Chapter 8: Business Process Flashcards
Quotations
- proposal from insurer of the T+Cs (inc. premium) that they suggest for the risk sent by the broker
Legal implications of providing quotation
- do not remain valid indefinitely
- period can be indicated
- If accepted after expiry, insurer is not obliged to agree
- if not specified, they apply reasonable time
- not on risk til quotation accepted
- if accepted on terms provided, insurer cant back out.
- If client seeks to change, offer and acceptance starts again
Firm order
Client giving broker formal instruction to proceed with placement
FON
Firm order noted
i.e. committing to contract
Written line
Line insurer has agreed to
Order
Share of risk in one market
e.g. broker has 50% of total order to place
- broker must know prior to filling insurers
When are insurers on risk
Depends on inception date of policy
Signing down
When risks are written above 100% the shares need to be reduce
- later when risk is placed in central market databases at xchanging, each insurers written line is reduced proportionally so that the lines add up to 100%
Signed line
reduced line size after signing down
Calculating signed lines
divide by total % and times by new order
e,g. overwritten 150% and WL is 50%
new SL is 50/150 = 33%
To stand
Line will remain the same when re-proportioned
Calculating signed line with to stand
Take away the proportion to stand and divide by the new total line. Multiple by 100% - the line to stand
e.g.
135% total line with 25% to stand
- divide by 110%
- multiply by (100-75) %
reasons for natural termination
- Cancellation by insured
- Cancellation by the Insurer
- Fulfilment
- Expiry of policy period
Cancellation by insured
- Invoke term as downgrade clause
- if premium paid upfront insurer will return all
- dont usually have right to cancel during first 14 on commercial insurance
Cancellation by the insurer
- Insurer would send the notice of cancellation in a form
- if broker involved it would go to them first
Fulfilment
- When policy pays out in full, following a total loss theres nothing left to insure
Expiry of the policy period
- Most policies last 12 months and policy terminates at the end of the period
- Insurer will still be obligated to settle claims
Reasons for unexpected termination
Listed in Insurance Act 2015
- Breach of the duty of fair representation
- Breach of warranty
- Fraud
Breach of the duty of fair representation
- Insurer can avoid the contract and retain the premium if the breach is deliberate/reckless
- If insurer wouldve applied different terms then the policy is deemed as rewritten from inception
- if claims were handled before the issue then the insurer will revist the claims
- if insurer wouldve charged a higher premium, premium is not increased but claims payment is reduced by the same percentage
Breach of warranty
- Contract is discharged but suspended for the period of the breach
- insurer cant refuse a claim in the face of a breach if the insured can show it didnt increase the risk of loss occuring
Fraud IRO claims
- difficult to prove
- fraudulent devices means legitimate claims can be exaggerating by fraudulent means
- If insurer can prove fraud in relation to breach of DoFP, it can be discharged from liability and keep premium
Renewal process
- Quotations process starts again
Reasons to not want to renew
- Loss making contract
- Exiting class of business
Practical reasons for keeping as much business as possible
- Costs less to renew than start over
*everything already known (less analysis required) - More stable the portfolio the more reliable the statistical data is
FCA 2017 transparency rule
- Disclose last years premium on renewal
- Include text to encourage consumers to check cover
- Identify consumers who have renewed 4 times consecutively and suggest they look around
Days of Grace
Elastic end to previous policy to allow scope for potentially late renewals
WNKORL
Warranted no known or reported losses
- warranty used by UWs to avoid losses already occured on a late signed risk
Proposal form
- Created by insurer / broker to ask questions they consider material to reduce nondisclosure
- names/address/business
- Past insurance /claims
- Turnover
- Geographical spread
- Amount of insurance requested
incompleted proposal forms
- onus on insurer to follow up any missing info
Benefits to using MRC
- easier to find information in standardised document
- easier to create contract document
- Easier to comply with contract certainty requirements
Open Market MRC
- Broker places each risk individually one by one
- visits each UW separately
Lineslip MRC
- preset group of UWs arranged by broker
- built in condition that as long as 1/2 of the nominated parties agree to the attachment, everyone else is
- possible to have a group of UWs that agree their own share on risks
Binder MRC
- UW give DUA to external third party
6 sections of OM MRC
- Risk details
- Information
- Security Details
- Subscription Agreement
- Fiscal and regulatory
- Broker remuneration and deductions
MRC: Risk details
UMR
Type (physical loss/damage/hull)
Insured
Insured Address
Policy period
Interest (what is being insured)
Limits of Liability
Insured’s retention (Deductibles/excess)
Situation (territorial limitations)
Conditions (T+Cs / wordings)
Loss payee (who proceeds are paid to i.e. bank)
Subjectivities (provisions required before risk i.e. questionnaire)
Law and jurisdiction
Premium (the amount)
Premium payment terms (number of days client has to pay LSW3000 is classic clause)
Tax payable (i.e. IPT)
Recording, Transmitting and storing info
Insurer contract documentation (whether formal policy will be issued to client or if broker submits BID)
Notice of cancellation provisions
MRC: Information
- Info provided by insurers at time of placing (such as surveys/reports)
