Chapter 6: Insurance Intermediation Flashcards
1
Q
How Agency agreements are created in law
A
- By Agreement
- By Ratification (Where some behaviour is accepted or condoned)
- By Necessity (Usually in an emergency situation)
2
Q
Agent duties to principal
A
- Follow their instructions
- Act in good fath
- No sub-delegation without permission
- Account for funds
- Act with due care and skill
3
Q
Principal options if agent acts outside their authority
A
- Ratify their actions and continue as if nothing happened
- Ratify actions and make claim against agent (likely for damages)
- refuse to ratify their actions and expose the agent to third party claims
4
Q
Law of tort
A
- if broker breaches duty of care they have an obligation to the person who is harmed by the breach
5
Q
Duty of Care breach examples
A
Failure to:
- Ensure insurance was placed with suitable insurers
- Ensure insurance was placed on suitable terms
- Ensure broker understood instructions
- Explain terms and effects to clients
6
Q
List of intermediaries
A
Wholesale broker
Retail Broker
Producing broker
Single tied agent
Multi-tied agent
Independent intermediary
Surplus lines broker
Open market correspondent
Lloyd’s Broker
Non-lloyd’s broker
7
Q
Wholesale broker
A
- Direct contact with insurer
- can have contact client as well if they are the only broker
- where there are multiple brokers, they are the closest one to the insurer
8
Q
Retail broker
A
- Other end of the chain to wholesale (closest to client)
- Retail and wholesale brokers could be 2 completely different brokers or 2 offices of the same broker
9
Q
Producing broker
A
Broker which has the contract with the client and creates/produces the work for the client
10
Q
Single Tied agent
A
- representative of the insurer
- most common in high street agency selling multiple products of one single insurer
- agent cannot advise the client on others insurers products
- dont work in London Market
11
Q
Multi-tied agent
A
- representative of the insurer again
- selling number of different insurers products but only one per insurer
- cannot offer independent advice about other products in the wider market
- not in the london market
12
Q
Independent intermediary
A
- Traditional london market broker
- not tied to any insurer
- works for their ultimate client (insured)
- Agent takes unbiased view of the entire market and advises client of the best options for their needs
13
Q
Surplus lines broker
A
If london market is used in surplus lines, SLB must be used in the intermediary chain
- details of the broker are part of the data captured on MRC
14
Q
Open Market correspondent (OMC)
A
- not lloyds approved coverholder
- Introduce business to lloyds either directly or via lloyds broker on OM basis
- Certain territories where brokers want to introduce business may need additional approval levels
15
Q
Open Market
A
- Risk is individually placed rather than being attached to pre-existing delegated underwriting agreement.
16
Q
Lloyds broker
A
- Broker already approved by their own regulator can apply to lloyds to get a separate accreditation.
17
Q
Non-Lloyds broker
A
Broker regulated by UK/Home regulator but doesnt have lloyds accreditation
18
Q
Placing process for brokers
A
- review clients needs
- put together MRC to obtain quotes
- reviewing quotes with the client
- finalising the placement
- Compiling documentation for submission to Xchanging
- Requesting premium from their client
- Submitting documentation to Xchanging
- Making changes to the risk
19
Q
Written Line
A
Share/proportion that the underwriter writes on the MRC
20
Q
Signed Line
A
When the risk is finally entered on the market databases
might be less than written line
21
Q
Claims process
A
- First advice
- Expert instructions
- Further updates
- Negotiation
- Settlement
- Recoveries/Subrogation
22
Q
Subrogation
A
The right of an insurer following payment of a claim, to take over insured’s right to recover payment from a third party for the loss
23
Q
Terms of Business Agreements (TOBAs)
A
Market agreements used to capture the T&Cs under which a broker does business
No standard template but need to make sure agreement covers the fundamentals
LMA, IUA and LIIBA have model TOBAs to assist
24
Q
Who does a broker have TOBAs with
A
- Insurers
- Clients
- Potentially producing brokers
For lloyds, there would be an individual TOBA entered by the broker with each managing agent they do business with
25
Contents of an Insurer/Broker TOBA
Regulatory Status
Brokers Authority
