Chapter 7 - Conduct & Culture (10 CS Qs)

Question 1

What does conduct refer to in an insurance broking context?

Answer 1

The way brokers carry out their business; every interaction they have with clients and insurers.

Question 2

How do insurance brokers achieve good conduct?

Answer 2

OPEN, HONESTY AND TRANSPARENCY - Meet or exceeds client expectations while generating trust

Question 3

As a professional body, what has the CII produced which applies to all of its members?

Answer 3

CII’s Code of Ethics, while not enforceable by law, can have penalties for failure to comply

Question 4

How is trust built between a client and a broker?

Answer 4

Involves broker treating customer fairly and paying due regard to their interests. Really comes to play when there is a claim needing to be made. Takes a lot of time to build and can be lost very quickly.

Question 5

What are some of the ways brokers can demonstrate good conduct?

Answer 5

• Provision of service excellence
• High quality of advice and experience
• Transparency of earnings
• Good quality literature & documentation - issued without errors, clear and looks good
• Efficient handling of complains - way it is handled or managed, regardless of fault
• Avoidance of errors and omissions - How they are dealt with if occur and learnt from

Question 6

What are some examples of a brokers provision of service excellence?

Answer 6

• Meeting deadlines
• Returning client calls and messages promptly
• Ensuring good communication at all times
• Knowing the client
• Ensuring prodedures are in place to reduce mistakes
• Contributing to client culture where client’s needs come first

Question 7

How do brokers show good conduct when dealing with insurers?

Answer 7

= Act in good faith, obtaining all material facts from the client for the underwriting information and not to present the risk in a dishonest way

• When handling insurer money, keep to any agreed payment dates and collect premiums from clients efficiently

Question 8

What does corporate culture refer to in an insurance broking organisation?

Answer 8

= Shared attitudes, values, standards & beliefs that characterise members of an organisation and define its nature. Its rooted in the organisations goals, strategies, structure, and attitudes to staff, customers, investors & the greater community

Question 9

What is the strength of corporate culture dependent on?

Answer 9

Level at which the corporate culture is understood & shared by the employees

Question 10

What do the following points describe?
* have a clear strategic goal, so that their staff and resources can focus on achieving it;
* have an effective method of communicating the strategy to staff;
* be able to monitor activity and adapt processes and procedures accordingly;
* set clear targets and goals that are related to the strategic goal; and
* reward success in relation to achieving the strategic goal

Answer 10

A company with a strong corporate culture

Question 11

What is corporate culture and its strength important?

Answer 11

= Influences the way a firm deals with clients and insurers and how it is perceived by the public

Question 12

How does the FCA define a complaint?

Answer 12

‘Any oral or written expression of dissatisfaction, whether justified or not, or on behalf of, a person about the provision of, or failure to provide, a financial service or redress determination, which alleges the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience’

Question 13

What are complaints from eligible complainants subject to?
What is the procedure with non-eligible complainants?

Answer 13

1. FCA complaints-handing rules and eligible complainants have the right of access to the FOS
2. For non-eligible complainants, firms must have in place, and operate, appropriate
   procedures for registering and responding to the expression of dissatisfaction.

Question 14

What is a redress determination and how is it defined by the FCA?

Answer 14

= a written communication from a respondent under a consumer redress scheme which:
* sets out the results of the respondent’s determination under the scheme;
* encloses a copy of the Financial Ombudsman Service’s standard explanatory leaflet;
and
* informs the complainant that if he is dissatisfied, he may now make a complaint to the
Financial Ombudsman Service and must do so within six months

Question 15

For a complaint to be made, does it have to be made in writing?

Answer 15

No - can be any expression of dissatisfaction

Question 16

Where would an insurance broking firm find the rules and guidance regarding complaints?

Answer 16

FCA Handbook

Question 17

What does the FCA require brokers to do regarding complaints?

Answer 17

• Have a formal procedures for dealing with complaints
• Inform the clients of the complaints procedure (including address and telephone number of where to write or call) & how to complain to the FOS
• Manage complaints in accordance to the stated procedures, which should be documented in the authorised firms compliance manual

Question 18

Where is the information regarding a firms complaints procedure likely to be found?

Answer 18

TOBA

Question 19

Why have some brokers adopted complaints procedures which are wider in scope than is required by regulation?

Answer 19

Recognise good commercial practice to handle complaints efficiently and when successful is a method of meeting needs or exceeding client’s expectations

Question 20

What two things does a complaint give the firm an opportunity to do?

