Chapter 6: Key financial issues facing insurance brokers

Question 1

Why must client funds be managed correctly?

Answer 1

Ensure clients are confident their assets are looked after and the UK insurance market is regarding as a safe place to conduct business

Question 2

Where does the FCA set out rules regarding client assets?

Answer 2

Client Assets Sourcebook (CASS)

Question 3

What does the FCA place particular emphasis on within CASS?

Answer 3

Provision of adequate protection of client money as it is critical for success of the financial services industry

Question 4

How must a broker segregate funds?

Answer 4

Separate bank account held under a trust.

Question 5

When must earned commission be withdrawn?

Answer 5

At least every 25 days or when client money calculation is done, whichever is sooner

Question 6

Does the insurer bare the risk of money being lost if the broker fails to transfer claims money or premiums?

Answer 6

Yes

Question 7

When can co-mingling take place?

Answer 7

When the broker has the insurers permission to do so., which is stated in TOBA

Question 8

What TOBA is most appropriate when an insurer is unsure about a broker?

Answer 8

Non-risk transfer TOBA

Question 9

What is the purpose of the Insurance Distribution Directive?

Answer 9

Easier for firms to trade across borders, strengthen policyholder protection and provide a level playing field

Question 10

What are the key provisions of the IDD?

Answer 10

• Professionalism
• Commission Disclosure
• Harmonisation
• Product Governance Requirements
• Introduction of Ancillary Insurance Intermediary
• Necessity to provide Insurance Product Information

Question 11

What is an Ancillary Insurance Intermediary?

Answer 11

Do not sell or introduce insurance as main source of business

Question 12

What is the IPID?

Answer 12

Insurance Product Information Documents

- Pre contractual, non-personalised product summary document with a fixed layout

Question 13

What type of customers receive an IPID?

Answer 13

Consumer Customers

Question 14

What is the purpose of the IPID?

Answer 14

Allow consumers at quotation stage to compare similar products offered by different insurers in an easy consistent way

Question 15

Does the IPID replace documentation?

Answer 15

No, it is in addition to usual documentation

Question 16

Does the IPID only apply to consumer contracts?

Answer 16

Yes

Question 17

What is one of the best ways to achieve growth?

Answer 17

Investment in sales/new clients

Question 18

Why is client retention important?

Answer 18

Cost of new business

Question 19

How can firm retain their clients?

Answer 19

Investing in:

• Good staff quality
• Good IT
• Adequate Training

Question 20

An insurance broker’s ability to improve renewal retention figures is LEAST likely to be impacted by:

Answer 20

The breadth of products available to them.

Question 21

When must an Insurance Product Information Document be given to a client?

Answer 21

On quotation, renewal or significant mid-term adjustments.

Question 22

What is selling a client additional cover for high value items under their house insurance policy and example of

Answer 22

Up-selling

Question 23

What should insurance brokers refer to for details of when commission payments can be withdrawn from the premiums paid by insureds?

Answer 23

The insurers’ terms of business agreements.

Question 24

Under the Insurance Distribution Directive, what does an intermediary need to disclose about its commissions on small consumer risks and by when?

Answer 24

The nature of the remuneration must be disclosed before the contract is completed.

Question 25

Which type of activity is an insurance broker most likely to take to increase their new business?

Answer 25

Use specialist sales teams.

Question 26

he Insurance Distribution Directive includes requirements for those distributing insurance to:

Answer 26

have appropriate knowledge and to undertake at least 15 hours per year of development activity.