Chapter 8 - Business Process Flashcards
What is a quotation?
A proposal or indication from the insurer as to terms and conditions
What are the legal implications of an insurer providing a quote?
- they don’t remain valid indefinitely
- if client tries to accept quote after expiry date insurer is not obliged to agree
- if no expiry date defined ‘reasonable time’ applies
- insurer is not on risk if client has not accepted quote
- if client accepts with time period insurer can’t back out
Formation of contract - steps
- UW indicates agreement with stamp
- UW scratches slip
- Indicate share of risk they are taking
- insurer states UW reference for risk
The line the insurer has agreed to is known as…
Written Line
Written lines from various insurers might add up to more than 100%
Brokers share of risk they need to place is called…
An “order”
At what point are the insurers on risk?
When UW puts their line down on brokers slip. But depends on inception date of the policy
What is signing down?
Where insurers shares of a risk are reduced down to 100%
Reduced line size is then known as the ‘signed line’.
If written lines total 150%
You would divide each line by 150, then multiply by 100.
Eg.
Written line is 50% of risk
50/150= 0.333 * 100= 33.33% signed line
Reasons for terminating a contract (natural)
- Insured cancels
- Insurer cancels eg. In marine if vessel sold
- Fulfilment eg. Vehicle total loss
- Expiry of policy period
Reasons for terminating a contract (unexpected)
- Breach of duty of fair presentation eg. If breach deliberate or reckless
- Breach of warranty
- Fraud
Why might the existing insurer not want to quote the renewal?
- Contract has been loss-making
- Exiting that class of business
Why might the existing insurer want to keep a risk at renewal as much as possible?
- Costs less to renew than to write from scratch
- The more stable the portfolio of clients, the more reliable the statistical data
What are ‘days of grace’
An ‘elastic’ end to the previous policy which allows scope in late renewal. Unless provision made they do not exist.
How do UWs make sure they don’t have to pay for losses before inception?
Warranted no known or reported losses - noted on the MRC
When are proposal forms used in the London Market?
Certain classes such as Yacht and PI insurance
Used in conjunction with MRC
Yacht treated as personal lines
Roles of the MRC
- broker puts together and summarises clients risk in standard format for presentation to the UWs
- UWs formally indicate their written lines
- sent to client as copy of the insurance contract
Three slightly different versions of standard MRC are…
Open Market MRC - broker places risks individually
Line Slip MRC - group of UWs arranged by broker
Binder MRC - DA given to third party who operates within limit of authority and reports back risks they have written
MRC split into these six sections…
Risk details Information Security details Subscription agreement Fiscal and regulatory Broker remuneration and deductions
General Underwriter’s Agreement (GUA) - what is the purpose?
- agreement between UWs as to who deals with contract changes
- extent of authority given to leaders to agree changes
- flexibility for classes of business to refine rules to suit their requirements
- ensure all UWs informed of changes
GUA business specific schedules divided into three parts, and include these changes
1) slip leader only
- restrictions in coverage
- leader only changes
- monetary exposure reduced
2) slip leader plus agreement parties
- anything leader has to agree to as per MRC
- anything not in 1 or 3
3) all UWs
- changes to geographical scope
- backdating policy period
- anything to be agreed by all UWs as per MRC
What are agreement parties
Insurers set out in the MRC responsible for agreeing changes to the contract on behalf of the other insurers
What are the sections of the Market Reform Contract Endorsement?
- Risk and endorsement identification: UMR and sequential numbering of changes
- contract changes
- information (if required)
- agreement
- contract administration and advisory (if required)
Change evidenced to insured by sending them a copy of the MRCE or similar doc
Structure of general policy document
Heading Recital Signature Operative clauses Exceptions Conditions Schedule
What are the two types of condition
- Condition precedent to contract
(Includes requirement to have insurable interest) - Condition precedent to liability
(All claims have to be notified within x days)
Condition must be satisfied for the contract to exist or insurer to have any liability
Condition doesnt have to be stated to be a condition precedent to liability- court interprets terms according to Intention and Effect
Exclusions
Market exclusion: radioactive contamination
Most general Uws exclude war from standard hull/cargo/aviation policies
War on land not freely available
Requirement to formally request permission to write any type of war business as part of business planning process
Warranties
Promises made by insured relating to facts or performance of risk
- something will/wont be done
- a certain fact does/doesnt exist
Heavy penalties if breached. Examples:
Property - fully operational sprinklers
Aviation - persons with certain number of flying hours operate equipment
Marine - vessel will not trade in certain areas
Consumer Insurance (Disclosure and Representation) Act 2012
Removed ability of insurers to rely on the basis of contract clauses to create a warranty from a representation made by a consumer.
If there is a breach of warranty policy is suspended
Under the insurance act insurer not able to rely on a breach of conditions when a loss occurs if insured can show there was no increase in risk of loss. Burden is on insured to prove.
Wordings are freely changeable within the context of…
Any individual contract as they are treated as a starting point for specific negotiations
Why might LM insurers use another markets policy wording?
- other market has led the risk
- writing primary layer and london providing excess layer cover
Service companies
Syndicates rely on lloyds broker network and miss out on business
Service companies operate in lloyds market (managing agents work in various locations) and write on behalf of syndicate
Branch offices
Permission only granted to write in certain countries if insurer sets up branch office there to write risks on the spot. Far higher capital outlay to do this.
Services and Establishment business
Insurers working in EU can operate in two ways:
Services - stay within their own country and write on cross border basis (risks coming out of other countries)
Establishment - set up office in another country and write from there
Lloyds Brussels (Lloyds Insurance Company SA)
Wholly owned subsidiary of lloyds
If UK ever leaves EU syndicates operating in Lloyds market can still have mutual recognition from regulators allowing them to operate cross border in EU
Risks written in Brussells but UW outsourced to syndicates and each risk reinsured back into syndicates
Contract certainty
All parties to a contract knowing exactly what is going on at the point the contract comes into force.
Contract certainty is now business as usual rather than a market reform project
How is contract certainty achieved?
By the complete and final agreement
Of all terms between insurer and insured
At the time they enter into contract
With contract documentation provided promptly thereafter
