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IF1 > Chapter 2 - The Insurance Market Pt2 > Flashcards

Chapter 2 - The Insurance Market Pt2 Flashcards

1
Q

What is meant by the ‘marketing mix’ in insurance?

A

Making decisions on product, price, promotion & place

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2
Q

Why is distribution a very important component in the ‘marketing mix’

A

Affects pricing & impacts upon shape of product or its presentation so Insurers select most effective way (cost vs reward)

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3
Q

What is meant by a direct marketing channel?

A

Employees of the Insurer sell insurance products or direct mailing techniques/websites are used to promote sales

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4
Q

What is meant by an indirect marketing channel?

A

intermediaries are paid by the Insuer to promote products on their behalf (also price comparison website)

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5
Q

Name 3 benefits and 3 drawbacks of direct marketing channels

A
  1. Reduced cost as direct to customers
  2. Increased speed of purchase
  3. Control of customer experience
  4. Limited product available
  5. Cost of advertising and promotion
  6. No independent advice (so lots of regulation)
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6
Q

Benefits of indirect marketing channels

A
  1. Intermediaries have incentive to sell from commission
  2. Intermediaries can provide advice
  3. Intermediaries can provide other services (help w/ claims)
  4. Has responsibility for intermediary so must make sure is complying with FCA standards.
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7
Q

Explain a delegated authority scheme

A

Intermediaries are authorised to issue cover on behalf of Insurer. Binders give great deal of flexibility to intermediary within defined limits so Insurers gain more business.

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8
Q

Explain what is meant by an MGA

A

Managing general Agent = specialist intermediary who has delegated authority for one or more insurers and perform functions such as binding, underwriting, marketing, appointing loss adjusters and handling claims.

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9
Q

What is bancassurance

A

arrangement between a bank and insurance company where insurance products are sold to the banks customers (traditionally through bank branches)

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10
Q

Explain the benefits of Bancassurance

A

Access to each parties scale efficiencies
Lower risk to businesses
Access to previously unavailable sources (from other party’s company)
Opportunity for joint product development
Access to brands and reputations
Marketing development

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11
Q

What is a price comparison website & how do they work?

A

Uses web-based extraction tools to collect & analyse (aggregate) information from different data sources to provide an online service to those wishing to compare prices on a particular insurance product.

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12
Q

Why reinsure at all?

A
  • Several losses which are connected
  • Large losses
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13
Q

What are the 4 purposes of reinsurance and brief explanation of them?

A
  1. Smoothing peaks and troughs (stability) - Helps to spread costs (or large losses) over a longer period of time.
  2. Protecting the portfolio - Protecting the pool from the effect if large losses or a series of losses arising from a single cause (catastrophe reinsurance for weather related claims)
  3. Improving customer service - extra capacity created for customers as Insurers can accept risks greater than their own net capacity.
  4. Entering new business areas - Extra capacity for Insurer when gaining experience in a (new) class of business
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14
Q

What is a facultative reinsurance?

A

Arranging reinsurance on a single known risk

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15
Q

What is a ‘treaty’ in reinsurance?

A

Placing a range of risks within an agreed criteria (portfolio/class of businesses as a whole). Some arrangements provide a means of sharing risks in agreed proportions and others that protect against losses exceeding a certain amount.

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16
Q

What are the 3 types of reinsurers?

A
  1. Specialist reinsurance companies that do not transact insurance business
  2. Lloyd’s syndicates
  3. Insurance companies that also act as reinsurers
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17
Q

What is retroceding?

A

When reinsurers seek to transfer some of their risks through more reinsurance, called retrocession.

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18
Q

What is the name for an insurer who buys reinsurance?

A

Reinsured, cedant or ceding office

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19
Q

What are the two main centres of reinsurance?

A
  1. Lloyd’s
  2. IUA
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20
Q

What is the LUC & what is their primary function?

A

London Underwriting Centre - to produce clause wordings for the London Market. Based in the city

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21
Q

What is an underwriter? What are their functions?

A

Manage the insurance pool as effectively and profitably as possible
Function:
- Assess the risk that people are bringing to the pool
- Determine whether to accept
- Determine terms, conditions and scope
- Calculate suitable premium

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22
Q

An underwriter may be: (4 types)

A
  1. Person employed by an insurance company to make decisions on acceptance/premiums
  2. Employee of insurance broker, AR or MGA servicing delegated authority
  3. Lloyd’s underwriter, accepting risks on behalf of Lloyd’s members
  4. Term to describe an insurance company itself
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23
Q

Who are claim’s personnel & what is their role?

A

Assess how much a claim will cost & ensure there is an adequate reserve prior to payment. The role of claims personnel is to deal quickly, fairly and cost effectively with all claims.

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24
Q

What is a loss adjuster?

A

Expert in processing claims from start to finish & acts for the Insurer. They:
- Investigate circumstances
- Determine whether policy covers loss
- Facilitate emergency measures
- Negotiate amounts claimed
- Negotiate with specialist suppliers
- Make recommendations

Aim is to be fair to both insured and insurer. They are independent and professionally qualified. Can summarise this more.

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25
Q

What is a loss assessor?

