Chapter 5 - Distribution

Question 1

Why might a syndicate not write 100% of the risk?

Answer 1

• managing capacity
• branch office controls
• managing aggregates
• managing geographical exposure
• price

Question 2

What would make a particular insurer appealing?

Answer 2

• accessible
• knowledge
• offering solutions if original not acceptable
• explain if not possible
• proactive in turnaround (cat modelling)
• claims and service

Question 3

What is the minimum standard on exposure management?

Answer 3

Managing agent must have clear process for recording accumumlations of underwriting exposures and loss potential and ensure representation within internal model

Question 4

What is fronting?

Answer 4

Arrangements set up by original insured and reinsured, direct insurer slotted in to satisfy regulations

Question 5

Evaluate fronting

Answer 5

+ access to business otherwise not accessible
+ reinsurer controls policy wording
+ reinsurer controls claims

• original insurer may ignore contract wording and settle claims
• fronting commissions
• reinsurer exposed to overseas litigation

Question 6

What is a bordereaux?

Answer 6

Groups of data like premiums payed / claims presented to reinsurers

Question 7

Which layers should be cheaper and why?

Answer 7

Layers higher up the tower as they will be used less

Question 8

What are the downsides to layering?

Answer 8

If higher layers are wider than lower layers or vice versa

Question 9

What controls should insurers maintain?

Answer 9

acceptance over a risk, in terms of who can do what and what risks can be accepted in line with the business plan

Question 10

What is the minimum standard on underwriting authorities?

Answer 10

Managing agents shall ensure underwriters authorities are in writing and inline with business plan, and risks outside an underwriters authority appropriately referred

Question 11

How can issues be detected with a risk written?

Answer 11

Peer review on bound risks can flag issues, at worst fac ri can be bought to protect if completley intolerable risk

Question 12

What are prevention controls?

Answer 12

written authorisation and management of authorities

Question 13

What are detection controls?

Answer 13

Peer review, audit reviews, independent reviews

Question 14

What is a group / affinity programme?

Answer 14

takes customers of an organisation and allows it to offer add-ons to core products

e.g a bank that could provide travel insurance

Question 15

What is a master policy?

Answer 15

One policyholder, cover provided to its members

e.g company buying private healthcare for all its employees

Question 16

What is a lineslip?

Answer 16

All insurers set out level of authority to the lineslip leader, set up by broker

Question 17

What are the benefits of a lineslip?

Answer 17

• broker: ease of placement, large amount written in single visit
• followers: access to risks without having to agree on an individual basis
• all insurers: ability to compete against larger insurers

Question 18

What is a consortium?

Answer 18

Insurers setting up group and giving lead authority to one of themselves, free to do business with any broker

Question 19

What are the benefits of a consortium?

Answer 19

• broker: large amount of security in one visit
• leader: compete for business its line size may not allow it to
• followers: access to business they may not otherwise see

Question 20

What are the different types of organisation that can have delegated authority?

Answer 20

• MGA, one principal which is insurer
• broker, two principals so has to manage conflict
• MGU, sits between MGA and insurer, insurer provides capacity

Question 21

What are the benefits of partnering for an insurer?

Answer 21

• access business without having to go to customer
• more cost effective for smaller risks
• mga may have good knowledge and reputation in field

Question 22

What are the benefits of partnering for an mga?

Answer 22

• high quality security

- reputational benefits

Question 23

What is the equation for product risk?

Answer 23

customer risk + product complexity + sales risk + service risk

Question 24

What types of business have high product risk?

Answer 24

• motor insurance
• pet insurance
• travel insurance etc

Question 25

What system is used to store documents and manage approvals?

Answer 25

ATLAS

Question 26

What are the main principles of business?

Answer 26

• act with due diligence, skill and care
• organise and controls affairs effectively, with adequate risk management systems
• pay due regard to customers
• amange conflicts of interests

Question 27

What were the key changes to the Lloyd’s framework?

Answer 27

• risk-based approached to approval of applications
• TP administrators subject to Lloyd’s approval and oversight
• flexible discretion to allow sub delegation of authority
• flexible discretion to allow firms to be given delegated authority without Lloyd’s approval

Question 28

What should the exec summary in a delegated authority strategy contain?

Answer 28

overview of managing agent’s current position on binding authorities, lineslip and consortium arangements, and objectives for year ahead

Question 29

What is the lowest level of authority in delegated underwriting?

Answer 29

Prior submit, no decision making authority

Question 30

What is the second level of authority in delegated underwriting?

Answer 30

Pre-agreed rating matrix, authority to say yes or no to risk but pricing governed by matrix

Question 31

What is the highest level of authority in delegated underwriting?

Answer 31

Full decision making and price freedom within confines of agreement they have with insurers

Question 32

What are the levels of authority in delegating claims?

Answer 32

• no authority at all

- limited financial and factual authority

Question 33

What is the difference between contact of insurance and the contract for insurance?

Answer 33

Contract of insurance is for delegated underwriting, contract for insurance is for insured client

Question 34

What should contractual documentation issued by a Lloyd’s coverholder include?

Answer 34

• jacket / wrapper cover
• schedule or declarations page
• full product wording