Chapter 6 - Key financial issues facing insurance brokers Flashcards
What are client assets?
Money that insurance brokers hold that belong to their clients
What does the FCA’s CASS stand for?
Client Assets Sourcebook (CASS)
What is the broker income paid directly from their clients for their services?
Fee
What is the broker income that is paid as part of the insurer premium?
Commissions
Does a broker need to segregate their firms funds vs client or insurer money? How do they do this?
Yes
Separate bank accounts written under a trust
Where is it stated how commission can be withdrawn? How is it usually done? And when?
Insurer TOBA
Commission cannot be withdrawn until cleared funds have paid full premium
Earnt commission removed from account every 25 business days or when client money calculation is done - whichever sooner
How long has the Insurance Distribution Directive applied to firms?
1st October 2018
Is the IDD still part of UK law, even though we are no longer in the EU?
Yes
What does the IDD do?
Sets out consumer protection provisions in insurance
What firms are in scope for regulation of the IDD?
All firms that sell, advise on, or conclude insurance contracts
Those who assist in administering and performing them, including those that shortlist as part of a selection process (such as aggregators), or introduce insurance.
What are the key provisions of the IDD?
Professionalism - must be able to do the task
Commission disclosure - pre-contract of the intermediary and their nature of remuneration e.g., commission, fee, other
New product governance requirements - in line with FCA
Ancillary Insurance Intermediaries - insurance settler (do not introduce or sell as their main business)
Insurance Product Information Documents (IPID) - pre-contractual summary doc for retail/small corporate clients. Layout defined by IDD. Way to compare quotes, renewals, MTBC easily
What class of business has a competitive market?
Motor
Insured moves between brokers to get a better deal each year aka ‘churn’
What is meant by ‘sticky’?
Insured stays with same broker at renewal
What do the percentage of clients that do renew contribute to?
Broker’s renewal retention figure
What does retention indiciate?
Clients are satisfied with service and quality of price and product
Why retaining clients financially beneficial?
Costs associated with acquiring new clients
Marketing
Advertising
Sales staff costs (incentivised to find new clients)
What is a common goal for insurance brokers for client retention?
> 95%
How can a broker control the level of service they offer for client retention?
Quality staff - diligent support staff, good team culture, leadership and management
Adequate training - of products, communication skills
Good IT systems and comms - used to deliver quality service
Is there a relationship between staff turnover and retention of clients?
Yes - maintain relationships of mutual trust in insurance
What is another way for an insurance broker to grow that is not retaining clients?
New business
New new
New existing - cross-selling
What do broking firms likely have if they are good at new business?
Strong sales culture
Effective sales process
Good quality monitoring and MI - client database
The right incentivised staff - lower salaries for commissions
The right sales staff
Senior management support - cut fees to make profits next year - loss leader
What is a cold call?
No relationship between broker and prospect
What is a warm call?
Leads are existing clients or from prospects where there is a recommendation/relationship
How do companies get new business?
Separate sales teams - telesales, pay telesales for leads
Via introducers - regulatory procedures to follow
‘Affinity’ relationship with diff organisation which links with potential clients
