deck 1

Question 1

Which of the following is not a defined ‘regulated activity’:

a) Arranging
b) Advising
c) Assisting
d) Enabling

Answer 1

d) Enabling

Question 2

Which of the following is not within the definition of a ‘large risk’

a) credit and suretyship
b) railway rolling stock
c) goods in transit
d) payment protection

Answer 2

d) payment protection

Question 3

Which of the following does not relate to the FCA’s operational objectives?

a) consumer protection
b) integrity
c) adverse effect
d) competition

Answer 3

c) adverse effect

Question 4

Which of the following is unlikely to be an ‘eligible complainant’?

a) a micro-enterprise
b) a large trade association
c) a guarantor
d) a consumer

Answer 4

b) a large trade association

Question 5

The FSCS levy provides 100% protection for which of the following?

a) a compulsory insurance
b) professional indemnity insurance
c) long-term insurance
d) all of the above

Answer 5

d) all of the above

Question 6

Under contract certainty rules, timescales for issuing documentation are measured from the latest of:

a) the inception date of the contract
b) the date on which the insured and insurer enter into the contract
c) where there is more than one participating insurer, the date on which the final insurer enters into the contract
d) any of the above

Answer 6

d) any of the above

Question 7

Under IDD, there is a new category of insurance settler called:

a) additional insurance intermediaries
b) alternative insurance intermediaries
c) accessory insurance intermediaries
d) ancilliary insurer intermediaries

Answer 7

d) ancilliary insurer intermediaries

Question 8

Which of the following is the main insurance commissioner in the USA?

a) FSAP
b) NCIOL
c) NAIC
d) None of the above

Answer 8

c) NAIC

Question 9

Which of the following does ICOBS not apply to?

a) motor insurance
b) critical illness cover
c) reinsurance
d) employers liability insurance

Answer 9

c) reinsurance

Question 10

The definition ‘a customer who is not a consumer’ is associated with which of the following?

a) a policyholder
b) a customer
c) a consumer
a) a commercial customer

Answer 10

a) a commercial customer

Question 11

‘A benefit that is offered to a firm, with a view to that firm or that person adopting a particular course of action’ is called an:

a) inducement
b) incitement
c) incentive
d) induction

Answer 11

a) inducement

Question 12

ICOBS 3 applies if a broker sells or distributes its broking services direct to its clients via:

a) the internet
b) the telephone
c) email
d) all of the above

Answer 12

d) all of the above

Question 13

A firm can consolidate all the information it needs to give to a customer through:

a) initial distribution documentation
b) initial disclosure documentation
c) initial declaration documentation
d) initial domestic documentation

Answer 13

b) initial disclosure documentation

Question 14

Under FCA transparency rules, insurance providers must identify consumers who have renewed with them:

a) two consecutive times
b) three consecutive times
c) four consecutive times
d) five consecutive times

Answer 14

c) four consecutive times

Question 15

IPIDs relate to policies aimed at:

a) wholesale consumers
b) commercial customers
c) retail consumers
d) wholesale customers

Answer 15

c) retail consumers

Question 16

Cancellation rights on pure protection policies and PPI policies are:

a) 14 days
b) 15 days
c) 20 days
d) 30 days

Answer 16

d) 30 days

Question 17

Which of the following are not subject to cancellation rights?

a) household policy
b) gadget policy
c) travel policy
d) none of the above

Answer 17

c) travel policy

Question 18

What is the exception to the ICOBS rule that an insurer cannot unreasonably reject a claim?

a) when a policyholder is not a consumer
b) where there is evidence of fraud
c) where the premium has not been paid
d) where the claim is subject to coverage issues

Answer 18

b) where there is evidence of fraud

Question 19

Claims advocacy involves:

a. producing periodic claims statistics for the client.
b. assisting the client if there are any problems with a claim.
c. analysing claims records to identify any trends that need addressing.
d. processing the claim on the client’s behalf.

Answer 19

b. assisting the client if there are any problems with a claim.

Question 20

A small delivery firm with a turnover of £250,000 has a goods in transit policy but when it makes a £1,000 claim for damaged goods, it learns that the insurer had gone into liquidation. How much could it claim from the Financial Services Compensation Scheme?

a. £1,000.
b. £900.
c. £500.
d. Nil.

Answer 20

d. Nil.

