Chapter 5 - Legal and regulatory requirements Flashcards
Are all compulsory insurances liability in nature? What does this mean?
Almost yes - do not cover loss or damage to the property of the insured, but rather the
financial impacts of situations in which the insured is found to be legally responsible or liable
for injury to people or loss or damage to their property
Are compulsory insurances required by private individuals and companies?
Yes
What is the main reason why certain forms of insurance are compulsory?
Compensation
In response to national concerns
Can insurers rely on normal insurance concepts? e.g., warranties or duties of good faith with compulsory insurances
No
Who does the Consumer Rights Act 2015 apply to?
Consumer contracts
NOT contracts with commercial customers
What does the Consumer Rights Act 2015 seek to prevent?
Insurers penalising consumers
through the application of harsh terms in contracts (for example around claims
notifications).
What does The Contracts (Rights of Third Parties) Act 1999 allow?
People who are not
party to the insurance contract to have some rights under the contract
Can insurers contract out of the Contracts (Rights of Third Parties) Act 1999?
Yes - exclusions have been introduced in the London Market to do this
Is the definition of consumer wider under the current regulatory regime than under FSA rules?
Yes
How many rates of insurance premium tax (IPT) are there?
2
standard - 12%
higher - 20% - travel or purchase of vehicles or electrical appliances
Do all insurances have premium tax?
No - some exempt
Most long-term insurances, together with reinsurance and insurance on ships, aircraft and
international goods in transit are exempt
Who is responsible for paying Insurance Premium Tax onto HMRC? and how often?
Insurer
Paid by insured, collected via broker and passed on by insurer
Quarterly basis
Do regulators require authorised persons to be responsible for the business of a regulated firm?
Yes
Do the same regulations apply to Insurance mediation/broking firms, insurers, managing agents and members’ agents?
Yes
Does SM&CR apply to insurers and brokers/intermediaries?
Yes
What are two examples of senior management functions?
Compliance officers
Money Laundering Reporting Officers (MLROs) / Nominated officers
What are examples of compulsory insurance?
Motor third party - Road Traffic Act 1988
Employers liability - Employers’ Liability (Compulsory Insurance) Act 1969
Public liability - Riding Establishments Act 1970
Liability for dangerous wild animals and dangerous dogs
Professional negligence/professional indemnity
What is the minimum required limit of indemnity for employers liability?
£5m - market provides £10m as standard
Are compulsory insurances required even if the business ceases to operate? Why?
Yes - attempt to protect the consumer (for example of legal services) should the expert have ceased trading between the time the advice is provided and the point at which the client realises that the advice was bad and they have incurred a financial loss as a result.
What is a warranty?
A warranty is a promise made by the insured to the insurer
When does duties of good faith and fair presentation exist?
between the insured and the insurer and relate to the need for disclosure of material information in relation to the risk and the cover being provided.
What happens when a warranty or good faith is breached? Does this apply to motor third party or employers liability?
suspends the insurance contract for the period of the breach and a breach of the duty of good faith can in certain circumstances permit an insurer to ‘come off’ risk
Does not apply to motor third party or employers liability
What does the Employers’ Liability (Compulsory Insurance) Regulations 1998, s.2 say about third party liability?
No liability…shall arise under the policy or that any such liability so arising shall cease if
some specified thing is done or omitted to be done (i.e. a warranty);
* the insured does not take care to protect employees against the risk of injury or
disease in the workplace (another area where a warranty might be applied);
* the insured fails to comply with any legal requirements for the protection of employees
against risk of injury or disease in the course of their employment; or
* the insured does not keep records or fails to provide information to the insurers
What insurances are compulsory in US?
Workers compensation aka employes liability
Motor insurance for commerical vehicles - not private
Some states - short-term disability insurance - illnesses and disabilities not directly related to the employment and pays out a weekly benefit related to earnings for a set period of time
What are compulsory insurances in Turkey?
property-owners to purchase insurance against earthquake risks, and some compulsory motor insurance
What are compulsory insurances in Australia?
third party motor insurance like UK
Only 1 provider of this insurance across states
What are compulsory insurances in Germany?
Third party liability insurance in relation to any event for which a German court might consider you negligent
What does the Consumer Rights Act 2015 state?
Terms and notices in consumer contracts have to be fair.
How is the term unfair defined?
contrary to the requirement of good faith, it causes a significant imbalance in the
parties’ rights and obligations under the contract to the detriment of the consumer.
e.g., claims notification provisions
What does the term privity of contract mean?
Only those persons who are actually a party to the contract can enforce the terms of the contract
What is the Contracts (Rights of Third Parties) Act 1999 Exclusion Clause (Cargo)?
The Provisions of the Contracts (Rights of Third Parties) Act 1999 do not apply to this
insurance or to any certificate(s) of insurance issued - third parties
Is Insurance premium tax (IPT) included in gross premium?
No - separate - additional cost
Brokerage deducted from gross - not including IPT
What is one of the main taxes imposed by the UK Government on risks
written in the UK?
Insurance premium tax (IPT)
What are firms required to do and what is the aim of Senior Managers and Certification Regime (SM&CR)?
ensure each senior manager has a statement of responsibilities, setting out the areas
for which they are personally accountable;
* produce a ‘firm responsibilities map’ that knits these together; and
* ensure that all senior managers are pre-approved by the regulators before carrying out
their roles.
- encourage staff to take personal responsibility for their actions;
- improve conduct at all levels; and
- make sure firms and staff clearly understand and can demonstrate who does what within
the firm.
What is the ‘duty of responsibility’ put in place by the Government? What act?
senior managers are
required to take the steps that it is reasonable for a person in that position to take, to prevent
a regulatory breach from occurring.
Bank of England and Financial
Services Act 2016
What are the 3 parts of SM&CR?
Senior Managers Regime - senior Management functions (SMFs) by PRA and FCA. Application must be submitted before role given
* Certification Regime - roles have been deemed capable of causing significant harm to the firm - no approval required
* Rules of Conduct - apply to most excl are receptionists, security etc
