Chapter 8: Role of a broker Flashcards
Role of broker
Adviser who offers impartial advice about products available
Agent
Authorised by one party to bring them into a contractual relationship with another
(Broker)
Principal
Party being looked after by the agent
(Client)
Law of agency
Everyone who acts on behalf of another is an agent
Agency by consent
- Agency by agreement
- Both parties enter into a legally enforceable agreement
Agency by necessity
- Person is entrusted with someone else’s goods and it becomes necessary to act in a certain way
Agency by Ratification
- Agent acting without authority
- Principal accepts the act as having been done by the agent on their behalf
Agent-Principal relationship in regards to claims settling
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
Agent of the insured
- Independent intermediary when giving advice on
Cover/placing of insurance
On how to make a claim
Agent of the Insurer
When intermediary:
- Can bind cover (authority to accept risks)
- Authority to collect premiums
Duties of an agent to their principal
- Obedience
- Personal Performance
- Due care and skill
- Good faith
- Accountability
Duties of a principal to their agent
Remuneration
Indemnity
Undisclosed principal
- 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
Consequences of agency
Dependent on circumstances and level of authority
Actual authority
- Express authority from terms of agreement (oral/written)
Implied authority
- To carry out express instruction a certain action must be undertaken which may only have implied support
Apparent authority
- 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
Ways Agency is terminated
Via mutual agreement
Termination by one party or another
Death, bankruptcy or insanity of party
Regulation of intermediaries
Done by Financial Conduct Authority only
Assess what risks authorised firms pose to their objectives (higher risk, closer relationship)
Actions the Financial Conduct Authority can take
- Withdrawing authorisation
- Disciplining individuals/firms
- Imposing penalties
- Apply for court injunctions
- Prosecution of the first
Authorised person
Must apply for direct authorisation by the FCA
Broker networks
- 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
Appointed Representative
- 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
Lloyd’s Insurance Brokers
- 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
Retail broker
Direct contact with client
Wholesale broker
Direct contact with insurer
Legislative reform order (Lloyd’s) 2008
Increase access to lloyds for non-lloyds brokers
Who do intermediaries act on behalf of
Client NOT insurer
Services provided to clients
- 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
Further client services of brokers
Risk management advice
recoveries
Services provided to insurers by brokers
binding risks
Issuing documentation
Settling claims (if authorised)
Collecting premium
Advantages of binders to brokers
- Ability to grant immediate cover
- Ease of operation
- Receive some kind of profit-sharing provision if the scheme performs well (brokerage)
Broker role: Initial enquiry
- Review clients requirements and consider options
- consider other markets other than the home
Broker role: Presentation of the clients risk to insurers
Collate summary of the risk onto MRC
Impute knowledge to Client as their material knowledge must be shared
Broker role: Insurers to approach
- no restriction who to approach lloyds or company
- Down to broker skill and knowledge to get best deal
Broker role: Quotations
- 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
Broker role: Binding
Contract insurers whose offer was accepted to confirm and stamp their line
Broker role: Risk recording and premium payment
- 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
XIS
- 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
London Premium Advice Note (LPAN)
- Presents premium information
Broker Role: Provision of documentation to the client
- Once place, insured will receive document evidencing contract
Broker role: Changes to the risk
- Client contacts broker to contact insurers
- Once agreed, broker sends XIS information
Broker role: Claims notification
- 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)
Broker role: Appointment of an expert
- 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
Broker role: Negotiation
- Claim may not be clear cut so they may negotiate points for client with insurer to assist with swift resolution
Broker role: Claims data in the Lloyd’s market
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
Broker role: Claims data in Company market
No central database
Submitted electronically and via paper
Different version of an ECF
Broker role: Money movement
XCS move money centrally for lloyd’s insurers only
Same process as claims but in reverse (Insurer to broker to insured)
Enterprise Act 2016
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
Broker role: Final stage of claims
- Role complete when client receives funds in full and final settlement
- Insurers may consider subrogation/recovery action and the broker should maintain contact
Company market claims payments
Claims system which the data is held on triggers money movement automatically if the brokers request is accepted