The general insurance that falls within the FSCS’s scope excludes
insurance for aircraft, ships, goods in transit, aircraft liability, the liability of ships and credit insurance. Contracts of reinsurance are also not protected.

Question 21

A haulage company decides to reduce the cover under its motor fleet policy and instead pay for vehicle repairs out of current revenue. This is an example of a[n]:

a. actively retained risk that is unfunded.
b. passively retained risk that is funded.
c. actively retained risk that is funded.
d. passively retained risk that is unfunded.

Answer 21

a. actively retained risk that is unfunded.

Risk retention means that an organisation will itself meet, in whole or in part, the cost of losses resulting from a particular risk. This can take place in two ways:

Passive risk retention
Applies to situations where the organisation is unaware that a risk exists or,
alternatively, where the existence of a risk is recognised but no active plan has been evolved to deal with it.

Active retention of ris
Arises when an organisation takes a conscious decision to bear the cost of any losses resulting from a recognised risk

Unfunded: Current revenue is used to meet the cost of any
resultant losses as they arise.

Funded: Current revenue is used to meet the cost of any
resultant losses as they arise.

Question 22

Under the contra proferentem rule, who would be responsible for any mistakes in the policy wording if bespoke wording was drafted by the broker and submitted to the insurer?

a. The broker only.
b. The insurer only.
c. The client.
d. The insurer and the broker jointly.

Answer 22

b. The insurer only.

Question 23

Global Pharmaceuticals plc has a master policy issued in Germany. If claims arise in Italy and the USA, what is the status of the master policy in relation to these claims?

a. The master policy would be admitted in both Italy and the USA.
b. The master policy would be admitted in Italy and non-admitted in the USA.
c. The master policy would be non-admitted in Italy and admitted in the USA.
d. The master policy would be non-admitted in both Italy and the USA.

Answer 23

b. The master policy would be admitted in Italy and non-admitted in the USA.

Question 24

When buying a motorbike, the dealer introduced Sally to a firm of specialist insurance brokers. To comply with the ICOBS 4 rules, the dealer must tell Sally:

a. whether it is owned in whole or in part by the broker.
b. details of how Sally can check the broker’s authorisation from the FCA.
c. details of any connection the broker has with any insurer.
d. how to contact the Financial Ombudsman Service if she needs to make a complaint.

Answer 24

a. whether it is owned in whole or in part by the broker.

Question 25

If a broker’s classification guide shows that an insurer is listed under the category of ‘classified’, the insurer can:

a. be used on an unrestricted basis for any type of business.
b. only be used on express instructions from the client.
c. only be used if the client is provided with certain information about them.
d. only be used for certain types of business.

Answer 25

a. be used on an unrestricted basis for any type of business.

Question 26

The FCA ICOBS rules do NOT apply to:

a. insurance purchased by any commercial customer.
b. any pure protection contracts.
c. insurance on a second home in Spain.
d. insurance purchased by a captive.

Answer 26

d. insurance purchased by a captive.

Question 27

Innovation is one of the criteria brokers use when selecting which insurers to approach for a particular risk. An example of innovation is:

a. prompt notification of proposed changes in market practice.
b. web and email based claims notification.
c. writing a self-insured programme rather than a conventional one.
d. having a sympathetic approach to the client.

Answer 27

c. writing a self-insured programme rather than a conventional one.

Question 28

When helping a client to complete an insurance proposal form, the broker must:

a. explain the importance of data protection.
b. countersign the proposal form.
c. review the answers provided by the client.
d. explain that any errors or omissions may affect the cover or payment of claims.

Answer 28

d. explain that any errors or omissions may affect the cover or payment of claims.

Question 29

Risk avoidance is:

a. the process of taking active steps to lessen the degree of hazard of a risk.
b. the introduction of physical controls to stop the possibility of a loss occurring.
c. action taken to evade entirely the possibility that an undesirable event will happen.
d. introducing physical measures that will not stop a loss occurring, but will lessen its effects.

Answer 29

c. action taken to evade entirely the possibility that an undesirable event will happen.

Question 30

Under the FCA ICOBS rules, what type of insurance is subject to additional disclosure rules?

a. Professional indemnity policies.
b. Extended warranty policies.
c. Personal lines motor policies.
d. Income protection policies.

Answer 30

d. Income protection policies.

