Chapter 8 - B Flashcards
In which classes of business are proposal forms used in the London Market?
Yacht and professional indemnity insurance
Proposal forms are not widely used but have specific applications in certain insurance classes.
Why is yacht insurance treated as personal lines in nature?
The use of proposal forms places a greater burden on yacht insurers to ask all necessary questions
This approach contrasts with other insurance types where the insured is expected to know what information is important.
Who completes the proposal form?
The insured or jointly by the insured and the broker
This collaboration helps present the risk to the insurer.
What is the purpose of the proposal form?
To present the risk to the insurer for quotation and formal agreement to accept the risk
It works in conjunction with the MRC/slip.
What does the proposal form allow insurers to do?
Include questions about material matters and reduce the risk of non-disclosure
While it reduces risk, it does not completely eradicate it.
List general questions included in proposal forms.
- Name, address, nature of business
- Past insurance history, including previous losses and claims
- Turnover and other exposure-related information
- Geographical spread of the risk
- Amount of insurance being requested
These questions help insurers assess the risk more accurately.
What must the proposer declare at the end of the proposal form?
That the answers given are true to the best of their knowledge and belief
This declaration is crucial for the validity of the information provided.
True or False: Insurers can argue non-disclosure if they accept a proposal form without following up on missing information.
False
If insurers accept the form without inquiries, it complicates their ability to claim non-disclosure later.
What are the ways in which a client’s risk can be presented to underwriters?
Through actual/virtual presentations or electronic/paper documents
Brokers and clients can provide detailed information about their business to underwriters through various methods.
What is the Market Reform Contract (MRC)?
A document that summarises a client’s risk in a standardised format for underwriters
The MRC replaced the term ‘slip’ and serves multiple roles in the London Market.
List the distinct roles of the MRC.
- Summarises client’s risk for presentation to underwriters
- Indicates underwriters’ written lines in non-electronic placements
- Serves as the client’s copy of the insurance contract
Why was the MRC developed?
To standardise the structure of brokers’ slips and improve information accessibility
Prior to the MRC, there was no standardisation in brokers’ slips, leading to inefficiencies.
What are the benefits of using a standardised MRC?
- Easier for insurers to find information
- Facilitates contract documentation creation
- Aids compliance with contract certainty requirements
- Supports electronic submission of information
What are the three types of MRC documents produced?
- Open Market MRC
- Lineslip MRC
- Binder MRC
Define Open Market MRC.
Where the broker places each risk individually and visits each underwriter separately
This method allows brokers to engage with underwriters on a one-on-one basis.
Define Lineslip MRC.
A preset group of underwriters arranged by the broker, with agreements for individual risks
This allows for quicker binding of risks when certain underwriters agree.
Define Binder MRC.
Delegated underwriting authority given to an external third party operating within strict parameters
The third party reports back on the risks they have written each month.
What is the mandatory requirement for the MRC in the Lloyd’s market?
The MRC must be used for all placements of open market business
The company market highly recommends the use of the MRC but does not mandate it.
What are the six sections of a typical open market MRC?
- Risk details
- Information
- Security details
- Subscription agreement
- Fiscal and regulatory
- Broker remuneration and deductions
What changes were made in the MRC v3 issued in March 2023?
It brought together information in a more logical format and included new fields
This version supports the market’s move towards greater data discipline for the Core Data Record.
What type of insurance is referred to in the risk details?
All risks of physical loss or damage, hull and machinery.
What is the new mandatory subheading introduced in the contract classification?
Contract classification is either insurance or reinsurance.
What two further fields become mandatory if the contract is reinsurance?
- Treaty/Facultative
- Proportional/Non proportional
What does the insured’s retention refer to?
Any amount the insured is keeping, including deductibles/excesses.
What does the term ‘situation’ refer to in the context of insurance?
Territorial limitations of the policy, which can be worldwide or restricted to certain areas.
What must the terms and conditions of the insurance be clearly identified for?