Remuneration
Holding Money/Taxes
Compliance
Ownership and access to data and records
Law and jurisdiction
Conflict management
Confidentiality
25
TOBA: Regulatory status
Both warrant to each other they are authorised to conduct broking activities
26
TOBA: Broker's authority
- brokers authority to hold premium for insurer
- can be granted risk transfer (if insurer is comfortable with them)
- Non-risk transfer TOBA is more appropriate where an insurer is not comfortable with broker
- FCA have rules relating to client money which a broker must comply with
27
TOBA: Remuneration
Sets out how much brokerage/commission will be set out in individual insurance contracts
28
TOBA: Holding money/taxes
- Broker will account to the insurer for any taxes paid on their behalf
29
TOBA: Compliance
- Each party will comply with their respective obligations including contract certainty and financial crime
30
TOBA: Ownership and access to data and records
- Both parties agree to comply with GDPR and DPA 2018
- Less chance of dispute in future if matter of ownership is
- Comes up after allegations were made that some documents were not shown to insurers
31
TOBA: Law and jurisdiction
- agree where disputes between insured and insurer will be heard
32
TOBA: Conflict management
- parties agree to adopt procedures to ensure conflicts are identified and managed
33
TOBA: confidentiality
- Agree to maintain confidentiality of information received and only disclose as required
34
Contents of Broker/Client TOBAs
Identity of Client
Claims notification
Disclosure
How the brokers are paid
How monies are held
Data protection
Complaints
Dispute resolution
35
Broker/Client TOBA: Identity of client
- Clarifies that the broker is working for the insured's client
36
Broker/Client TOBA: Claims notification
- Allows broker to advise client as to requirements in the event of a claim
37
Broker/Client TOBA: Disclosure
- Puts client on notice as to their duty to disclosure during placing process
38
Broker/Client TOBA: How brokers are paid
Sets our various options for how brokers are paid
includes fee
- Broker may also retain a commission (brokerage)
39
Broker/Client TOBA: How monies are held
- makes clear broker holds money on trust for mainly the client but also occasionally the insurer (when they have risk transfer)
- Will make clear who may retain interest made on funds
40
Broker/Client TOBA: Data protection
- broker confirms they will comply with GDPR /DPA 2018
41
Broker/Client TOBA: Complaints
Sets out brokers complaints process
Lets clients know their complaints can be referred to Financial Ombudsman Service
42
Broker/Client TOBA: Dispute resolution
Dispute resolution in place from the outset as with insurer TOBA
43
Types of broker remuneration
- Flat fee
- Commission or brokerage
- Other fees/commissions
44
Broker remuneration: Flat fee
- Payable by the client
- Broker must provide a client with details of any fees that will be payable before any fees (as per ICOBS)
- If actual fee cant be stated, the basis for calculation must be provided
- If future fees might be incurred, also need to be declared
45
Broker remuneration: Commission/Brokerage
- Paid by insurer rather than client
- Insurer agrees the broker can retain or hold back a part of the premium charged to the client when transferring to the insurer
- If asked by commerical client, broker must tell them what they are receiving from the insurer. Information doesnt have to be volunteered
46
Broker remuneration: Other fees
- Additional commissions (e.g. 'collecting commission' on claims) - insurer would pay 101% value of the claim but insured gets 100%
- In DUA where broker is acting as coverholder, can be paid coverholder commission and profit commission
- Technical advise on engineering matters can be charged as a fee
47
Insurance Distribution Directive (IDD)
1st October 2018 (replacing Insurance Meditation Directive)
- Distributors must always act honestly, fairly and professionally in accordance with customers best interests
- All information provided by distributors must be fair, clear and not misleading
- Distributors must disclose nature and basis of remuneration
- all brokers must be registered in home state
- UK Brokers have to consider setting up EU entities following brexit as regulatory rules are different uway
48
What does IDD apply to
- All sellers of insurance products
- Any person whos activities consist of assisting/administering insurance
- Ancillary insurance intermediaries