Security details
Insurer’s liability - sets out what extent/proportion of the risk they are responsible for
Order - share of the risk written under the MRC
Basis of written lines
Basis of signed lines
Signing provisions
Written Lines
Percentage of whole
10% line of 100%
Percentage of Order
50% placed and 10% line then total share is half the size of the one before
50% order 100% claim = £100 10% share
50% of £100 = £50
10% of £50 = £5
Part of whole
Shares shown in financial terms rather than percetanges
MRC: Subscription Agreement
Slip leader
Bureau leader
Basis of Agreement to contract changes
Basis of claims agreement
Claims administration
Delegated claims agreement
Experts fee collection
Settlement due date
bureaux arrangements (if policy will be delinked)
De-linked
Risk is sent to Xchanging to be entered into the market ASAP but premium paid sometime later
Fiscal and regulatory
Tax payable by insurers
Country of origin (insured residence)
Overseas broker
Regulatory risk location
Surplus lines broker
State of filing
US Classification
Allocation of premium coding
Allocation of premium to years of account
Regulatory client classification
Broker remuneration and deductions
Fee payable by the client
Brokerage amounts
any other deductions from premium
CDR
Core data record
4 downstream key sets of processing
- premium validation and settlement
- Claims matching at first notification of loss
- Tax validation and reporting
- Regulatory validation and reporting
Purpose of the GUA
General Underwriters’ Agreement
- Create agreement between all underwriters of a MRC
- Clarify extent of authority
- Enable flexbility for each CoB
- Ensure underwriters are advised of changes in not an agreement party
Agreement parties
Insurers set out in MRC that are responsible for agreeing changes on behalf of others
GUA Part 1: Slip leader only changes
- Anything that says leader only
- Obvious typos
- Changes which reduces monetary exposure
- restrictions in coverage
- return premiums if provided for in the slip
- Agreement of wording
GUA Part 2: Slip lead + AP
Anything listed as to be agreed by leader and APs
GUA Part 3: All UWs
- Anything that says it has to be agreed by everyone
- Anything other parties feel should be agreed
- Changes to geographical scope
- Policy extensions greater than 1 month
- Changes to jurisdiction
- Backdating
Marine Insurance Act 1906
- If subject to English law s. 53 states broker is responsible to the insurers for the payment of premium
General insurance policy document
- Heading
- Recital
- Signature
- Operative clauses (whats covered under the policy)
- Exceptions
- Conditions
- Schedule
Precedent
- condition must be satisfied for either the contract to exist of for the insurer to have liability
Condition precedent to contract
- Include requirement to have an insurable interest
- non marine Insurable interest is required at point of purchase and claim
Court interpretation of policy terms
according to legal measures of their intention and effect
Condition precedent to liability
- usually in commercial insurance
- specific claims notification clauses
- “all claims are notified within X days”
- insurer can refuse claim if provision is not complied
Exclusions
- Something UWs wont cover
e.g. War
Warranties
promise saying:
- something will or will not be done (by insured)
- certain fact exists/does not exist
Property warranty e.g.
Warranty there is a fully operational sprinkler
Aviation warranty e.g.
Warranty that only personnel with certain number of flying hours will operation
Marine warranty e.g.
Vessel will not trade in certain areas
Consumer Insurace (Disclosure and Representations) Act 2012 warranty
removed ability of insurers to rely on the contract clauses to create warranty
Suspensive conditions
IA 2015, breach of warranty = suspended policy til remedied
Insurance Act provisions
- if compiled provisions reduce the risk of particular types of losses, as well as losses in particular times/places
IA2015 Changes to the basis of contract clauses
IA2015 removes Insurer’s ability to convert representation at the time of binding into warranties
LSW
Lloyd’s Standard Wording
ISO
International Standards Organisation
LMA
Lloyd’s Market Association
NMA
Non-Marine Association
AVN
Aviation Market
Marine Policy General Provisions (Cargo) 1/1082
- ensures key provisions from the LM are included
- English law and practice
- Insurable interest clause
- Sue and labour clause
- War and Nuclear exclusions
Traditional reasons syndicates miss out on business opportunites
- Business is handled by regional/overseas broker not prepared to use Lloyd’s brokers to access particular market
- Client is located outside the UK and loyal to local insurers
Branch offices
- Allows insurer to write risks on the spot in the country but requires a much higher capital outlay
Insurers operating in the EU
- Services
- Establishment
EU insurers: services
- Insurer can stay in own country and write risks coming out of another on a cross border basis (regulated by home regulator)
EU Insurers: Establishment
Insurer can choose to set up an office in another country and write risks from there
Lloyd’s brussels
UW activity outsourced to syndicates
each risk written is wholly reinsured back into lloyd’s syndicates
Application of the principles of contract certainty
A. Terms must be unambiguous when entering contract
B. Insured must be provided contract documentation promptly after entering
C. Insurers must be able to demonstrate A and B
D. Contract changes need to be certain and documented
E. Agreed basis must be included when one or more insurer is involved
F. Final insurer participation must be provided promptly
G. insurer and broker have responsibility to resolve and principle not met