Answer 20

1. Put things right for the client in the hope they will retain their business
2. Identify possible problems in the organisation for improvement

Question 21

What are the 6 different steps in a complaints procedure?

Answer 21

1. Identification - is there a complaint?
2. Report and record
3. Investigate & respond within the timescales & allocate responsibility
4. Resolution in an appropriate, timely and fair way by an independent person
5. FOS involvement required?
6. Make improvements

Question 22

What is the most important part of the complaints procedure process?

Answer 22

That the complaint is recognised - the following issues should be understood:
- Is this a genuine complaint or simple service issue?
- Is this a simple complaint (can be resolved by the person receiving the complaint, to the client’s satisfaction, within 3 days and at no cost)
- is this a complex complaint (cannot be resolved by person receiving it and is unlikely to be resolved within 3 days)

Question 23

How should complaints be recorded?

Answer 23

All need to be recorded and kept on file or on a master complaint log. If it is complex, management must be informed.

Question 24

How should firms investigate & respond to complaints?

Answer 24

Must be investigated and followed up within the timescale established in the firms procedures. Must be reassured that it is being investigated

Question 25

What stage of complaints handling procedure does the following description relate to?

Answer 25

This must be done in an appropriate, timely and fair way by an independent person. The
client may not accept the resolution and they should be informed of their options if this is
the case (i.e. to complain to the FOS).

Question 26

Where can one find full rules and guidance relating to the handling of complaints and operation of the FOS?

Answer 26

FCA Handbook - Dispute Resolution: Complaints Sourcebook (DISP)

Question 27

What is the FOS and who must be a member?

Answer 27

The Financial Ombudsman Service (FOS) is a free, independent and impartial service that
deals with unresolved disputes. Membership is compulsory for all authorised firms, including
intermediaries.

Question 28

What does the FCA require of all firms regarding complaints proceduress?

Answer 28

All firms must have a written complaints procedures and must include a notification to complainant that they have the right to take it to the FOS if they are not satisfied with the firm’s final answer.

Question 29

What do the following points relate to?
* consumer;
* micro-enterprise with fewer than ten employees and a turnover or balance sheet total of
no more than €2m*;
* charities with an annual income of less than £6.5m;
* trustees of trusts with a net asset value of less than £5m;
* small businesses with an annual turnover of less than £6.5m and fewer than 50
employees or a balance sheet total of less than £5m; or
* guarantors

Answer 29

List of eligible complainants for the FOS (FOS only deals with eligible complainants)

Question 30

Before a complaint can go to the FOS, what must they have exhausted?

Answer 30

The internal complaints procedure of the firm, and still be dissatisfied with the outcome. Any legal proceedings must be withdrawn prior to approach of the FOS, as FOS does not become embroiled in legal proceedings

Question 31

What are the timelines a complainant can refer the claim to the FOS?
What are the exceptions to this timeline?

Answer 31

• 6 months of the date of the firm’s letter advising the complainant of their final decision
• 6 years after the event was complained about
• 3 years after the complainant knew, or should have known, they had cause for a complaint

Exceptions = in exceptional circumstances or if the firm agrees. if outside the timeframes above the firm can object to the FOS taking the complaint on as it is ‘time-barred’

Question 32

What does the FOS require from the parties to a complaint and what is the punishment for failure to do so?

Answer 32

Requires production of any necessary documents or information and failure to do so can be treated as contempt of court

Question 33

What timeline does the FOS aim to investigate and answer complaints in?

Answer 33

3 months

Question 34

How are most disputes handled by the FOS resolved?

Answer 34

Mediation or informal adjudication by a caseworker or adjudicator.

Question 35

Do a complainant have the right to appeal the FOS inital outcome?

Answer 35

Yes - can be appealed and will then be reviewed by one of the panel of ombudsman

Question 36

How does the FOS reach a decision regarding complaints?

Answer 36

• Based on fair and reasonable in the circumstances, taking into account law, FCA rules and guidance and codes of practice
• FOS not bound by law or legal precedent but MAKES JUDGEMENT ON THE MERIT OF EACH CASE to ensure customers treated fairly and law is not used as an excuse to not pay claims.

Question 37

How does the FOS redress?

Answer 37

1. Money award - specific sum firm should pay customer to cover any financial losses suffered as a result of the problem they have complained about
2. Directions award - tells firm what actions it needs to put things right e.g. pay an insurance claim which has been rejected or apologise

Question 38

What are the maximum monetary award the FOS can require a firm to make to a complainant?

