Chapter 6 - Insurance Intermediation

Question 1

What are the three ways an agency agreement can be made in law?

Answer 1

• agreement
• ratification
• necessity

Question 2

What can a principal do if they act outside their authority?

Answer 2

• ratify their actions
• ratify actions then make claim against agent
• refuse to ratify and expose agent to third party claims

Question 3

What is a wholesale broker?

Answer 3

Broker that has direct contact with the insurer

Question 4

What is a retail broker?

Answer 4

Broker that is closest to the client, nothing stopping this being the only broker in the chain

Question 5

What is a producing broker?

Answer 5

Describes the broker which has the contact with the client and produces / creates work for the client

Question 6

What is a single tied agent?

Answer 6

Representative of the insurer, only advertises affiliated products

Question 7

What is a multi-tied insurer?

Answer 7

Sells one product from insurer, but can do different products from different insurers (one per insurer)

Question 8

What is an independent intermediary?

Answer 8

Traditional london market broker, not tied to any insurer and works for the insured

Question 9

What is a surplus lines broker?

Answer 9

Broker giving risks from the US that were not taken in the admitted market

Question 10

What is an open market correspondant?

Answer 10

Not a Lloyd’s approved cardholder but introduces business to Lloyds

Question 11

What is a Lloyd’s broker?

Answer 11

Broker accredited by Lloyds

Question 12

What is a non-Lloyd’s broker

Answer 12

Broker regulated by UK or overseas but not accredited by Lloyd’s

Question 13

What is the brokers role in the placing process?

Answer 13

• review clients needs
• put together market reform contract
• review quotes with the client
• finalise the placement
• compile documents for submission to xchanging
• request premium from client
• submit documents to xchanging
• make changes to risk (if needed)

Question 14

What does a risk transfer TOBA allow a broker to do on behalf of the insurer?

Answer 14

Hold funds

Question 15

What are the different types of broker renumeration?

Answer 15

• flat fee
• commission / brokerage
• other fees / commissions

Question 16

Who does the insurance distribution directive apply to?

Answer 16

• all sellers of insurance products
• any person assisting with the administration of insurance contracts
• ancillary insurance intermediaries

Question 17

What does the insurance distribution directive say?

Answer 17

• distributers must act fairly, honestly, and professionally in accordance with best interest of the customers
• information provided must be fair, clear, and not misleading
• nature of renumeration
• basis for that renumeration

Question 18

What are the three pillars of the FCA’s risk framework?

Answer 18

• assessment of the firm’s conduct
• event-driven work
• review issues and products when required

Question 19

What are the Client Asset rules?

Answer 19

Broker must provide adequate protection for all client assets it is responsible for

Question 20

What is the difference between statutory and non-statutory trust accounts for brokers?

Answer 20

Brokers must not fund payments out of accounts they hold client money in if they are statutory