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LM1 > Chapter 8: Role of a broker > Flashcards

Chapter 8: Role of a broker Flashcards

1
Q

Role of broker

A

Adviser who offers impartial advice about products available

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2
Q

Agent

A

Authorised by one party to bring them into a contractual relationship with another

(Broker)

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3
Q

Principal

A

Party being looked after by the agent

(Client)

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4
Q

Law of agency

A

Everyone who acts on behalf of another is an agent

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5
Q

Agency by consent

A
  • Agency by agreement
  • Both parties enter into a legally enforceable agreement
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6
Q

Agency by necessity

A
  • Person is entrusted with someone else’s goods and it becomes necessary to act in a certain way
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7
Q

Agency by Ratification

A
  • Agent acting without authority
  • Principal accepts the act as having been done by the agent on their behalf
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8
Q

Agent-Principal relationship in regards to claims settling

A

An agent may find its working as part of the claims settlement authority granted by the insurer, meaning they are an agent for both client and the insurer

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9
Q

Agent of the insured

A
  • Independent intermediary when giving advice on

Cover/placing of insurance
On how to make a claim

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10
Q

Agent of the Insurer

A

When intermediary:
- Can bind cover (authority to accept risks)
- Authority to collect premiums

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11
Q

Duties of an agent to their principal

A
  • Obedience
  • Personal Performance
  • Due care and skill
  • Good faith
  • Accountability
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12
Q

Duties of a principal to their agent

A

Remuneration

Indemnity

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13
Q

Undisclosed principal

A
  • allows agent (under UK law) to work for undisclosed principal whilst seemingly acting on their own behalf
  • Agent must have authority to act on behalf at the time the contract is agreed
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14
Q

Consequences of agency

A

Dependent on circumstances and level of authority

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15
Q

Actual authority

A
  • Express authority from terms of agreement (oral/written)
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16
Q

Implied authority

A
  • To carry out express instruction a certain action must be undertaken which may only have implied support
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17
Q

Apparent authority

A
  • Third party would have no position to judge the extent of an agents authority
  • Even if actions of agent bind principal to contract, if the agent is acting outside their authority, the agent is liable to the principal for their actions
  • Even if the contract is ratified by the principle, they can still pursue damages
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18
Q

Ways Agency is terminated

A

Via mutual agreement

Termination by one party or another

Death, bankruptcy or insanity of party

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19
Q

Regulation of intermediaries

A

Done by Financial Conduct Authority only

Assess what risks authorised firms pose to their objectives (higher risk, closer relationship)

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20
Q

Actions the Financial Conduct Authority can take

A
  • Withdrawing authorisation
  • Disciplining individuals/firms
  • Imposing penalties
  • Apply for court injunctions
  • Prosecution of the first
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21
Q

Authorised person

A

Must apply for direct authorisation by the FCA

22
Q

Broker networks

A
  • Umbrella organisations of small firms of brokers
  • Umbrella becomes the authorised person and each member in the network an Appointed Representative
  • Bound by any legal duty owed by the agent to the principal IN ADDITION to FCA rules
23
Q

Appointed Representative

A
  • Each member of an authorised person umbrella broker network
  • Individual/Company appointed by authorised person under terms of a contract
  • Principal takes responsibility for their activities in carrying on the business
24
Q

Lloyd’s Insurance Brokers

A
  • Registered by the Council of Lloyd’s
  • Follow additional Lloyd’s requirements as well as FCA regulations for authorised persons
  • No separate code of conduct as they rely on FCAs
25
Q

Retail broker

A

Direct contact with client

26
Q

Wholesale broker

A

Direct contact with insurer

27
Q

Legislative reform order (Lloyd’s) 2008

A

Increase access to lloyds for non-lloyds brokers

28
Q

Who do intermediaries act on behalf of

A

Client NOT insurer

29
Q

Services provided to clients

A
  • Advice using fair analysis
  • Review clients needs
  • Advise if risk is insurable
  • Decide the best market for the risk
  • Negotiate T+Cs
  • Provide advice to the client
  • Negotiate renewals
  • Advise and assist with claims matters
30
Q

Further client services of brokers

A

Risk management advice

recoveries

31
Q

Services provided to insurers by brokers

A

binding risks

Issuing documentation

Settling claims (if authorised)

Collecting premium

32
Q

Advantages of binders to brokers

A
  • Ability to grant immediate cover
  • Ease of operation
  • Receive some kind of profit-sharing provision if the scheme performs well (brokerage)
33
Q

Broker role: Initial enquiry

A
  • Review clients requirements and consider options
  • consider other markets other than the home
34
Q

Broker role: Presentation of the clients risk to insurers

A

Collate summary of the risk onto MRC

Impute knowledge to Client as their material knowledge must be shared

35
Q

Broker role: Insurers to approach

A
  • no restriction who to approach lloyds or company
  • Down to broker skill and knowledge to get best deal
36
Q

Broker role: Quotations

A
  • Should get a number of quotes for clients business
  • Spend time with client allowing them to make an informed decision
  • once client decision is made, broker can bind
37
Q

Broker role: Binding

A

Contract insurers whose offer was accepted to confirm and stamp their line

38
Q

Broker role: Risk recording and premium payment

A
  • Insurers enter risk information into their systems once they have slip data
  • Submit risk information to XIS
  • Submit premium information on LPANs
  • Most is automatic through system called Accounting and Settlements
  • Broker provides the risk a UMR which is reported to insurers
39
Q

XIS

A
  • facilitates central market databases for risk date for both Lloyd’s/IUA companies
  • Manages movement of premium funds from broker to insurers
  • Payment system provides references that link transactions
40
Q

London Premium Advice Note (LPAN)

A
  • Presents premium information
41
Q

Broker Role: Provision of documentation to the client

A
  • Once place, insured will receive document evidencing contract
42
Q

Broker role: Changes to the risk

A
  • Client contacts broker to contact insurers
  • Once agreed, broker sends XIS information
43
Q

Broker role: Claims notification

A
  • Insured contacts broker
  • Broker liases with relevant insurers
  • contacts relevent agreement parties to obtain instructions for client
  • Advise client of correct way to present claim (i.e. forms/docs needed)
44
Q

Broker role: Appointment of an expert

A
  • Insurers appoint experts to assist client and report facts back
  • Reports usually routed back via broker who provides a copy to client and presents to insurer for further guidance
45
Q

Broker role: Negotiation

A
  • Claim may not be clear cut so they may negotiate points for client with insurer to assist with swift resolution
46
Q

Broker role: Claims data in the Lloyd’s market

A

Centrally recorded but done differently depending on if insurer is Lloyd’s or company

database updated via ECF submissions

Same system that sends messages about premium

47
Q

Broker role: Claims data in Company market

A

No central database

Submitted electronically and via paper

Different version of an ECF

48
Q

Broker role: Money movement

A

XCS move money centrally for lloyd’s insurers only

Same process as claims but in reverse (Insurer to broker to insured)

49
Q

Enterprise Act 2016

A

Legal change to claims process which brought new remedy for insureds for late claims payment

Insureds have 1 year after a claim is actually paid to file legal action claiming damages for late payment

49
Q

Broker role: Final stage of claims

A
  • Role complete when client receives funds in full and final settlement
  • Insurers may consider subrogation/recovery action and the broker should maintain contact
50
Q

Company market claims payments

A

Claims system which the data is held on triggers money movement automatically if the brokers request is accepted

LM1 (9 decks)

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