Question 31

In addition to setting out regulatory information, a client agreement will also provide details of the:

a. services provided and the broker’s terms of business only.
b. services provided and the broker’s terms of business and remuneration.
c. broker’s remuneration and the terms of business only.
d. services provided and the broker’s remuneration only.

Answer 31

b. services provided and the broker’s terms of business and remuneration.

Question 32

The most straightforward approach to ensuring that cover is agreed before inception is:

a. separating clause into different categories.
b. using agreed wordings.
c. negotiating the wording as part of placing the risk.
d. specifying all clauses in full.

Answer 32

b. using agreed wordings.

Question 33

The use of alternative risk transfer involves transferring risk to:

a. an insurer.
b. the capital markets.
c. a captive.
d. the other party to a contract.

Answer 33

b. the capital markets.

Question 34

One advantage of a client having a cross-class retention is that:

a. it makes funding the retention easier.
b. it will make dealing with the business acquisition easier.
c. it is a flexible arrangement that can be easily unwound.
d. the insured’s retention account can be closed at the end of each policy year.

Answer 34

a. it makes funding the retention easier.

Question 35

What type of insurance programme is most likely to be appropriate for an international household goods manufacturer with a pharmaceuticals division?

a. Global.
b. Decentralised.
c. Divisional.
d. Regional.

Answer 35

c. Divisional.

Question 36

Under the Fraud Act 2006, which scenario would NOT fall under the definition of fraud?

a. When arranging motor insurance, Martin omits to tell his insurer that he was prosecuted for drink driving three months ago.

b. Helen notices that a series of transactions made by one of her clients look suspicious, but decides not to say anything as they are a close friend of the Managing Director of the broking firm she works for.

c. Robert works as an Account Executive for a firm of insurance brokers. When submitting his expenses claim at the end of the month, he inflates his mileage thinking no-one will notice.

d. Sukheev discovers that one of her clients forgot to arrange insurance on a new car before collecting it and has since been involved in an accident. She issues a cover note dated for the day before he collected the car.

Answer 36

b. Helen notices that a series of transactions made by one of her clients look suspicious, but decides not to say anything as they are a close friend of the Managing Director of the broking firm she works for.

Question 37

Broker A has been paid a commission for placing a client’s employers’ liability cover. Under common law, what is the position with claims handling under this policy where the client moves their business to Broker B at next renewal?

a. Broker A is responsible for handling all claims that are notified up to renewal. The client must then decide who will deal with any claims that are notified after renewal.

b. Broker A is responsible for handling all claims that are notified up to renewal and Broker B for claims notified after renewal.

c. Broker A is responsible for handling all claims under the policy it has arranged regardless of when they arise.

d. Broker A is responsible for handling all claims that are notified up to renewal, but can pass any claims that are outstanding at renewal to Broker B. Broker B must also deal with any claims notified after renewal.

Answer 37

c. Broker A is responsible for handling all claims under the policy it has arranged regardless of when they arise.

Question 38

What document provides the client with details of the agreement between them and their broker?

a. Client agreement.
b. Suitability statement.
c. Terms of business agreement.
d. Demands and needs.

Answer 38

c. Terms of business agreement.

Question 39

Which case confirmed that an individual employee can be held personally liable to the insured?

a) Winter v Irish Life Association
b) HH Casualty and General Insurance v JLT Risk Solutions
C) Pryke v Gibbs Hartley Cooper Ltd
D) Merret v Babb

Answer 39

D) Merret v Babb

Question 40

The Prevention of Corruption Act 1906 relates to:

a) conflicts of interest
b) fudiciary duties
c) confidential information
d) secret profits

Answer 40

d) secret profits

Question 41

The Enterprise Act 2016 is an extension of which Act?

a) Consumer Rights Act 2015
b) Insurance Act 2015
c) Marine Insurance Act 1906
d) Consumer Insurance (Disclosure & Representations) Act 2012

Answer 41

b) Insurance Act 2015

Question 42

Which of the following is not a formal stage of money laundering?

a) placement
b) concealment
c) integration
d) layering

Answer 42

b) concealment

Question 43

Which Act made ‘tipping off’ a money launderer an offence?

a) anti-terrorism crime and security act 2001
b) sanctions and anti-money laundering act 2018
c) proceeds of crime act 2002
d) serious organised crime and police act 2006

