Chapter 8 - Business Process

Question 1

What is a quotation?

Answer 1

A proposal/indication from the insurer as to the terms + conditions that they’re suggesting for the risk

Question 2

What are ‘Aggregators’?

Answer 2

•Organisations that provide client with a number of quotations based on the info provided

•E.g. comparethemarket.com

Question 3

If a quotation has expired + the client tries to accept it, what is the legal implication of an insurer?

Answer 3

Insurer isn’t obliged to accept, but they can if they want

Question 4

If a client hasn’t accepted the quotation, but they’ve received it, what is the legal implication of an insurer?

Answer 4

The insurer isn’t on risk

Question 5

If the insurer doesn’t indicate the period of validity for a quotation, what happens?

Answer 5

The concept of ‘reasonable time’ applies, which is a standard rule in contract law

Question 6

If further material information to the contract is provided after the initial quotation, what can the insurer do?

Answer 6

Insurer can change or withdraw their quotation

Question 7

If a risk is placed on paper, how will the UW agree their line?

Answer 7

1. UW will agree their written lines using a rubber stamp showing the company + name
2. UW scratches the slip (signing their initials or insurer’s initials) + adds the date
3. Insurer states the underwriting reference that it’s applying to the risk

Question 8

If a risk is placed electronically, how will the UW agree their line?

Answer 8

UW will agree their line electronically - the system records a timestamp + identification code for the insurer/UW based on their logins to the system

Question 9

When is the contract between the insured + insurer concluded?

Answer 9

When the UW puts their line down on the broker’s slip (MRC)

Question 10

At what point are the insurers on risk?

Answer 10

At the inception date

Question 11

What does it mean if a risk is oversubscribed and what should a broker do in this scenario?

Answer 11

•The total of written lines taken by UWs exceeds 100%

•Broker needs to reduce the shares to a total of 100% - this is ‘signing down’

Question 12

What is ‘signing down’ when a risk is oversubscribed + how does it happen?

Answer 12

•The process in which shares of a risk are reduced to 100%

•When a risk is entered into the market central database at Velonetic, each insurer’s written line is reduced proportionally, so the total lines add up to 100%

Question 13

What should an insurer do if they don’t want their line reduced when a risk is oversubscribed?

Answer 13

They can indicate when they put their stamp down that they want their ‘line to stand’ or this can be done electronically

Question 14

What are reasons for natural termination of an insurance contract?

Answer 14

1. Cancellation by insured - consumers can cancel in 1st 14 days (the ‘cooling off period’)
2. Cancellation by insurer - e.g. in marine hull, a policy terminates if the vessel is sold
3. Fulfilment - e.g. if subject-matter doesn’t exist anymore + policy has paid out in full if vehicle suffered a total loss
4. Expiry of policy period

Question 15

What is a ‘short rate premium provision’ in a policy?

Answer 15

Shows the % the insurer keeps based on how many days the policy was in force before cancelling

Question 16

What is a ‘downgrade clause’ that an insured may put in the policy?

Answer 16

Insured can remove an insurer from their policy if their security rating goes below a certain level, if they go into run/off, if they’re bought by another insurer, or if a certain UW is leaving

Question 17

Reasons for unexpected termination (under the insurance act 2015)?

Answer 17

1. Breach of the duty of fair presentation - insured should provide info in clear way + info that senior management knows
2. Breach of warranty - contract is suspended for the period of breach
3. Fraud

Question 18

If there’s breach of warranty, does the insurer still pay claims for commercial insureds?

Answer 18

Yes, if the insured shows that the breach didn’t increase the risk of loss

Question 19

If the commercial insured breaches duty of fair presentation + it was deliberate/reckless, what can the insurer do?

Answer 19

Insurer can avoid the contract + retain the premium

Question 20

If the commercial insured breaches duty of fair presentation, but wasn’t deliberate/reckless, what can the insurer do?

Answer 20

The insurer can avoid the contract if they wouldn’t have written it + return the premium

Question 21

If the insurer proves fraud in relation to duty of fair presentation from the commercial insured, what can the insurer do?

Answer 21

Insurer can be discharged from the liability + keep the premium

Question 22

Why would an insurer want to renew a policy?

Answer 22

1. It costs less to renew business then write it from scratch
2. If portfolio of clients is stable, then the statistical data is more stable

Question 23

What are the FCA 2017 rules on renewal transparency for retail general insurers?

Answer 23

1. Disclose last year’s premium on renewal notices
2. Include text to encourage consumers to check their cover + look for the best deal
3. Tell consumers who’ve renewed for 4 consecutive times to shop around for the best deal

Question 24

What are ‘days of grace’ in renewals?

Answer 24

Allows insured some scope should they be late in renewing their insurance, but policy has to state it does this

Question 25

What is the ‘warranted no known or reported losses’ (WNKORL) warranty that UW use?

Answer 25

Makes sure that UWs don’t pay for any losses before they write the line as they may look at a risk after it has already incepted