Chapter 8 - Business Process

Question 1

What is a quotation?

Answer 1

A proposal or indication from the insurer as to terms and conditions

Question 2

What are the legal implications of an insurer providing a quote?

Answer 2

• 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

Question 3

Formation of contract - steps

Answer 3

• UW indicates agreement with stamp
• UW scratches slip
• Indicate share of risk they are taking
• insurer states UW reference for risk

Question 4

The line the insurer has agreed to is known as…

Answer 4

Written Line

Written lines from various insurers might add up to more than 100%

Question 5

Brokers share of risk they need to place is called…

Answer 5

An “order”

Question 6

At what point are the insurers on risk?

Answer 6

When UW puts their line down on brokers slip. But depends on inception date of the policy

Question 7

What is signing down?

Answer 7

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

Question 8

Reasons for terminating a contract (natural)

Answer 8

• Insured cancels
• Insurer cancels eg. In marine if vessel sold
• Fulfilment eg. Vehicle total loss
• Expiry of policy period

Question 9

Reasons for terminating a contract (unexpected)

Answer 9

• Breach of duty of fair presentation eg. If breach deliberate or reckless
• Breach of warranty
• Fraud

Question 10

Why might the existing insurer not want to quote the renewal?

Answer 10

• Contract has been loss-making

- Exiting that class of business

Question 11

Why might the existing insurer want to keep a risk at renewal as much as possible?

Answer 11

• Costs less to renew than to write from scratch

- The more stable the portfolio of clients, the more reliable the statistical data

Question 12

What are ‘days of grace’

Answer 12

An ‘elastic’ end to the previous policy which allows scope in late renewal. Unless provision made they do not exist.

Question 13

How do UWs make sure they don’t have to pay for losses before inception?

Answer 13

Warranted no known or reported losses - noted on the MRC

Question 14

When are proposal forms used in the London Market?

Answer 14

Certain classes such as Yacht and PI insurance

Used in conjunction with MRC

Yacht treated as personal lines

Question 15

Roles of the MRC

Answer 15

• 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

Question 16

Three slightly different versions of standard MRC are…

Answer 16

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

Question 17

MRC split into these six sections…

Answer 17

Risk details
Information
Security details
Subscription agreement
Fiscal and regulatory 
Broker remuneration and deductions

Question 18

General Underwriter’s Agreement (GUA) - what is the purpose?

Answer 18

• 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

Question 19

GUA business specific schedules divided into three parts, and include these changes

Answer 19

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

Question 20

What are agreement parties

Answer 20

Insurers set out in the MRC responsible for agreeing changes to the contract on behalf of the other insurers

Question 21

What are the sections of the Market Reform Contract Endorsement?

Answer 21

• 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

Question 22

Structure of general policy document

Answer 22

Heading
Recital
Signature
Operative clauses
Exceptions
Conditions 
Schedule

Question 23

What are the two types of condition

Answer 23

• 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

Question 24

Exclusions

Answer 24

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

Question 25

Warranties

Answer 25

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

Question 26

Consumer Insurance (Disclosure and Representation) Act 2012

Answer 26

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.

Question 27

Wordings are freely changeable within the context of…

Answer 27

Any individual contract as they are treated as a starting point for specific negotiations

Question 28

Why might LM insurers use another markets policy wording?

Answer 28

• other market has led the risk

- writing primary layer and london providing excess layer cover

Question 29

Service companies

Answer 29

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

Question 30

Branch offices

Answer 30

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.

Question 31

Services and Establishment business

Answer 31

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

Question 32

Lloyds Brussels (Lloyds Insurance Company SA)

Answer 32

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

Question 33

Contract certainty

Answer 33

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

Question 34

How is contract certainty achieved?

Answer 34

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