Chapter 6 - Insurance Intermediation Flashcards
Brokers operate under the Law of Agency, what are the main points?
- Broker is agent and serves a principal
- broker may have two different principals relating to one risk
- this may cause a conflict of interest where views are not aligned
- broker must ensure neither principal is disadvantaged
- broker can have separate people perform roles relevant to each relationship (putting up Chinese walls)
- Agency agreement is agreed expressly and in writing or can be inferred by behaviour
Three ways an Agency Agreement can be created in law
- By agreement
- By ratification
- By necessity
What duties do agents have towards their principals?
- follow their instructions
- act in good faith towards their principal
- not to sub-delegate without permission
- account for funds
- act with due care and skill
If an agent acts outside their authority what can a principal do?
- Ratify their actions and continue as if nothing happened
- Ratify their actions and make a claim against the agent
- Refuse to ratify their actions and expose agent to claims from 3rd party
Why does a principal have to be careful not to give the impression the agent has more authority than they do?
Principal may be bound by actions taken by agent on basis of the impression given to others by the principal
What are examples of a broker breaching their duty of care to their client? (Obligated under law of tort)
Failure to do any of the following
- ensuring the insurance was placed with suitable insurers
- ensuring insurance was placed on suitable terms and conditions
- ensuring they understand clients instructions
- explaining terms and effect on client
What is the definition of a Lloyd’s coverholder?
A party holding delegated authority from a Lloyd’s syndicate to write insurance on its behalf.
Eg. AmFam hold delegated authority from Hiscox.
Types of intermediary
Wholesale broker - insurer
Retail broker - client
Producing broker - creates work for client
Single tied agent - represents insurer, high street agency, sells from single insurer, not LM
Multi tied agent - sells one product from each insurer, not LM
Independent intermediary - traditional LM broker not tied to an insurer works for client
Surplus lines broker - LM for USA. Only used if local market unable to take on risk
Open market correspondence- OMC an intermediary but not Lloyd’s coverholder. Introduce business to Lloyd’s directly or via Lloyd’s broker on open market
Lloyd’s broker - a broker already approved by regulator can apply to be a Lloyd’s broker
Non Lloyd’s broker - regulated by UK regulator or own home state regulator
What is Open Market?
Means the risk is individually placed rather than being attached to pre-existing form of delegated UW agreement such as binding authority or a line slip.
Placing process - steps for broker
- Review clients needs and provide advice
- Put together MRC to obtain quotes
- Review quotes with the client
- Finalise the placement with insurers concerned
- Compile documentation for submission to Xchanging
- Requesting premium from their client
- Submitting documentation to Xchanging via Accounting and Settlement - goes to repository (IMR). Xchanging gives the risk a Signing Number and Date.
- Making changes to the risk
When compiling documentation for submission to Xchanging the broker needs to split out any tax relating to risk. What do they need to know?
Whether:
- tax from overseas clients to be collected by broker and paid directly in country concerned without being in London
- tax coming through with premium funds for onwards payment to insurers in London
- tax will be paid by the insurers not the client so not brokers concern
What is subrogation?
The right of an insurer, following payment of a claim, to take over the insureds rights to recover payment from a 3rd party responsible for the loss.
Claims process - brokers role: steps
- First advice
Insured notified broker of their loss, broker helps them put together presentation for insurers
2. Expert instructions Insurer instructs experts through broker Traditional communication path Experts reports shared with client too Insurer goes directly to expert when advice on whether claim is covered
- Further updates
Broker provides further updates from client to insurer and receive insurers further comments - Negotiation
If not straightforward broker negotiates with insurer to get best result - Settlement
Insurer pays claim funds to broker to pass on to client. Brokers role ends when money safely deposited - Recoveries/subrogation
Insurers have right to subrogate once they have indemnified insured. Broker makes client cooperate
TOBAs
Market agreements used to capture terms and conditions under which a broker does business with other parties.
Broker has TOBAs with insurers, clients, producing brokers.
In Lloyd’s, individual TOBA entered into with each managing agent.
Model TOBAs produced by LMA, IUA and LIIBA
Contents of an insurers TOBA with a broker
- Regulatory status: broker and insurer warrant to each other that they are authorised to conduct insurance mediation activities
- Brokers authority: to hold premium funds on behalf of the insurer (risk transfer)
- Remuneration: how the brokerage/commission will be set out in individual contracts of insurance
- Holding money/taxes: brokers responsibility to insurer in relation to funds held. Accounts to insurer any taxes paid on insurers behalf.
- Compliance: each party comply with obligations including contract certainty and financial crime
- Ownership and access to data/records: less chance of dispute later if clarified in TOBA. Compliance with DPA act 2018 and GDPR
- Law and jurisdiction: where any dispute between insured and insurers will be heard
- Conflict management: procedures to ensure conflicts are identified and managed
- Confidentiality: maintain confidentiality of info received from each other
