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LM2 DB > Chapter 6 - Insurance intermediation > Flashcards

Chapter 6 - Insurance intermediation Flashcards

1
Q

Who is a broker generally the agent of?

A

Insured/reinsured
Insurer e.g., delegated uw

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2
Q

What are three ways that an agency agreement can be created in law?

A

By agreement
By ratification - some behaviour is accepted or condoned after the fact and the principal is prepared to stand by their agent
By necessity - an emergency situation where someone has to make a decision, as no-one with actual authority to do so is present

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3
Q

What duties do brokers have towards their clients?

A

Acting professionally , follow instructions
Good faith
Account for funds
Due care and skill
Not to delegate to another broker without permission

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4
Q

Who does a wholesale broker have contact with?

A

Insurers

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5
Q

Who does a retail broker have contact with?

A

Retail

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6
Q

Can a wholesale and retail broker be the same broker?

A

Yes

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7
Q

What is a producing broker?

A

Produces the work/business from the client

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8
Q

What are tied agents?

A

Usually agents of insurers

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9
Q

Who does a single tied agent work for?

A

One insurer only

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10
Q

Who does a multi-tied agent work for?

A

A number of insurers - can only offer one product from each of them

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11
Q

What is a surplus lines broker?

A

Involved on business from the USA where London can write business only as a surplus lines insurer

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12
Q

What does an open market correspondent do?

A

Introduces business to Lloyd’s - not a coverholder

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13
Q

Is a Lloyd’s broker approved by the UK regulator and Lloyd’s?

A

Yes

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14
Q

What does a broker need to consider before they make a presentation to insurers to obtain quotations?

A

Clients needs

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15
Q

Do brokers consider quotations received from insurers with their clients?

A

Yes

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16
Q

What does a broker do once the placement is finalised?

A

Organises the payment of premium and submits the paperwork to Xchanging for signing and recording on market databases

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17
Q

How do brokers organise changes to a policy for their clients?

A

Endorsement

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18
Q

Do brokers receive the first notification of claims? What do they do next?

A

Yes - advise insurers

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19
Q

Who are the conduit of communication between insurers and experts?

A

Broker

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20
Q

Do brokers negotiate with insurers if required and receive claims payments for onwards transmission?

A

Yes

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21
Q

Do brokers assist with recovery or subrogation work?

A

Yes

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22
Q

What does TOBA mean?

A

Terms of Business Agreement

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23
Q

What are TOBAs?

A

Agreements between brokers and insurers, producers, clients

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24
Q

What is included in a TOBA?

A

Set out the terms under which business is conducted

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25
Q

What does a risk transfer TOBA allow?

A

Permit brokers to hold funds on the underwriter’s behalf

26
Q

How can a broker be paid?

A

Commissions/brokerage
Flat fees

27
Q

Who pays the broker’s commission?

A

Insurers pay brokerage which is a deduction from the gross premium payable by the client

28
Q

How can brokers earn additional monies?

A

Providing further technical services such as engineering advice

29
Q

What does the IDD stand for?

A

The Insurance Distribution Directive (IDD)

30
Q

When did the The Insurance Distribution Directive (IDD) come into force?

A

Oct 2018

31
Q

What is The Insurance Distribution Directive (IDD)? What does it mean?

A

Piece of EU legislation but was brought into UK law by specific legislation

All brokers are required to be registered in their home state.

UK brokers have to consider setting up EU domiciled entities to continue to service
EU domiciled clients as having left the UK, there are no ongoing cross border
permissions.

Brokers are required to be transparent concerning their recommendations and any
loyalties to an insurer

32
Q

Do the FCA have rules about client money for brokers? What does it impact?

A

Yes - how funds can be held and what can be done to fund premiums and claims if not received from clients and insurers

33
Q

What is a conflict of interest?

A

One person or organisation has two principals that have views/positions which are not aligned

34
Q

What should a broker do if there is a conflict of interest?

A

Engage in sensible business practice to ensure that neither principal is disadvantaged by the broker acting for the other e.g., having separate people perform the roles relevant to each relationship

aka putting up ‘Chinese Walls’ or ‘Ethical Walls’

35
Q

How can an agency agreement be agreed?

A

Expressly and ideally in writing; however, it can be inferred by behaviour

36
Q

What can a principal (insured) do if an agent acts outside their authority?

