Chapter 3 - Other roles of insurance brokers Flashcards
Roughly describe some of the benefits of risk management
- Reduce losses by identifying and managing hazards
- Give shareholders more confidence to take risks
- Potential reduction in premium if insurer can see company is engaged
What are the three steps in the risk management process?
- Identification - find what the risks facing the business are
- Analysis - evaluate or analyse to predict likely losses in the future
- Control - course of action to control, reduce or eliminate the risk
What are the main techniques for risk control?
- Avoidance - avoid any possibility of undesirable event occurring
- Reduction - reduce degree of hazard
- Prevention - Physical controls to prevent chance of loss
- Minimisation - physical measures to reduce loss which occurs
- Transfer
What are the main aspects to control risk?
- Physical controls
- Financial controls
How do brokers assist clients in:
1. risk identification
2. risk analysis
3. risk control
- Identify the risks using surveys or visits & data capture
- Examine claims history and suggest ways to manage more effectively
- Make recommendations to improve a risk
What is the key difference between risk management services provided by an insurer and a broker?
Broker risk management is for the benefit of the client, whereas insurers often do it for own benefit, to reduce their risk of loss and impose risk improvements.
Try to list the 9 main potential risk management services a broker could provide
- Property Survey
- Businesses continuity planning
- BI review
- Health & Safety consultation
- Liability surveys
- Motor Fleet risk management
- Environmental risk survey
- Post-loss control survey
- Disaster recovery services
What is a proprietary insurance company?
A company owned by shareholders and is limited liability, meaning liability is limited to the amount of shares the own
What is a captive insurance company?
Wholly-owned subsidiary of a main business. Its capital is provided by the owning company and accepts the companies’ risks. Often based offshore for tax benefits
What are the benefits of a captive insurance company?
- Self-insure in a structured way
- Act as a focus for risk management activity
- Deal with claims in an efficient and timely manner
- Provide cover for risks the traditional market will not accommodate
- Retain premium in house
What is the definition of ART
Alternative Risk Transfer - general phrase to denote various non-traditional forms of re(insurance) techniques where risk is transferred to capital markets.
What are some additional services offered by insurance brokers?
- Broker networks = collective buying power and services e.g. training, marketing
- Stat analysis of insured trend e.g. loss data = give to clients & insurer - is very valuable as data can be used for so much e.g. prediction, competition etc.
- Premium finance
- General risk consultancy
What is a delegated authority agreement?
A scheme where an insurer delegates underwriting authority to a third party (e.g. a broker or MGA), who is known as a cover holder who may conduct business in accordance with the terms of the agreement
Define a coverholder
An entity to which the Insurer gives DA
The following is a definition of what term?
The contract under which delegated authority is given to a third party
Binding authority
What is a bordereau?
Report provided by coverholder of risks written and claims reported
Define an MGA
A organisation that underwrites insurance risks and owes its primary duties to one or more insurance companies or providers of insurance capacity
-> Can be owned and operated by insurance broking firms
Roughly describe how DA schemes operate
- See business opportunity & presents case to other party - benefits e.g. access to specialist market and knowledge of the broker, not financially viable to write all individually
- Coverholder and insurer draw and agreement and procedures
- Coverholder operates DA in accordance to terms (operation of agreement)
- Coverholder interacts with insurer as agreed, ensuring authority is not exceeded (ongoing interaction)
- Insurer conducts audit checks to ensure coverholder acting correctly (audit and monitor)
What are the 5 activities which can be delegated?
- Underwriting
- Credit control
- Document issuance and management
- Claims
- Recoveries
What are some of the benefits of DA agreements for an Insurer, coverholder (broker) & Customer
Insurer:
ability to access NB
cost efficient
lower operating costs
ability to access, knowledge and experience of coverholder
broker:
Efficient for obtaining cover of low value, high volume business
Increased commission levels
Faster speed of UW
Client: faster service
What are some of the challenges of DA agreements for an Insurer, coverholder (broker) & Customer
Insurer:
Loss of control
Coverholder may not report enough information
Regulatory issues
If coverholder service is poor, reflects badly on insurer
Coverholder:
Dependency on single market
Increased workload
Reputational damage if insurer service is poor
Conflict of interests
Customer:
May not know who there actual insurer is
Who do MGAs underwrite business for?
The insurer, who provides the capacity. As not underwriting for themselves, technically considered an intermediary by the FCA
What is the association for MGAs?
MGAA Manging General Agents Association
