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LM2 > Chapter 6: Insurance Intermediation > Flashcards

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)
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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
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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
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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
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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
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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

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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
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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
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9
Q

Producing broker

A

Broker which has the contract with the client and creates/produces the work for the client

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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
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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
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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
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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
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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
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15
Q

Open Market

A
  • Risk is individually placed rather than being attached to pre-existing delegated underwriting agreement.
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16
Q

Lloyds broker

A
  • Broker already approved by their own regulator can apply to lloyds to get a separate accreditation.
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17
Q

Non-Lloyds broker

A

Broker regulated by UK/Home regulator but doesnt have lloyds accreditation

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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
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19
Q

Written Line

A

Share/proportion that the underwriter writes on the MRC

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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
Q

Contents of an Insurer/Broker TOBA

A

Regulatory Status
Brokers Authority
Remuneration
Holding Money/Taxes
Compliance
Ownership and access to data and records
Law and jurisdiction
Conflict management
Confidentiality

25
Q

TOBA: Regulatory status

A

Both warrant to each other they are authorised to conduct broking activities

26
Q

TOBA: Broker’s authority

A
  • 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
Q

TOBA: Remuneration

A

Sets out how much brokerage/commission will be set out in individual insurance contracts

28
Q

TOBA: Holding money/taxes

A
  • Broker will account to the insurer for any taxes paid on their behalf
29
Q

TOBA: Compliance

A
  • Each party will comply with their respective obligations including contract certainty and financial crime
30
Q

TOBA: Ownership and access to data and records

A
  • 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
Q

TOBA: Law and jurisdiction

A
  • agree where disputes between insured and insurer will be heard
32
Q

TOBA: Conflict management

A
  • parties agree to adopt procedures to ensure conflicts are identified and managed
33
Q

TOBA: confidentiality

A
  • Agree to maintain confidentiality of information received and only disclose as required
34
Q

Contents of Broker/Client TOBAs

A

Identity of Client
Claims notification
Disclosure
How the brokers are paid
How monies are held
Data protection
Complaints
Dispute resolution

35
Q

Broker/Client TOBA: Identity of client

A
  • Clarifies that the broker is working for the insured’s client
36
Q

Broker/Client TOBA: Claims notification

A
  • Allows broker to advise client as to requirements in the event of a claim
37
Q

Broker/Client TOBA: Disclosure

A
  • Puts client on notice as to their duty to disclosure during placing process
38
Q

Broker/Client TOBA: How brokers are paid

A

Sets our various options for how brokers are paid
includes fee
- Broker may also retain a commission (brokerage)

39
Q

Broker/Client TOBA: How monies are held

A
  • 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
Q

Broker/Client TOBA: Data protection

A
  • broker confirms they will comply with GDPR /DPA 2018
41
Q

Broker/Client TOBA: Complaints

A

Sets out brokers complaints process

Lets clients know their complaints can be referred to Financial Ombudsman Service

42
Q

Broker/Client TOBA: Dispute resolution

A

Dispute resolution in place from the outset as with insurer TOBA

43
Q

Types of broker remuneration

A
  • Flat fee
  • Commission or brokerage
  • Other fees/commissions
44
Q

Broker remuneration: Flat fee

A
  • 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
Q

Broker remuneration: Commission/Brokerage

A
  • 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
Q

Broker remuneration: Other fees

A
  • 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
Q

Insurance Distribution Directive (IDD)

A

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
Q

What does IDD apply to

A
  • All sellers of insurance products
  • Any person whos activities consist of assisting/administering insurance
  • Ancillary insurance intermediaries

LM2 (10 decks)

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