A

ratify their actions and continue as if nothing untoward had happened;

ratify their actions and then make a claim against the agent which would probably be
for damages; or

refuse to ratify their actions and expose the agent to claims from the third party that
thought the agent was acting within their authority

37
Q

Is ‘duty of care’ an area of law when considering a broker’s conduct? What does it mean?

A

Yes - to behave in accordance with the standard of a reasonably able or competent broker in the relevant
area of the Market

38
Q

What happens if a broker breaches their ‘duty of care’?

A

have an obligation under the law of tort (or civil wrongs) to the person who has been harmed

e.g., failing to: place with suitable insurers, under suitable terms and conditions, understand clients instructions, explain terms e.g., warranties and their effect on the client

39
Q

Who do breaches of ‘duty of care’ lead to?

A

Claims of professional negligence against brokers/intermediaries

40
Q

What is an Independent intermediary?

A

Traditional broker

41
Q

What is an open market correspondent (OMC)?

A

an intermediary but is not a Lloyd’s approved coverholder (a party holding delegated authority from a Lloyd’s
syndicate to write insurance business on its behalf).

They introduce business to Lloyd’s either directly or via a Lloyd’s broker on an open market basis.

42
Q

What does open market mean?

A

risk is individually placed rather than being attached to any pre-existing form of delegated underwriting agreement such as a binding authority or a lineslip

43
Q

What is the brokers role in the placing process?

A

Reviewing client needs
Putting together the MRC to obtain quotes - proposal forms (yacht or financial risks), surveys, loss records
Review different quotes with client
Finalise placement
Create docs to submit to Xchanging - LPAN
Request premium from client in line with premium payment conditions
Submit to Xchanging - movement of premium done via Accounting and Settlement, IMR and OSNDs
Changes to policies via endorsement

44
Q

What does line to stand mean?

A

Not able to reduce written line if totals over 100%

45
Q

What does LPAN stand for? Does it include tax?

A

London Premium Advice Note

Yes

46
Q

Can a policy be cancelled by insurers for non payment of premium?

A

Yes

47
Q

What is the brokers role in the claims process?

A

First advice from the insured
Expert instructions (surveyors, loss adjusters)
Further updates
Negotiation
Settlement
Recoveries/subrogation - Insurers have the right to subrogate once they have
indemnified the insured. Subrogation is the right of an insurer following payment of a claim, to take over the
insured’s rights to recover payment from a third party responsible for the loss.

48
Q

What is in an insurer TOBA?

A

Regulatory status
Brokers authority - hold funds, risk transfer
Remuneration
Holding money/taxes
Compliance
Ownership of data
Law and jurisdiction
Conflict management
Confidentiality

49
Q

What is in a client TOBA?

A

Identity of client
Claims notification
Disclosure - duty of disclosure to put client on notice
How brokers are paid
How monies are held
Data protection
Complaints
Dispute resolution

50
Q

Are flat fees payable by the client?

A

Yes

51
Q

hat are the ICOBS (FCA Insurance: Conduct of Business) rules for flat fees?

A

Broking firm must provide a client with details of any fees that will be payable before the client incurs any fees

52
Q

What are examples of other fees and commission earnt by brokers?

A

Collecting commission - Claims (1% of claim value), Insurer pays 101%
Profit commission
Coverholder - each risk bound

53
Q

What did the IDD replace?

A

Insurance Mediation Directive (IMD).

54
Q

What are the 2 principles under the IDD?

A

Distributors must act honestly, fairly, and professionally in line with customers’ interest
Info much be clear and not misleading

55
Q

What is the FCA 3 pillar risk framework?

A

Assessment of the firm’s conduct, using the question ‘are the interests of consumers and
market integrity at the heart of how the firm is run?’;
* event-driven work which allows a flexible response to anything that arises; and
* reviewing issues and products when required.

56
Q

What is CASS?

A

Client assets rules in the FCA handbook
Client money rules

56
Q

What is the basis concept of CASS?

A

broker must arrange adequate protection in respect of all client assets for which they are responsible e.g., keeping client money in segregated accounts to firms

57
Q

What segregated accounts can a broker keep client funds?

A

Statutory trust account
Non-statutory trust account

58
Q

What is a statutory trust account?

A

Broker not allowed to fund payments out of accounts in which they hold the client money
The trust exists only for client money which the broker has actually received.

58
Q

What is a non-statutory trust account?

A

A broker may only fund payments out of accounts in which they hold the client money

a broker could pay the claim to their client before the insurer pays the money to the broker.

LM2 DB (11 decks)

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