A

Expert in dealing with insurance claims and acts on behalf of insured, preparing and negotiating their claims.

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26
Q

What is a surveyor & those providing forensic services? & When are they used?

A

Carry out functions on behalf of insurers which are relevant for risk assessments. Use expertise to determine exact causes of loss of damage. Used to establish fires, evidence for fraud, lack of maintenance, evidence that supports a policy exclusion, identifying 3rd party negligence etc. Often used for more specialist claims than a claims handler and for formal investigations

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27
Q

What is an Actuary?

A

applies probability and statistical theory for insurance, investment, financial and risk management. Often used for life insurance but can be used for all types. Use stats to calculate the probability of losses, claims and pricing and reserving.

28
Q

What is a risk manager? What are their 3 primary functions?

A

Appointed to provide a formal strategy for managing the risks that affect businesses. Market trend for them and is sometimes necessary for Insurers to demonstrate to regulators their ability to comply with Solvency II capital requirements.
- Systemic identification, analysis and economic elimination or control of risks
- Guidance of best practice in these areas to management
- Appropriate transfer of identified risks by contract or insurance

29
Q

What is a compliance officer?

A

To ensure firms are abiding by rules and regs of regulators (FCA). Often are prescribed by the regulator and are a director or senior manager in the company. Often reports to the governing body of the business (board)
Common functions:
- Communicating company policy with members of staff (training)
- Regular reports on governance, finance and complaints to FCA
- Reviewing business procedures
- maintain companies compliance manual
- Produce money laundering report

Can be an external consultant but responsibility of the officer within the company cannot be delegated.

30
Q

What is an internal auditor?

A

Monitors and evaluates how well risks are being managed, business is governed and internal processes are working. Independent and objective assessment of companies efficiency.

31
Q

Who are the ABI?

A

Association of British Insurers - Wide variety of work such as market stats, codes of practice and major role in PR for UK insurance. Confers with Gov.
Objectives:
- Inform public policy debates with the correct individuals
- Be the public voice of the sector (promote value and importance)
- Encourage consumer understanding
- Support competitive industry

ABI’s work falls under the General Council of Insurance & Life Insurance Council

32
Q

Who are BIBA?

A

British Insurance Brokers Association - Major non-statutory trade association for insurance intermediaries. Code of conduct:
- Abide by laws, principles and regulations
- Act with integrity & honesty
- Act in best interest of clients.

Seek to maintain high standards of business behaviour and protect/enhance interest of members for benefit of the general public.. Has a number of key roles which are logical: training, promoting, encouraging links etc.

33
Q

Who are the LMA?

A

Lloyd’s Market Association - Provides representation, information & technical services to Underwriting businesses. Key purpose = identify & resolve issues of interest to Lloyd’s community
- Increase flow of profitable business to the market
- Maintain capital flexibility
- Reduce costs

34
Q

Who are the LIIBA and what do they do?

A

London and International Insurance Brokers’ Association (LIIBA) - represents interest of (re)&insurance brokers in London and International markets. Clear overlap of LMRC and LIIBA. Wants to keep London as the place to do insurance business. Key priorities:
- Represent Member’s interest to regulators, gov. and international bodies
- Modernise London Market business to be competitive
- Support members with legislative changes

35
Q

Who are the LMRC and what do they do?

A

London Market Regional Committee - Works with London Market bodies, LIIBA and others of mutual interest on areas of mutual interest & avoiding the duplication of work.

36
Q

Who are the IUA and what do they do?

A

International Underwriting Association of London - Worlds largest representative for international wholesale insurance & reinsurance companies. Exists to protect and strengthen business environment for member companies. Objectives:
- Transform business processes by driving modernisation/digitalisation
- Deliver knowledge and expertise for innovating underwriting/claims
- Represent members of public policy and regulation

37
Q

Who are the MGAA

A

Managing General Agents’ Association - formed in 2012 to give insurance industry a better understanding of what an MGA is and what they contribute. Represent interests etc.

38
Q

Who are the CII and what do they do?

A

Chartered Insurance Institute - ensure members are equipped with the knowledge and understanding they need to perform roles effectively.
- Set high standards for members
- Promote professional growth
- Specialist societies for education and development
- Training
- Publication
List goes on…

39
Q

Who are the CILA?

A

Chartered Institute for Loss Adjusters - members must operate under codes of conduct. Must at all times preserve impartiality

40
Q

Who are the IFoA and what do they do?

A

Institute and Faculty of Actuaries - sets a 5 year strategic plan & provides manuals for practice and guidance, codes of ethics etc., provide education, demonstrate to public and businesses the benefit of Actuaries.

41
Q

Who are the IRM and what do they do?

A

Institute of Risk Mangement - Offers qualifications, training, events and leadership courses, networking opportunities etc.

42
Q

Who are the Airmic and what do they do?

A

Association of Insurance and Risk Managers in Industry and Commerce - promotes interest of corporate insurance buyers and those involved in risk management. All types of people can be members and can be individual or corporate.
Roles:
Training, sharing information, events, encouraging best practice, lobbying. (represents views to government regulators & market bodies)

43
Q

Who are IUK and what do they do?

