Chapter 5 - Legal and regulatory requirements

Question 1

Are all compulsory insurances liability in nature? What does this mean?

Answer 1

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

Question 2

Are compulsory insurances required by private individuals and companies?

Answer 2

Yes

Question 3

What is the main reason why certain forms of insurance are compulsory?

Answer 3

Compensation
In response to national concerns

Question 4

Can insurers rely on normal insurance concepts? e.g., warranties or duties of good faith with compulsory insurances

Answer 4

No

Question 5

Who does the Consumer Rights Act 2015 apply to?

Answer 5

Consumer contracts

NOT contracts with commercial customers

Question 6

What does the Consumer Rights Act 2015 seek to prevent?

Answer 6

Insurers penalising consumers
through the application of harsh terms in contracts (for example around claims
notifications).

Question 7

What does The Contracts (Rights of Third Parties) Act 1999 allow?

Answer 7

People who are not
party to the insurance contract to have some rights under the contract

Question 8

Can insurers contract out of the Contracts (Rights of Third Parties) Act 1999?

Answer 8

Yes - exclusions have been introduced in the London Market to do this

Question 9

Is the definition of consumer wider under the current regulatory regime than under FSA rules?

Answer 9

Yes

Question 10

How many rates of insurance premium tax (IPT) are there?

Answer 10

2

standard - 12%
higher - 20% - travel or purchase of vehicles or electrical appliances

Question 11

Do all insurances have premium tax?

Answer 11

No - some exempt

Most long-term insurances, together with reinsurance and insurance on ships, aircraft and
international goods in transit are exempt

Question 12

Who is responsible for paying Insurance Premium Tax onto HMRC? and how often?

Answer 12

Insurer

Paid by insured, collected via broker and passed on by insurer

Quarterly basis

Question 13

Do regulators require authorised persons to be responsible for the business of a regulated firm?

Answer 13

Yes

Question 14

Do the same regulations apply to Insurance mediation/broking firms, insurers, managing agents and members’ agents?

Answer 14

Yes

Question 15

Does SM&CR apply to insurers and brokers/intermediaries?

Answer 15

Yes

Question 16

What are two examples of senior management functions?

Answer 16

Compliance officers
Money Laundering Reporting Officers (MLROs) / Nominated officers

Question 17

What are examples of compulsory insurance?

Answer 17

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

Question 18

What is the minimum required limit of indemnity for employers liability?

Answer 18

£5m - market provides £10m as standard

Question 19

Are compulsory insurances required even if the business ceases to operate? Why?

Answer 19

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.

Question 20

What is a warranty?

Answer 20

A warranty is a promise made by the insured to the insurer

Question 21

When does duties of good faith and fair presentation exist?

Answer 21

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.

Question 22

What happens when a warranty or good faith is breached? Does this apply to motor third party or employers liability?

Answer 22

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

Question 23

What does the Employers’ Liability (Compulsory Insurance) Regulations 1998, s.2 say about third party liability?

Answer 23

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

Question 24

What insurances are compulsory in US?

Answer 24

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

Question 25

What are compulsory insurances in Turkey?

Answer 25

property-owners to purchase insurance against earthquake risks, and some compulsory motor insurance

Question 26

What are compulsory insurances in Australia?

Answer 26

third party motor insurance like UK
Only 1 provider of this insurance across states

Question 27

What are compulsory insurances in Germany?

Answer 27

Third party liability insurance in relation to any event for which a German court might consider you negligent

Question 28

What does the Consumer Rights Act 2015 state?

Answer 28

Terms and notices in consumer contracts have to be fair.

Question 29

How is the term unfair defined?

Answer 29

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

Question 30

What does the term privity of contract mean?

Answer 30

Only those persons who are actually a party to the contract can enforce the terms of the contract

Question 31

What is the Contracts (Rights of Third Parties) Act 1999 Exclusion Clause (Cargo)?

Answer 31

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

Question 32

Is Insurance premium tax (IPT) included in gross premium?

Answer 32

No - separate - additional cost
Brokerage deducted from gross - not including IPT

Question 32

What is one of the main taxes imposed by the UK Government on risks
written in the UK?

Answer 32

Insurance premium tax (IPT)

Question 33

What are firms required to do and what is the aim of Senior Managers and Certification Regime (SM&CR)?

Answer 33

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.

Question 33

What is the ‘duty of responsibility’ put in place by the Government? What act?

Answer 33

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

Question 34

What are the 3 parts of SM&CR?

Answer 34

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