CHAPTER 8: Role of a Broker Flashcards
Define the terms “Principal”, “Agent” and “third party”.
The principal and third party have a contract together. The agent is authorised by the principal to bring the principal into a contract.
In law, what is the name of someone who acts on behalf of another person?
An agent.
What are the three methods of creating an agent/principal relationship?
- Consent - both parties agree to enter relationship, usually by express appointment. Documents are called a TOBA (Terms Of Business Arrangement)
- Necessity - Some form of emergency
- Ratification - principal agrees the actions of the agent after the event
What makes an intermediary an agent for an insured?
The intermediary gives advice:
- on cover or placing the insurance
- on how to make a claim
What makes an intermediary an agent for an insurer?
The intermediary can:
- Has binding authority
- Has authority to collect premium and does so
What are the duties of an agent to their principal?
- Obedience
- Personal Performance
- Due care and skill
- Good faith
- Accountability
What are the duties of a principal?
- Remuneration (payment)
- Indemnity
What is an undisclosed principal?
An agent acts for a principal, the principal will not be encountered
What types of authority can an agent have?
- Actual Authority
- Apparent Authority
What is actual authority?
Authority that arises from an agency agreement, it has been expressed.
Implied authority, if the agent must undertake a certain action in order to carry out the expressed duties they have implied authority to do so.
If a principle ratifys (accepts despite being outside what was agreed) the actions of an agent, can they still pursue damages?
Yes they can.
What is a broker network?
An authorised principle with smaller firms/individuals as ARs.
What is an appointed representative?
An individual or firm that is appointed by an authorised person under a contract. The TOBA between the AR and principal determined the ARs responsibilities and role.
Is there a distinction between a “broker” and a Lloyd’s Broker?
Yes, to become a Lloyd’s broker a broker must register with the Council of Lloyd’s after satisfying they have sufficient expertise, integrity and financial standing.
What is a Retail Broker?
The broker that is in direct contact with the client
What is a Wholesale Broker?
The broker that is in contact with the insurer
What actions can the FCA take against an authorised intermediary that fails to comply with the rules.
- Withdraw a firms authorisation
- Discipline individuals and the firm
- Impose penalties
- Apply for court injunction
- Prosecute
What services will a broker offer their client?
- Review client needs
- Advise if the risk is insurable
- Decide the best market for the risk
- Negotiate terms
- Provide advice (i.e wording)
- Negotiate renewals
- advise and assist in respect of claims
May also offer
- Risk management advice
- Recoveries
Who pays and broker and what is it they pay?
The insurer pays brokerage (a % of the premium. The client pays a fee.
What services can brokers offer insurers?
- Binding Risks
- Settling claims
- Issuing documentation
- Collecting premium
What is another term for a delegated authority scheme?
A binder. This gives an intermediary the ability to act on the insurers behalf.
What are the steps for a broker placing a risk?
- Initial review with the client, decide which market is best. If london market is then…
- Present the risk to insurers, using a summary of the risk onto a document (AKA slip/Market Reform Contract)
- Decide which insurer or combination of insurers to approach
- A number of quotations should be gathered and differences explained to the client
- Bind the risk by contacting the insurer which the client has accepted their quotation
- Central recording of the risk
- Provide the policy documents to the client
- Update the insurer on any changes
If a broker knows information about the client what is expected?
If the broker knows some information it is considered to be known by the client.
What is a London Premium Advice Notes (LPAN)?
Used to present premium information in a standard form.
How does the central recording work for brokers and insureds?
The broker submits signed agreement (slip) to XIS and gives the London Premium Advice Notes into the system.
Insured pays Lloyd’s who centrally move the money to the insurers account.
A unique reference is also given to the risk.
What is a broker’s role in the claims process?
- Insured reports claim to broker and broker gives guidance and reports claim to insurer. Discuss with the Agreement parties only.
- Appointment of experts
- Negotiation between broker and insurer
- Claims data is centrally logged (if Lloyd’s Syndicate)
- Money is moved centrally through XCS
- The broker’s role is complete when the client receives the claims funds in full and final settlement
What change did the Enterprise Act 2016 make to the claims process?
Claims must be paid in a reasonable time. Insureds have up to 1 year after a claim is settled to file a legal action claiming damages for a late claim payment.
