance market
What is Takaful insurance
Insurance that complies with islamic principles
Identify the three islamic principles that insurance is not compatible with.
- Gharar (uncertainty)
- Maisir (gambling)
- Riba (interest)
Identify five islamic principles that Takaful insurance embraces
- Mutuality and cooperation
- Shared responsibility
- Joint indemnity
- Common interest
- Solidarity
Identify three areas where the State is an insurer.
- Social services - welfare benefits
- Pension provision - state benefits
3, As guarantor of Pool Re terrorism pool
Who still has unlimited liability at Lloyd’s
A small amount of rich individuals (names) who were admitted as members of Lloyd’s before 2003. Most Lloyd’s capital is invested in it by limited companies with limited liability
Identify four services that an intermediary may provide to insurers
- Collect premium
- Commit insurer if have authority
- Settle claims if have authority
- Issue motor or other cover notes
Identify two ways the broking market has consolidated
- Consolidators
2, Broker networks
What is a broker network
Alliances of brokers or groups of brokers who receive centralised services from a senior firm
Identify five features of direct distribution channels
- No intermediary costs (advantage for insurer)
- Advertising costs (disadvantage for insurer)
- Quicker for buyer
- Only one insurer’s product sold (disadvantage to buyer)
- No advice (Disadvantage to buyer)
Identify three features of indirect distribution channels
- Insurers pay commission to intermediary
- Intermediary offer advice
- Insurers may delegate their underwriting authority to intermediary
What are the advantages of delegated authority to an intermediary?
- Can grant immediate cover
2. Often get commission profit share
What is bancassurance?
Banks sell insurance companies’’ products
Identify six advantages to banks and insurers of banassurance
- Access scale efficiencies
- Lower risk
- Access unavailable resources
- Value chain efficiency
- Joint product development
- Market development
What is a surveyor?
A specialist who surveys insured buildings on behalf of property insurers to determine the potential causes of loss and makes risk recommendations to reduce the risk of loss and to assist underwriters when deciding whether to insure a risk and at what price.
What is a forensic expert
Experts who determine the exact cause of loss or damage in a claim situation,
Who are MGAA?
Managing General Agents’ Association represents interests of managing general agents founded in 2012.
Who are the CII?
Chartered Insurance Institute - Professional body of the insurance industry promoting professional standards and providing the examinations framework.
Who are the CILA?
Chartered Institute of Loss Adjusters ensure code of conduct and professional standards of loss adjusters
Who are IFoA?
Institute and Faculty of Actuaries (IFoA)
Who are IRM?
Institute of Risk Management offer education services and examinations in risk management.
Who are Airmic?
Association of Insurance and Risk Managers in Industry and Commerce - represents corporate insurance buyers and risk managers
