Chapter 8 - Business Process Flashcards
What is a quotation?
Proposal from insurer to broker on terms and conditions of placing risk
What are 3 key legal implications on proposals? And when does reasonable time apply?
Time - limited period of if the broker wants to proceed
Reasonable time - if insurer has not specified quotation time period
Insurer is not on risk if client has only received quotation
Insurer cannot back out if client has accepted proposal
What happens if additional material information is supplied after initial quotation?
Vary or withdraw the original quotation
How is an insurance contract formulated?
Underwriters indicates proportion of risk they want to take and sign the contract. Reference is unique to them
What is a firm order?
Formal commitment to the placement from insurer to broker
What does lines of whole mean?
Percentage of risk which the broker holds (e.g. 50% of total) risk (Relative)
What does lines of order mean?
Percentage of risk if it was 100% (Absolute)
When are insurers actually on risk
When the inception date starts
What is concluded when the insurer signs on the MRC?
The contract between insurer and insured
What is signing down?
Proportionately downsizing the total line placed so that the total is 100%
What is a line to stand? What happens to other shares?
Where the risk proportion cannot be reduced, other insurer lines must reduce more
Why should brokers notfiy underwriters about signing down at the placing process?
Time lag between writing the risk and notification of signed line
In terms of permission, what is the difference between signing up and down?
Brokers must get express permission for signing up
What are the 4 main reasons why contracts are terminated?
Cancelled by insured
Cancelled by insurer
Fulfilment
Policy expiration
How many days usually do consumers have to cancel insurance?
14 days
What is a short rate premium provision?
Amount that insurers keep depending on how many days the policy was in force
What is a downgrade clause?
Insured removing insurers if their ratings drop too much or they go into run off
Who would the insurer deliver the notice of cancellation to?
The broker
Why might an insurer cancel their policy for marine
Vessel is sold, ownership is a key valuation
How does fulfilment cancel a policy
If the subject matter no longer exists
What happens in reckless breaches of fair presentation?
Contract is voided, premium kept
What happens in not reckless, what happens in fair representation (3 scenarios)
If insurer would not accept new t&c under any circumstances. Premium returned
New T&Cs required, same premium contract proposal rewritten
New T&Cs accepted, higher premium wanted - claims reduced
What happens if warranty is breached?
During breaching period, insured cannot make claims
What happens if fraud is found?
If fraud found, claims not paid, premiums kept
What are the 3 ways contracts are unexpectedly terminated?
Breach of fair representation
Breach of warranty
Fraud
Why might a insurer not want to renew business?
Contract has been loss making
Exit that class of business
Why might an insurer want to renew business?
Stable portfolio of clients
Cheaper admin than new contracts
What are the new 3 new features on FCA renewal transparency? Why has this occured?
Disclose last year’s premium
Encourage customers to shop around
Encourage customers (4x renewal) to shop around
Renewing customers were paying more than expected
What is a days of grace period?
Elastic end to policy coverage, enabling more scope if they are late to renew. Not an implicit concept
Why might a risk be written after inception and why is this risky?
What does WNKORL mean?
Slow placing process
Insurers are liable for claims starting from inception date
Warranted no known or reported losses
What typical classes of business are proposal forms used? and Why?
Who fills these in? and what are they?
Yacht and professional indemnity.
yacht - treated as personal lines, insurer has to ask more questions
The insured typically fills it in, answers questions about the risk and signing a declaration
What are the 3 key uses of an MRC?
Summarises risk as a standardised format
Indicate written lines
Sent to insured as copy of contract
What are the 4 benefits of an MRC?
Standardised format, clearer information
Documentation
Comply with contract certainty requirements
Electronic submission of information
What are the 3 types of MRCs and how are they different?
Open market - individually placed risk
Lineslip - Preset group, lead underwriter binds risk on behalf, each insurer indicates risk share
Binder - Delegated UW
Lineslip and binder have their risk section instead of open market risk section
What are the 6 key sections of the MRC (RISSFB)
Risk details
Information (surveys and reports)
Security details (signed lines)
Subscription agreement (slip leader and claims)
Fiscal and regulatory (taxes)
Broker deductions
What is a delinked contract?
Contract is entered into Xchanging asap, premium paid later
What is the CDR? what is it used for?
Core Data Record
Used for downstream processing for:
Premium validation
Claims matching
Taxes
Regulatory
What is an endorsement?