Answer 38

• £415,000 for claims referred to FOS on or after 1 April 2023 about acts or omissions by firms on or after 1 April 2019 (increased from £375,000)
• £190,000 for complaints referred to FOS on or after 1 April 2023 about acts or omissions by firms before 1 April 2019 (increased from £170,000)

Question 39

If the FOS decides a firm should pay interest on top of the compensation due, what is the interest calculated at?

Answer 39

8%

Question 40

What happens when the FOS makes its decision?

Answer 40

Decision with reasons must be notified in writing to complainant and respondent (firm who claim is made against). Then complainant accepts or rejects in the specified time limit. if accepts, then is binding, but if rejects are free to persure matter in court.

Question 41

If the complainant does not respond to the FOS decision letter?

Answer 41

Treated as a rejection and the respondent is not bound by the decision

Question 42

How is the FOS funded?

Answer 42

• General levy on all firms
• A Case fee payable by the firm to which the complaint relates

Question 43

Who do firms report complaints to and how long must firms keep the reports for?

Answer 43

Reported to FCA and required to keep a registering containing all files for 3 YEARS FROM THE DATE OF COMPLAINT

Question 44

What is the time-scale for acknowledging a complaint, according to FCA rules?

Answer 44

= PROMPTLY. If complaint cannot be satisfactorily resolved within 8 weeks of receipt - firms must provide a final or written response which the client can accept or take to the FOS -> v important

Question 45

How do E&O claims occur?

Answer 45

Where a broker has made a mistake that caused their client to suffer a loss

Question 46

What do the following 3 points refer to?
* they are time-consuming, expensive to deal with and damaging to their reputation;
* they imply fault with the firm’s regulatory compliance standards; and
* they cost the business money:
– the policy excess,
– unrecoverable costs in defending the claim, and
– increased E&O insurance premium following the notification

Answer 46

The good reasons for brokers to take care to avoid E&O claims.

Question 47

How do E&O claims arise and what are the two main causes?

Answer 47

If the broker has made a mistake which leads to a client having an uninsured loss, when they thought the loss was insured.
1. Policy wording does not say what the client thought
2. Policy does not do what the broker said it would do

Question 48

What does the Contract Certainty Code of Practice provide?

Answer 48

A hard copy explanation of what insurance product will actually do and when. Problem arises if there is a loss where the documentation has not been provided, or if the broker says the cover would do more than the policy wording said it would. So, BROKERS SHOULD ALWAYS DOCUMENT AND CONFIRM IN WRITING ANY EVIDENCE ABOUT COVER

Question 49

What do the following points relate to?
* Documentation failures include failing to confirm important matters in writing by letter or
email to either insurers or clients.
* The broker’s failure to inform the insurer of a material fact that was disclosed by
the client.
* The broker’s failure to appreciate the extent of cover (there may be restrictions and
limitations and these must be explained to the client fully).
* Non-compliance with warranties which were not brought to the attention of the clients,
including the repercussions of non-compliance.
* Lack, or inaccurate, explanation of the terms to the client.
* The broker’s failure to appreciate potential consequences for the insured.
* Failures in management and supervision.
* Acting beyond their powers, for example, binding insurers to risks beyond their authority

Answer 49

Typical examples of mistakes which have led to E&O claims

Question 50

E&O claims can be reduced by effective risk management, quality procedures & good management, what are 3 key principles for reducing the likelihood of a claim occuring and the potential impact if they do?

Answer 50

1. Right first time - do things correctly from the beginning
2. Always ask - ask someone if you dont know the answer
3. Put it in writing - Record conversations and instructions and send copy to client or insurer promptly

Question 51

What are the 4 fundamental rules for brokers when dealing with an E&O claim?

Answer 51

1. Follow set procedures stringently - have been written from experience so must trust them
2. Do not conceal a problem or try to resolve it before it is discovered
3. Be honest & open about the situation
4. Engage own PI insurer at earliest opportunity and work with them

Question 52

What is meant by mis-selling a product?

Answer 52

• Not enough information provided or,
• Incorrect advice given (deliberately or negligently) for a product not in line with client’s demands and needs

Question 53

Is mis-selling a key issue for the FCA and why is it so topical

Answer 53

Very key issue and brought to light following the PPI scandal

Question 54

How is mis-selling linked with insurance brokers?

Answer 54

Mis-selling goes to the very heart of the role of the insurance broker. Brokers should know
their clients, uphold their interests and make sure they have a clear understanding of the
client’s demands and needs before sourcing appropriate cover and then providing the client
with all the information they need to make an informed decision.