Chapter 8 - Business Process

Question 1

What is a quotation?

Answer 1

Proposal or indication from the insurer as to the T&Cs (including premium) that it is suggesting for the risk put forward by the broker

Question 2

What is written line?

Answer 2

The line that the insurer agrees to during the formation of a contract

Question 3

what is the order?

Answer 3

The share that the broker/insurer has of one risk e.g. a broker has a 50% order to place.

Question 4

What is signing down?

Answer 4

The process in which shares of a risk are reduced to 100%, which means that later in the process each insurer’s written line is reduced proportionately so that the total line add up to 100%, reduced line size known as the SIGNED LINE

Question 5

What are the reasons for natural termination of an insurance contract?

Answer 5

Cancellation by the insured
Cancellation by the insurer
Fulfilment
Expiry of the policy period

Question 6

What are the reasons for unexpected termination under the insurance act 2015?

Answer 6

Breach of the duty of fair presentation
Breach of warranty
Fraud

Question 7

Why might an insurer not want to quote for renewals?

Answer 7

The contract has been loss-making
They are exiting that class of business

Question 8

Why might an insurer want to renew as much as possible?

Answer 8

It costs less to renew the business than to write it from scratch
The more stable the portfolio of clients the more reliable the statistical data

Question 9

What are days of grace?

Answer 9

Best described as a perceived elastic end to the previous policy which allows the insured some scope should they be late in renewing their insurance

Question 10

What general questions does a proposal form include?

Answer 10

name, address, nature of business
info about past insurance history, including previous losses and claims
turnover and other info relating to exposure size
geographical spread of the risk
amount of insurance being requested

Question 11

What are the distinct roles of a Market Reform Contract (MRC)?

Answer 11

A document which the broker puts together that summarises their client’s risk into a standardised format for presentation to UW
also the document on which UW can formally indicate their written lines in a non-electronic placement
It can be the document which is sent to the client as their copy of the insurance contract

Question 12

What is an open market MRC?

Answer 12

where the broker places each risk individually one by one, and visits each UW separately

Question 13

What is a lineslip MRC?

Answer 13

A preset group of UW arranged by the broker, with an in-built agreement that as long as the nominated one or two of them agree to the attachment of a particular risk to that contract, the remainder will be bound to the risk as well

Question 14

What is a binder MRC?

Answer 14

Where UW have given delegated authority to an external third party that operates within strict parameters. 3rd party operates within a preset limit of authority and reports back the risks that they have written each month

Question 15

What are the 6 sections of an MRC?

Answer 15

Risk details
Information
Security Details
Subscription agreement
Fiscal and regulatory
broker remuneration and deductions

Question 16

What will the core data record (CDR) provide?

Answer 16

The critical transaction related data that must be captured at the point of bind to complete:
Premium Validation and settlement
Claims matching at first notification of loss
Tax validation and reporting (Lloyd’s only)
Regulatory validation and reporting (Lloyd’s only)

Question 17

What is the purpose of a General Underwriters Agreement (GUA)?

Answer 17

Create an agreement between all the UW on a particular MRC as to who will deal with any contract changes
Clarify the extent of the authority given to leaders and any other identified UW to agree the changes
Enable flexibility for each class of business to refine the rules to suit their own requirements
Ensure that all UW are advised on the changes even if they are not involved in the agreement process themselves

Question 18

What are the sections in a Market Reform Contract Endorsement (MRCE)?

Answer 18

Risk and endorsement identification
Contract changes
Info (supporting, if required)
Agreement
Contract administration or advisory - sections such as subscription agreement are shown here

Question 19

What is a London Premium Advice Note (LPAN)?

Answer 19

For insurers who are using central settlement, typically one is created for the Lloyd’s market and one for the company market, but more might be required if there are complex tax or other regulatory coding splits needed

Question 20

What is the structure of a general insurance policy document?

Answer 20

Heading - name of insurer
Recital - states that the insured and insurer are entering into a contract
Signature
Operative clauses - setting out what is covered
Exceptions
Conditions - can be expressed or implied
Schedule - makes it personal and specific to the insured

Question 21

What are the two types of condition?

Answer 21

Condition precedent to contract - includes the requirement to have an insurable interest, if no insurable interest exists at the start of the contract, the policy is not valid
Condition precedent to liability - the condition does not have to be stated for the court to interpret it as one, also true that calling it one does not necessarily make it one.

Question 22

What are some examples of warranties (Something will or won’t be done/something does or doesn’t exist)?

Answer 22

Property risk - warranty that there is a full operational sprinkler system
Aviation - A warranty that only personnel with a certain number of flying hours will operate the equipment
Marine - warranty that the vessel will not trade in certain areas of the world

Question 23

What do the codes LSW, ISO, LMA, NMA and AVN mean?

Answer 23

LSW - London Standard wording
ISO - International Standards Organisation
LMA - Lloyd’s Market Association
NMA - Non-Marine Association
AVN - Aviation Market

The codes applied to clauses often indicate origin of wording and follow this convention

Question 24

What are the methods for conducting LM business?

Answer 24

Service Companies

Branch Offices

SERVICES (means that insurers can stay within their own country and write risks coming out of other countries on what is known as a cross border basis) and ESTABLISHMENT (means that insurers can choose to set up an office in another country and write business there)

Lloyd’s Brussels - access EEA + Monaco business

Delegated underwriting

Question 25

What is contract certainty and how is it achieved?

Answer 25

Summarised as all parties to a contract knowing exactly what is going on at the point the contract comes into force and is achieved by:
The complete and final agreement of all terms between the insured and insurer at the time they enter into the contract with contract documentation provided promptly thereafter.

Question 26

when will the insurer put warranted no known or reported losses (WNKROL) on the MRC?

Answer 26

When the risk is being placed after the intended inception date

Question 27

What is the insurer’s obligation if the quotation is accepted exactly as offered within the given timeframe?

Answer 27

To finalise insurance terms on those exact terms offered

Question 28

At what point is the contract concluded between insurer and insured on a subscription basis?

Answer 28

When the insurers confirm their formal commitment to the contract on the slip or an eplacing system