Answer 43

c) proceeds of crime act 2002

Question 44

Which piece of legislation altered the doctrine of privity of contract?

a) Insurance Act 2015
b) Consumer Rights Act 2015
c) Contracts (Rights of Third Parties) Act 1999
d) Enterprise Act 2016

Answer 44

c) Contracts (Rights of Third Parties) Act 1999

Question 45

Data rooms are likely to be used for:

a) small personal lines risks
b) small and complex clients
c) large personal lines risks
d) large and complex risks

Answer 45

d) large and complex risks

Question 46

Which of the following may allow an insurer to be categorised as ‘classified but restricted’?

a) type of business
b) any sanctions policies
c) geography
d) all of the above

Answer 46

d) all of the above

Question 47

Which of the following will make insurers liable for the whole loss from the ground up once a particular level has been exceeded?

a) franchise
b) excess
c) deductible
d) self insured retention

Answer 47

a) franchise

Question 48

What are ‘zero losses’?

a) claims that were staged incidents
b) small claims within the deductible
c) claims that are closed at zero
d) small claims that did not require a reserve

Answer 48

c) claims that are closed at zero

Question 49

Which of the following is not a main reason for signing up to a policy term beyond the standard one year?

a) premium stability
b) continuity
c) ongoing commitment to the current low pricing
d) client familarity

Answer 49

d) client familarity

Question 50

What is the typical discount that can be expected for an LTA of five years?

a) 2%
b) 5%
c) 10%
d) 15%

Answer 50

c) 10%

Question 51

Which of the following is not an alternative programme term?

a) short-term agreement
b) long-term agreement
c) evergreen policy
d) multi-year policy

Answer 51

a) short-term agreement

Question 52

NFIP, NPR&M and Stormradet are all examples of what?

a) facilities in the london market
b) international programmes
c) schemes covering natural hazards
d) agreements with international insurers

Answer 52

c) schemes covering natural hazards

Question 53

Which programme works effectively when the client exerts central control?

a) a regional programme
b) a divisional programme
c) a global programme
d) a horizontal programme

Answer 53

c) a global programme

Question 54

A policy where an insurer can pay claims and defend an insured in a particular country is called:

a) an alternative policy
b) an aligned policy
c) an agreed policy
d) an admitted policy

Answer 54

d) an admitted policy

Question 55

Which of the following would be a characteristic of a ‘soft market’?

a) an Insurers capacity increases
b) capital markets invest in insurance
c) claims exceed premiums
d) premiums exceed claims

Answer 55

c) claims exceed premiums

Question 56

Which one of the following is not in the ICOBS claims handling rules?

a) handle claims promptly and fairly
b) provide an indication of settlement within three months of notification
c) not unreasonably reject a claim
d) settle claims promptly once settlement has been agreed

Answer 56

b) provide an indication of settlement within three months of notification

Question 57

Which online portal is used for personal injury claims?

a) employers liability tracing office
b) association of British insurers portal
c) claims and underwriting exchange
d) ministry of justice

Answer 57

d) ministry of justice

Question 58

Triangulations are typically used for which of the following claims?

a) business interruption
b) commercial property
c) liability claims
d) kidnap and ransom

Answer 58

c) liability

Question 59

Under ELTO, a CRN stands for:

a) claims reference number
b) company registration number
c) contribution recall number
d) client rating number

Answer 59

b) company registration number

Question 60

Where criminal gangs take out insurance policies with the specific intention of committing fraud, this is:

a. Organised fraud
b. Opportunistic fraud
c. Money laundering
d. Exaggerated fraud

Answer 60

a. Organised fraud

Question 61

The definition ‘the examination of the activities of an organisation in order to ascertain features which may prove hazardous to the furthering of its objectives’ describes:
a. Risk evaluation
b. Risk identification
c. Risk improvement
d. Risk reduction

Answer 61

b. Risk identification

Question 62

Which of the following is not a technique for risk control and elimination?
a. Avoidance
b. Transfer
c. Maximisation
d. Prevention

Answer 62

c. Maximisation

Question 63

Unfunded risks can also be described as:
a. Self insurance
b. Active risk retention
c. Actively retained risks
d. Passive funding

Answer 63

c. Actively retained risks

Question 64

Which of the following can be owned or managed by brokers?
a. Run-a-captive
b. Rate-a-captive
c. Rent-a-captive
d. Risk-a-captive

Answer 64

c. Rent-a-captive

Question 65

Which of the following is a specialist risk management service?
a. Business interruption reviews
b. Household reviews
c. Marine cargo reviews
d. Cyber reviews

Answer 65

a. Business interruption reviews

Question 66

What is usually the overriding factor for a broking firm when choosing whether to trade with a particular insurer?

a. Financial security.
b. Reputation and experience.
c. Brokerage.
d. Credit facilities offered.

