Chapter 3: Other roles of insurance brokers

Question 1

Define Risk Management?

Answer 1

Well-defined and scientific process attempting to answer questions such as ‘How much will it cost if things go wrong?’

Question 2

What are the benefits of Risk Management?

Answer 2

• Reduction in the potential for loss by identifying and managing hazards
• Greater shareholder confidence
• Disciplined approach to quantify risks
• Reduction in Insurance Premiums.

Question 3

What is the risk management process?

Answer 3

Risk Identification, Risk Analysis, Risk Control

Question 4

What is risk identification?

Answer 4

Identify all existing threats as well as potential new threats

Question 5

What is risk analysis?

Answer 5

Evaluation and analysis of the risk

Question 6

What are the techniques of risk control?

Answer 6

Avoidance 
Reduction 
Prevention 
Minimisation 
Transfer

Question 7

What is risk avoidance?

Answer 7

Action taken to avoid entirely any possibility that the undesirable event will take place

Question 8

What is risk reduction?

Answer 8

Taking active steps to reduce the degree of hazard presented by a risk that cannot be eliminated or to reduce the frequency of occurrence.

Question 9

What is risk minimisation?

Answer 9

Physical measures that lessens the extent of damage .

Question 10

What is risk transfer?

Answer 10

Transferring risk outside the business

Question 11

What is a delegated authority agreement?

Answer 11

An insurer delegates underwriting authority to a third party.

Question 12

What is a coverholder?

Answer 12

Entity insurer can give delegated authority.

Question 13

What is binding authority?

Answer 13

The contract under which delegated authority is given to the third party

Question 14

What is Bordereau?

Answer 14

Report provided by the coverholder of the risks written and claims reported, normally provided monthly

Question 15

What is a MGA?

Answer 15

Managing General Agent - an organisation that underwrites insurance risk and which owes its primary duties to one or more insurance companies or providers

Question 16

What activities can be delegated?

Answer 16

• Underwriting
• Credit Control
• Document issuance and management
• Claims
• Recoveries

Question 17

What is ART?

Answer 17

Alternative Risk Transfer

Question 18

What are broker networks?

Answer 18

A business or alliance formed to provide specific services and access to markets for smaller firms enabling them to compete and obtain buying power and access to services

Question 19

What activities can an insurer delegate?

Answer 19

• Underwriting
• Credit Control
• Document issuance and management
• Claims
• Recoveries

Question 20

How do delegated authorities operate?

Answer 20

1. Insurer/coverholder sees a business opportunity
2. Draw up agreement and procedures
3. Coverholder operates within terms
4. Interacts with insurers as agreed and does not exceed authority + provides correct information to bordereau
5. Insurer conducts regular audit checks

Question 21

What are the type of authorities?

Answer 21

Full authority (risks are accepted and rates are set by coverholder) 
Prior submit - coverholder refers every risk to the insurer

Question 22

How can insurance brokers support the risk control element of a client’s risk management strategy?

Answer 22

By imposing requirements designed to improve a risk.

Question 23

What is the most likely benefit to a client of their insurance broker acting as a coverholder?

Answer 23

Faster claims process.

Question 24

What should the development of a risk management strategy focus on?

Answer 24

Current, past and future activities.

Question 25

Rent-a-captive?

Answer 25

Fund risk which is not owned or controlled by the client