Chapter 8 - Role of a Broker Flashcards
What is an agent and principal?
Agent - one who is authorised by one party to bring that party into a contractual relationship with another
Principal - the party that authorises the agent
What are the 3 ways a relationship between principal and agent can arise?
Consent
Necessity - becomes vital to act in a certain way in order to preserve the property in an emergency
Ratification - agent acts without authority, but the principal accepts the act as having been done by the agent on their behalf.
What is a Terms of Business Agreement (TOBA)?
Documents used in the LM, put in place between any brokers and their clients as well as between brokers and the insurers with which they are placing business
When is an independent intermediary considered an agent of the insured and insurer?
Insured: Giving advice: On cover or the placing of the insurance; To the insured as to how to make the claim
Insurer: Can bind cover, i.e. has the authority of the insurer to accept risks as if they were insurers themselves; has authority to collect premiums and does so
What are the duties of an agent?
Obedience
Personal Performance
Due care and skill
Good faith
Accountability
What are the duties that a principal has to their agent?
Remuneration - usually in the form of commission
Indemnity - an agent has the right to claim from their principal indemnity against all expenses or losses when acting on the principal’s behalf.
How may Actual Authority be expressed?
Express authority - arises from the terms of an agency agreement, which may be in oral or in writing, all terms would be expressed in a TOBA
Implied authority - if the agent has to undertake a certain action in order to carry out express instructions
What is apparent authority?
Often the third party is in no position to make any judgement about the extent of such authority, catered for in law by apparent authority.
That which should come with a certain position in an organisation - e.g. a CEO should have more authority than someone who is not on the board
How may an agency be terminated?
mutual agreement
Termination by one party or another
Death, bankruptcy or insanity of any of the parties
What is an appointed representative (AR)?
May be an individual or a company that is appointed by an authorised person under the terms of a contract, may be acting for an intermediary that is itself directly authorised by the regulator
What is the difference between a retail and wholesale broker?
Retail - broker with direct contact with the client
Wholesale - the retail broker’s colleague who has the contact with the insurer
What can the FCA do if intermediaries fail to comply with FCA rules?
Withdrawing that firm’s authorisation
Disciplining both individuals and firms
Imposing penalties
Applying to the court for injunctions (a court order requiring certain action to be stopped)
Prosecuting the firm
What functions will Intermediaries carry out for clients?
Review the client’s needs
Advise whether the risk is insurable
Decide the best market for the risk
Negotiate T&Cs
Provide advice to the client
Negotiate renewals
Advise and assist clients in relation to claims matters
Further services can include:
Risk management advice
Recoveries
What services can be carried out by intermediaries on behalf of the insurer?
Binding risks (if authorised)
Issuing documentation
Settling claims (if authorised)
Collecting premium
What does the binding of the risk mean?
The broker contacts the insurer that their policy has been accepted and asks them to confirm or ‘ink’ their line on the slip