Answer 66

a. Financial security.

Question 67

A commercial client has instructed its broker to use an unclassified insurer, against the broker’s recommendation. What action should the broker take?

a.Make sure it obtains written instructions from the client.
b.Refuse to use the client’s preferred insurer as per FCA rules.
c.Seek authorisation from the FCA to use this insurer.
d.Tell the client that it is unable to follow their instructions and suggest they find an alternative broker.

Answer 67

a.Make sure it obtains written instructions from the client.

Question 68

A Lloyd’s underwriter initials a slip to take a following share of 10% for a particular risk. At what point does the contract of insurance become binding?

a. When confirmation of cover is received from the broker.
b. From the attachment date shown on the slip.
c.When the slip is complete.
d.When the slip is initialled.

Answer 68

d.When the slip is initialled.

Question 69

When a large national broker places a multinational programme with an insurer, the payment will usually be required within:

a.30 days.
b.60 days.
c.90 days.
d.the same working day.

Answer 69

b.60 days.

Question 70

A ‘lineslip’ is the name given to a method:

a.used exclusively to place reinsurance.

b.where both the underwriting of risk and claims handling authority is always delegated to the broker.

c.of underwriting risk with a single insurer, without delegated authority.

d.of underwriting risk with Lloyd’s underwriters, with or without delegated authority.

Answer 70

d.of underwriting risk with Lloyd’s underwriters, with or without delegated authority.

Question 71

Who provides the majority of the capacity at Lloyd’s?

a.Corporate members with limited liability.
b.Individual members with limited liability.
c.Individual members with unlimited liability.
d.Corporate members with unlimited liability.

Answer 71

a.Corporate members with limited liability.

Question 72

What is one of the main differences between an underwriting surveyor and a risk management surveyor?

A. A risk management surveyor provides detailed recommendations.

B. A risk management surveyor will be seeking the most competitive terms, particularly in a hard market.

C. An underwriting surveyor will consider historic surveys.

D. An underwriting surveyor will be solely concerned with business interruption reviews

Answer 72

A. A risk management surveyor provides detailed recommendations.

Question 73

In what circumstances would a broker be found liable under the principle of tort for an error in the placing of an insurance policy?

A. Information was disclosed to the insurer that was in the public domain.

B. Quotations were not obtained from all available insurers.

C. Relevant information was deliberately withheld from underwriters.

D. There was insufficient care in the advice that was given to his client.

Answer 73

D. There was insufficient care in the advice that was given to his client.

Question 74

Which class of business is NOT defined by the Financial Conduct Authority as a non-investment insurance contract?

A. Critical illness.
B. Employers’ liability.
C. Long-term care.
D. Payment protection insurance.

Answer 74

C. Long-term care.

Question 75

When the Financial Conduct Authority switched from a rules-based approach to regulation to a principles-based approach, what main impact did this have on brokers?

A. There were fewer prescriptive administrative requirements to meet.
B. They could delegate their compliance responsibilities to specialist outsourcers.
C. They could spend less time interpreting and assessing day-to-day situations.
D. They were subject to less stringent enforcement penalties

Answer 75

A. There were fewer prescriptive administrative requirements to meet.

Question 76

An employee at a firm of insurance brokers has received a complaint but believes he can resolve it himself, to the client’s satisfaction, without involving others. He should be aware that he

A. cannot deal with the complaint if it related to his own actions.
B. has 24 hours to resolve the issue or it must be formally logged.
C. has 3 business days to resolve the issue or it must be treated as a complex complaint.
D. is only permitted to make a response if the complaint relates to his own actions.

Answer 76

C. has 3 business days to resolve the issue or it must be treated as a complex complaint.

Question 77

A broker needs to refer to the Subscription Agreement section of the Market Reform Contract when

A. confirming the current level of brokerage and fees.
B. extending coverage to an additional location.
C. processing a post-placement amendment or transaction.
D. verifying each insurer’s share of the risk.

