Chapter 4 - Contract and agency law Flashcards
What does the law of agency require brokers to do?
Obedience
Due care and skill
Good faith
Accountability
Avoid conflicts of interest and to disclose any appearance of a conflict
What is an agents duty of personal performance?
Must do the duties themselves
Are agents allowed to delegate their primary tasks to someone?
No
Unless principal has given permission
Are agents allowed to delegate secondary tasks that are purely mechanical and involve no question of judgement, advice or discretion?
Yes
e.g., accounts or IT
What is an example of the duty of accountability and good faith?
Commission amount
Paid by insurers
Agents stand in a fiduciary relationship with their principal. What does this mean?
Holding something in trust for another
e.g., money, policy documents
What are the duties of a principal to their agent under the law of agency?
Remuneration
Indemnity
Broker must prove they were effective cause of transaction
Can a broker acting as a retail broker and delegated authority cause a conflict of interest?
Yes
Need for separation - North and South Trust Company v. Berkeley (1970)
When is a broker an agent of the insurer?
Delegated authority
Survey
Collect premiums
What is the principal of tort under common law duty?
Obligations we have, despite the absence of a contractual or other legal relationship
What are the two types of statute law which affect insurance brokers?
Insurance-related legislation e.g., Marine Insurance Act 1906
Non-specific legislation e.g., Data Protection Act 2018 (DPA 2018)
Example of when delegated authorities can have conflict of interests
Profit commission
Broker acting as UW, authority to settle claims to client
Example of when close links with an insurer can have conflict of interest
Insurer and broker under same ownership
Example of when insurance reinsurance companies can have conflict of interest
Same direct placing broker and reinsurance broker
Separate and ensure barriers between business functions
Example of when Lloyd’s brokers can have conflict of interest
Lloyd’s brokers perform duties for Lloyd’s underwriters e.g., claims settlement
Consent of the insured is required
Example of when contingent commissions/overriders can have conflict of interest
Broker receives payment from an insurer which is dependent on the action
Example of when other inducements can have conflict of interest
Fees paid by premium financing companies, cash gifts or soft loans (financing that offers flexible or lenient terms for repayment, usually at lower than market interest rates, occasionally interest free) paid by insurers, payable in return for certain targets being met
FCA scrutiny - high profile fines
Example of when Acting for two or more clients with similar interests can have conflict of interest
Same broker’s clients are:
– involved in the same claim;
– competing for limited market capacity;
– involved in the same financial transaction (such as an acquisition or disposal of a
business); or
– competing for the same contract.
Can an agent have >1 principal at any one time?
No
Is a brokers duty to manage potential or appearance of a conflict the responsibility of senior management only?
No - All staff in an intermediary should be aware of conflicts and should be responsible for ownership of conflicts arising out of their own conduct
How to resolve conflicts of interest that are inevitable?
Clear disclosure and the agreement of all parties should be made
How do brokers identify and manage conflicts of interest in order to manage and avoid conflicts for the FCA?
Independent file reviews, either as formal internal audits, or at least a file review by an individual not involved in the placing process
Systems must be fully supported by senior staff
What is included in a TOBA?
Regulatory information - ensure compliance with regulatory or statutory rules
The broking firm’s TOBA
Details of the services provided
The broker’s remuneration
What is in an insurer TOBA with a broker?
Regulatory status, broker’s authority, ownership and access to data and records, law and jurisdiction,
commission, conflict management, and confidentiality.
What is the regulatory information which must be provided to the client before the conclusion of contract?
Details of the firm’s ownership;
Confirmation that the broking firm is a registered intermediary and the scope of its authorisation, e.g. whether the firm merely arranges insurance policies providing information only or whether it provides advice and makes a recommendation;
Cooling-off period for consumers;
Details of the firm’s complaints procedures; and
Availability of any compensation, e.g. the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS).
In addition to regulatory information, what else should a broker’s TOBA with a client should include?
Authority to act and sign, broker information, duration of the contract and termination, client’s duty of disclosure, insurer security, remuneration, payment terms, client money, conflicts of interest, claims against the firm, limitation of liability, money laundering/data protection/confidentiality, law and jurisdiction
