Chapter 8 Flashcards
What is the agent/principal relationship?
An agent (the broker) is authorised by 1 party - the principal (the client) - to bring that principal into a contractual relationship w/ another - the 3rd party (the insurer)
What is an agent?
Anyone who does something on behalf of someone else
Law of agency: what are the 3 ways of creating an agent/principal relationship?
- Agency by consent (agreement)
- Agency by necessity
- Agency by ratification
Law of agency: what is ‘agency by consent’ as a way of creating an agent/principal relationship?
•Most common way
•Documents used in LM are terms of business agreements (TOBAs), which are put in place between brokers + clients, + brokers + insurers
•Agency relationship can be created by consent in an implied way (w/out being written down), if commission is paid + work is undertaken
What are ‘terms of business agreements (TOBAs)?
•Put in place between clients + brokers, + insurers + brokers
•They state each party’s rights + responsibilities regarding the relationship they’ve entered in to
Law of agency: what is ‘agency by necessity’ as a way of creating an agent/principal relationship?
A person is trusted with someone else’s goods + it becomes necessary to act in a certain way in order to preserve the property in an emergency
Law of agency: what is ‘agency by ratification’ as a way of creating an agent/principal relationship?
•Agent acts w/out authority, but the principal accepts the act
•Principal agrees the actions of the agent after the event, making them acceptable within the terms of the agency agreement
What are the duties of an agent to their principal?
•Obedience - obey instructions, otherwise could be sued
•Good faith - don’t accept bribes
•Due care + skill
•Personal performance - perform duties imposed on them by the agency
•Accountability - keep record of all transactions
What are the duties of a principal to their agent?
•Agent has right to the remuneration (commission) agreed by their principal
•Indemnity - agent can claim the indemnity from the principal against all expenses or loss incurred when acting on principals behalf
What is an undisclosed principal?
•Law permits an agent to act for an undisclosed principal, whilst seeming to act on their own behalf
•It’s rare in LM
What is ‘express authority’ and ‘implied authority’ of the actual authority of the agent?
•Express authority - arises from terms, expressed in a TOBA, of an agency agreement
•Implied authority - if an agent has to undertake an action to carry out express instructions
What is apparent authority of the agent?
•As 3rd party can’t make judgement about the extent of authority, the situation is catered for in law by apparent (ostensible) authority
•Apparent authority comes w/ a certain position in an organisation (e.g. CEO has more authority over a grad)
•If the agent is acting outside their authority, the agent is liable to the principal for the agent’s actions
What is termination of agency?
•Ways an agency is terminated: mutual agreement, termination by 1 party, or death, bankruptcy, or insanity of any party
•Apparent authority can sometimes apply after termination
Who are brokers (insurance intermediaries) authorised and regulated by?
FCA
What are umbrella organisations (broker networks)?
•Umbrella organisations become the authorised person + each broker in the network becomes an Appointed Representative
•So, they utilise the centralised facilities + associated costs
What are Appointed Representatives (ARs)?
•An individual/company that’s appointed by an authorised person (broker) under the terms of a contract
•The principal takes responsibility for the ARs activities in carrying on the business of the principal
In December 2022, rules for the principal firm arose to ensure that the Appointed Representatives (ARs) properly comply w/ FCA rules. What were the 4 rules?
- Have a written agreement - e.g. the TOBA
- Keep FCA notified of AR appointments
- Ensure that AR acts within their authority + meet required standards
- Ensure the principals have the skills/resources to oversee the AR
How do you get registered as a Lloyd’s broker?
•Council of Lloyd’s registers them
•So, brokers must satisfy the council w/ their expertise, integrity, + financial standing
What is a retail vs wholesale broker?
•Retail = broker in direct contact w/ the client
•Wholesale = broker in contact w/ the insurer + London Market
What can the FCA do if a broker fails to comply with their rules?
•Prosecute the firm
•Impose penalties
•Withdraw the firms authorisation
•Discipling both individuals + firms
•Applying for court order
What service do independent brokers (e.g. LM brokers) carry out?
•Review clients needs + advise on the risk
•Decide the best market for the risk + negotiate terms + conditions
•Provide advice to clients
•Negotiate renewals
•Advise + assist clients in relation to claims matter
What services do brokers offer to insurers?
•Binding risks + settling claims - if authorised under binding authority
•Issuing documentation
•Collecting premium
What an are delegated authority schemes?
Insurers may delegate some authority to brokers to act on their behalf; such as binding authority
What are the advantages of delegated authority schemes for brokers?
•Ease of operation
•The ability to grant immediate coverage
•Could be a profit sharing provision if the results are good