Answer 77

C. processing a post-placement amendment or transaction.

Question 78

What is the main difference between an introducer and a sub-broker?

A. The insured will only have a contractual relationship with the introducer.
B. The insurer will only pay commission to the introducer.
C. Only the introducer must be regulated by the Financial Conduct Authority.
D. Only the sub-broker must be regulated by the Financial Conduct Authority

Answer 78

D. Only the sub-broker must be regulated by the Financial Conduct Authority

Question 79

35. What is the basis of fair analysis of the market in the selection of insurers by an insurance broker?

A. All insurers must be considered by the broker.
B. At least five insurers must be approached to underwrite all categories of business.
C. Only one insurer can be used for each category of business.
D. The broker will have a panel of insurers which are used to place business.

Answer 79

D. The broker will have a panel of insurers which are used to place business.

Question 80

Before placing a UK insurance risk, why must an insurance broker make sure that an insurer is licensed to underwrite the applicable class of business?

A. A regulated insurance broker can only place an insurance risk with a regulated insurer.

B. A regulated insurance broker can only place an insurance risk with an insurer based in the UK.

C. The Financial Services Compensation Scheme only applies to insurers who are members of the Association of British Insurers.

D. The Financial Services Compensation Scheme only applies to insurers who are registered with the Claims and Underwriting Exchange.

Answer 80

A. A regulated insurance broker can only place an insurance risk with a regulated insurer.

Question 81

An insurance broker will meet its Financial Conduct Authority requirement to disclose its scope of broking services by informing a client of

A. how a client can make contact with the firm.
B. how the firm selects insurers when placing a risk.
C. the classes of insurance business that it regularly places.
D. the firm’s target levels for customer service.

Answer 81

B. how the firm selects insurers when placing a risk.

Question 82

When considering the insurance market cycle, an insurance broker should be aware that

A. catastrophe losses never affect market cycles.
B. different classes of business normally have their own cycle.
C. insurance markets throughout the world always operate in a synchronised way.
D. investment income is not subject to its own cycle

Answer 82

B. different classes of business normally have their own cycle.

Question 83

What is a lineslip?

A. An underwriting facility which allows an insurance broker to offer risks of a specified category to insurers who are free to quote or reject each risk.

B. An underwriting facility which allows risks that meet specified criteria to be automatically insured under the scheme.

C. The document that is used to notify insurers of risks that have been bound under a scheme.

D. The section on a Market Reform Contract where insurers’ participations on a risk are recorded.

Answer 83

A. An underwriting facility which allows an insurance broker to offer risks of a specified category to insurers who are free to quote or reject each risk.

Question 84

A firm of insurance brokers underwrites risks under a delegated authority. As a consequence, the firm must

A. demonstrate that there is no conflict of interest between underwriting staff and those dealing with clients.

B. establish a subsidiary firm, owned jointly with the delegating insurer.

C. introduce rating structures separate to those provided by the delegating insurer.

D. obtain additional authorisation from the Prudential Regulation Authority.

Answer 84

A. demonstrate that there is no conflict of interest between underwriting staff and those dealing with clients.

Question 85

For what reason is peer review often used in respect of outgoing letters to clients?

A. It helps to avoid errors and omissions.
B. It is a requirement of the regulator.
C. It is a warranty under professional indemnity policies.
D. It reduces the volume of work within a brokerage.

Answer 85

A. It helps to avoid errors and omissions.

Question 86

A broker is negotiating a household insurance claim with the insurer. What is the primary responsibility of the broker?

A. Agree the claim settlement with the insurer.
B. Agree interpretation of the policy wording with the insurer.
C. Ensure the fair treatment of the insured.
D. Ensure the insurer settles the claim quickly.

Answer 86

C. Ensure the fair treatment of the insured.

Question 87

Broker X is handling a London market liability claim and broker Y is handling a marine claim involving Lloyd’s underwriters. Which broker, if either, is responsible for maintaining the electronic claims file?

A. Both brokers.
B. Broker X only.
C. Broker Y only.
D. Neither broker X nor broker Y.

Answer 87

A. Both brokers.

Question 88

A claim has been submitted by a client two years after the insurance broker ceased to act for that client, in relation to a loss which occurred three years ago under a policy arranged by the broker.