A

Insurtech UK - leading force for technological innovation in the insurance sector. Represents interest of a range of businesses (distributors & suppliers). Actively engages the government in a lot of conversations. Can be MGAs built on technologies, new digital product platforms, usage based gadgets etc.

44
Q

What is the MIB?

A

Motor Insurers’ Bureau - Enter into agreement with the government to compensate victims of accidents caused by uninsured or untraced motorists. Has two agreements with the government:
1. Untraced Drivers’ Agreement - Applies compensation and property damage for victims
2. Uninsured Drivers’ Agreement - concerned with 3rd party personal injury when no motor policy is in force.
Financed by levy on authorised motors in the UK

45
Q

What is meant by personal lines insurance?

A

Protects a PH from loss or damage to personal property or from damages which the policyholder may be held personally responsible

46
Q

What is meant by Commercial lines insurance?

A

Protects a business for loss of its property or damages for which the company may be held liable

47
Q

What is IPT?

A

Levy from government on premiums in the UK
- Standard is 12%
- Higher is 20% for travel and some vehicles/domestic appliances
Most long-term insurances, reinsurance & ships, aircraft and GIT (internationally) are exempt.
Premiums for risks outside the UK are exempt

48
Q

What is Motor Insurance?

A

Insuring motor vehicles and liabilities arising out of their use.

49
Q

What are the most common types of general insurance?

A

Motor & home and both include elements of property & casualty cover. e.g. property pays for loss of PH property and casualty pays for damages for which PH is held liable

50
Q

What is Home insurance?

A

Covers building and/or contents against a wide range of perils. Valuables and personal effects are also covered, as is public liability.

51
Q

What is Travel insurance?

A

covers individuals travelling domestically or overseas with single or multi-trip policies.

52
Q

What is pet insurance?

A

Covers cost of vets if pet is ill/injured or has accident. often cover costs of purchase price and element of third party cover related to dogs

53
Q

What are the 5 types of health insurance and a short explanation of them

A
  1. Personal accident - cover in event of accidental death or bodily injury
  2. Sickness - cover inability for individual to engage in usual occupation
  3. Private medical insurance
  4. Short-term income protection - agreed monthly amount over short period
  5. Critical illness - cover in event of diagnosis of serious illness/disability
54
Q

What is PPI?

A

Payment protection insurance - designed to cover monthly loan and credit card payments

55
Q

What is employers’ liability insurance?

A

Insurance to compensate Insured in respect of legal liability to pay damages to an employee arising out of injury, disease, illness or death

56
Q

What is Public liability insurance?

A

Insurance to compensate the Insured in respect of claims from 3rd parties (public) for accidental bodily injury or damage to property due to Insured negligence or that of their employees

57
Q

What is products liability?

A

Legal liability for 3rd party bodily injury or property damage caused by products, goods or services sold.

58
Q

What is Directors’ and Officers’ liability?

A

Covers personal legal liability incurred by individual directors and officers for financial loss resulting from their negligence or failure to fulfil statutory responsibility

59
Q

What is Professional Indemnity insurance?

A

PI protects a person acting in their professional capacity against claims that might be made alleging that injury or loss has resulted from their negligent actions or advice.

60
Q

What are the main types of general insurance?

A

Home, motor, travel, commercial property and liability

61
Q

What are the 5 types of commercial property insurance with a small explanation of each?

A
  1. Peril/’all risks’ policies - Cover material property damage
  2. Engineering/breakdown - Explosion, breakdown & accidental damage to plant
  3. Glass - Destruction or damage to fixed glass on an ‘all-risks’ basis
  4. Livestock - for death through accident or disease or theft
  5. Money - ‘all risks’ cover loss of destruction or damage,
62
Q

What does pecuniary insurance mean?

A

Relating to money - Covers intangibles such as income, revenue and value

63
Q

What are the 6 examples of Pecuniary insurance with brief explanations?

A
  1. Fidelity guarantee - covers risk of money or stock by fraud/dishonesty from a person holding a position of trust
  2. Legal expenses - insurance for cost of seeking legal advice/pursuing/defending
  3. Credit - covers businesses against risk of non-payment
  4. BI - Covers loss of actual earnings from business arising from material damage/disease
  5. Political risk - cover against revolution or political conditions which may result in a loss
  6. Guaranteed Asset Protection (GAP) - covers gap between amount paid for a vehicle and the amount repaid on the finance where the amount was larger
64
Q

What are the 3 main areas of marine insurance?

A
  1. Marine hull - covers physical damage to the ship, machinery and equipment and some limited liability insurance in case of contact with other vessels
  2. Marine cargo - Loss or damage to goods
  3. Marine freight - covers the sum paid for transport of goods
65
Q

Briefly explain what aviation insurance covers?

A

Damage to aircraft (hull) or legal liability to 3rd parties/passengers

66
Q

Briefly explain cyber insurance?

A

Protects businesses for first party and third party losses arising from a cyber attack. First party is for investigation, cost of data recovery and loss of income and third parties is for loss of theft of data and legal costs of defending the claims

IF1 (11 decks)

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