So that the underwriter can see what they are agreeing to.
How are standard market clauses usually identified?
Using their market codes such as LSW 1234.
What is a loss payee?
Another party to whom insurance proceeds might be paid.
What are subjectivities in insurance?
Provisions required by insurers before they come on risk.
What does the law and jurisdiction section define?
The rules and location of the court for any dispute between the insured and insurers.
What do premium payment terms typically include?
A number of days to pay the premium, possibly allowing instalments.
What is the typical clause used for premium payment terms?
LSW3000.
What happens if the premium is not paid by the due date according to LSW3000?
Insurers can give 15 days’ notice of cancellation to the insured.
What is insurance premium tax (IPT)?
A tax that must be added to the premium for certain insurances.
Who is responsible for paying the insurance premium tax?
The client pays it to the insurer, who then pays it to HMRC.
What is the purpose of the field ‘recording, transmitting and storing information’?
Used mainly where there are data protection issues.
What must the insurer decide regarding contract documentation?
Whether a formal policy will be issued and if a copy of the MRC will be sent to the client.
What is a Broker Insurance Document (BID)?
A document issued by a broker capturing salient information about the risk.
What does the notice of cancellation provisions specify?
The terms by which the insured or insurer can cancel the contract.
What is the purpose of the Core Data Record (CDR)?
To provide critical transaction-related data captured at the point of bind for downstream processing
Downstream processing includes premium validation, claims matching, tax validation, and regulatory reporting.
How many mandatory fields are in the Core Data Record (CDR)?
37 mandatory fields
There are an additional 180 conditional fields depending on class of business or territory.
What does the Market Reform Contract (MRC) v3 aim to develop?
Data discipline between all market participants
MRC v3 serves as a stepping stone for further developments.
What is an endorsement in the context of insurance contracts?
A document presenting changes to the underwriters and can be sent to the client as evidence
Endorsements are essential for agreeing contract changes with insurers.
What is the purpose of the General Underwriters’ Agreement (GUA)?
To create an agreement among underwriters on dealing with contract changes
It clarifies authority and ensures all underwriters are informed of changes.
What are the three parts of the GUA non-marine schedule?
- Part 1: Changes by slip leader only
- Part 2: Changes by slip leader plus agreement parties
- Part 3: Changes requiring agreement from all underwriters
What types of changes can be agreed upon by the slip leader only (Part 1)?
- Anything specified in the slip
- Obvious typographical errors
- Reductions in monetary exposure
- Restrictions in coverage
- Return premiums if provided in the slip
- Wording agreement if specified
What is required for changes categorized under Part 3 of the GUA?
- Agreement from all underwriters
- Changes to geographical scope
- Policy extensions over 30 days
- Changes to jurisdiction
- Backdating of the policy period
What is the Market Reform Contract Endorsement (MRCE)?
A document structured to capture changes requested to the contract
It includes sections for risk identification, contract changes, agreement, and contract administration.
What sections are included in the MRCE?
- Risk and endorsement identification
- Contract changes
- Information
- Agreement
- Contract administration and advisory
What is the London Premium Advice Note (LPAN)?
A document prepared by the broker showing premium amounts for insurers using central settlement
It is created for both Lloyd’s and company markets.
What happens after the broker submits the LPANs to Velonetic?
The data is checked, captured on risk databases, and premium payment processes are initiated
This includes creating signing numbers and updating insurers’ systems.
True or False: The GUA refers to the MRC as a slip.
True
The term ‘slip’ is traditionally used in the GUA context.
Fill in the blank: The CDR is the irrefutable source of information on which _______ processing is based.
[digital]
What technology can be used for the electronic presentation of MRCE?
Email and scanned documents or electronic messaging
This facilitates faster processing and reduces paper use.
What must be prepared by the broker after a risk is placed or changes are made affecting premium?
Various documents including a debit note for the client and LPANs for insurers
The documents detail premium and any tax obligations.