Changes to the contract presented by the broker
What are the 4 key aims of the General Underwriters Agreement (GUA)
Responsibility for contract changes
Clarify authority limits
Flexibility for different COBs
Ensure underwriters are advised
What are the 3 scheduling parts of the GUA and what do they represent?
What classes of business do they represent?
Part 1 - Slip leader only
Part 2 - Slip leader + agreement parties
Part 3 - all underwriters
Used to manage changes to a contract
Applies to non marine, marine cargo and political risk
What is the MRCE
Market Reform Contract Endorsement - document used to standardise endorsements
What is the process for premium processing?
LPANs created and submitted into DXC
Risk data captured on LIDS (lloyds) and POSH (Company)
Signing date and number created
Messaging will update insurers systems
In a policy which section is specific to the insured?
The schedule
What are the two types of condition precedents and what do they mean?
What could happen if any are breached?
Contract and liability. Condition must be satisfied for either the contract to exist or insurer to have any liability
Liability - claims are not paid, policy in force
Contract - contract not valid
Under what circumstances would war be permitted to be covered?
Formal request is submitted to Lloyds
What are warranties?
Promises made by insured on aspects of risk which insurer considers most important
Describe the relationship between warranty and consumer contracts?
Refusal of claim cannot happen unless the breach of warranty is directly related to the claim
What are suspensive conditions?
What is the link between breaches and loss
When warranty is breached, insurer takes no liability for any loss during that period
No relationship, no loss is required, if warranty is breached, coverage not sustained
The insurance act highlighted that warranties would reduce 3 key risks, what are they
Particular types of losses, locations and times
What are service companies and why are they used?
Delegated underwriting on behalf of syndicates
Used for business outside of lloyds
Why are branch companies used? What are the disadvantages?
To satisfy business requirements of having an office in the country of business
Higher capex requirements
What is the difference between conducting business on a service vs establishment basis?
Service = cross border, regulated only by home regulator
Establishment = office must be in coountry of business
How does Lloyds brussels work?
Risks undertaken by Lloyds brussels are wholly underwritten back to syndicates. Used for direct and Re in EEA
What is a pure risk follow?
Following line orders are identical to the lead line
What is contract certainty? What are the 2 stages?
All parties know exactly what is going on
1. Finalise agreement on all terms and time of entry into contract
2. Documentation provided
What are the 7 principles of contract certainty?
- When entering contract (all terms are unambiguous)
- After contract entry (documentation)
- Performance (audits & checklists)
- Contact changes (MRCE)
- Multi-insurers (clear signed lines on MRC)
- Final participation (lines enterd onto xchanging)
- Exclusions and Problems (brokers need to resolve)
Provide an example of subjectivities on MRC
Surveys
Do commercial cover allow periods of cancellation?
Yes
What is the period for docs to be issued for comm. insurance?
30 days
What is an aggregator?
Price comparison website
Where would the broker’s code be found on MRC?
Risk details
Under what circumstances would an insurer not use standard mrc wording?
Primary insurer is from another market
What does the operative clause show in a general policy document?
What is covered
When is an insurance interest required for non marine insurance?
Point of inception and claim
Under GUA Part 1, give examples of things that can be changed by the sliper leader only
Typos, coverage restrictions, monetary exposure reduction, return premiums
Under GUA Part 3 - what can be changed by slip leader + agreement parties
Geographical restructions
Policy extensions beyond 30 days
Jurisdiction of contract
Backdating
List and summarise the 5 sections of the MRCE
Risk Identification - which MRC are you changing
Contract changes - headings of the contract which you are changing
Information - Surveys
Agreements - Who needs to sign off
Admin - Changes to broker renumeration, subscription agreements and tax and regulatory sections of the MRC
What are the 3 documents required to begin premium processing
IPT
Any external documents
LPAN
What are the new unified database names replacing premiums and claims?
ICOS - Claims
IPOS - Premiums
What are the 7 sections of an insurance contract?
Heading - Name of insurer
Recital
Signatures
Operative Clauses - Policy Coverage
Exceptions
Conditions - Contract and liability precedents
Schedule - Areas personalised to the risk
When would a non standard wording be used?
Insurer insuring the primary layer / leading the risk is not from london markets
Provide an example of a condition precedent to liability
Claims must be notified within X period
Provide an example of a condition precedent to contract
Insurable interest must be established at the time of inception and time of claim
Can a slip leader be from an overseas market?
No