What is the legal position regarding the broker’s responsibility for handling this claim?

A. It depends on the status of the client’s new broker.
B. It depends on the Terms of Business Agreement.
C. The broker has no responsibility in any circumstances.
D. The broker will automatically be responsible and must negotiate the claim

Answer 88

B. It depends on the Terms of Business Agreement.

Question 89

A landlord has just installed a sprinkler system on the premises he owns and amended the lease to make the tenant responsible for damage to the buildings. These two actions are best described as

A. risk minimisation in both cases.
B. risk minimisation and risk transfer respectively.
C. risk prevention in both cases.
D. risk prevention and risk reduction respectively.

Answer 89

B. risk minimisation and risk transfer respectively.

Question 90

What is the difference between a captive insurance company and any other type of insurance company?

A. A captive insurer is always owned by its parent company.
B. A captive insurer is not regulated.
C. A captive insurer can only be registered in an offshore location.
D. A captive insurer must be established in the same country as the parent company

Answer 90

A. A captive insurer is always owned by its parent company.

Question 91

What is one of the main differences between an underwriting surveyor and a risk management surveyor?

A. A risk management surveyor provides detailed recommendations.

B. A risk management surveyor will be seeking the most competitive terms, particularly in a hard market.

C. An underwriting surveyor will consider historic surveys.

D. An underwriting surveyor will be solely concerned with business interruption reviews.

Answer 91

A. A risk management surveyor provides detailed recommendations.

Question 92

What does the freedom of services legislation refer to

Answer 92

in the EU, the FOS legislation means that a policy issued in one EU territory is valid (admitted) in another. This is the case for England too.

if the master policy was issued by a non-EU insurer, the policy would have to be non-admitted - they couldnt pay claims (and defend if liability) the insured in that territory.

Question 93

When insurers’ capacity increases in the insurance market cycle, they write:

a. more business and rates go up.

b. less business and rates go down.

c. less business and rates go up.

d. more business and rates go down

Answer 93

d. more business and rates go down

Question 94

Carrying out a triangulation of claims data for clients’ liability policies will show:

a. the split of the experience between accident and disease claims.

b. the effect of applying an increased deductible.

c. the development of claims over time.

d. details of losses that were not insured.

Answer 94

c. the development of claims over time.

Question 95

If a three year long-term agreement is arranged on an ‘offer’ basis, this means:

a. the client must offer its business to the insurer for three years, but the insurer is not obliged to accept.

b. both the client and the insurer are obliged to renew the policy for three years and the premium cannot be increased by more than 5%.

c. both the client and the insurer are obliged to renew the policy for three years at unaltered terms.

d. the insurer is obliged to offer renewal at the same terms for three years, but the client need not accept.

Answer 95

a. the client must offer its business to the insurer for three years, but the insurer is not obliged to accept.

Traditional LTAs are arranged on what is known as the ‘offer’ basis, that is the client is obliged to offer its business to the insurer for, say, three years, but the insurer is not obliged to accept and can change the terms. The typical discount is 5% for three years and 10% for five years.

Question 96

what are the two key issues for insurers when offering LTA’s?

Answer 96

• poor practice of some brokers,
• limited redress available in the courts for breach of these agreements.

While court actions are very rare, the conventional view is that, although the insurer might win damages, these would be limited to the original discount for one or two years. Insurers see this as insufficient reward for the cost and risk of litigation.

Question 97

when might a regional insurance programme be more attractive

Answer 97

when, for example, the market in one insurance centre is significantly out of line with that in another, i.e there is a soft market in the US, the US exposures should be placed here with cost savings, as the UK is in a hard market.

or if there are significant risks, i,e natural hazards in one territory and not another; it is prudent to split these into their required geography.

E.g. the US market is ‘soft’ when the UK market is ‘hard’. In this case, placing the US exposures in the US insurance market would result in cost savings. This potential for cost savings will make a regional programme look more attractive for parts of the business

Question 98

what does difference in conditions mean when looking at insurance programmes?

Answer 98

there is a global master policy, operating across all countries (often referred to as a
differences in conditions policy (DIC));

• the master policy operates above the corporate deductible;
• the master policy sits above local policies normally giving a wider cover and, wherever possible, these local policies:
  – are underwritten by the local office of the master insurer,
  – provide the same cover as the master or at the very least, the widest cover available locally, and
  – are subject to a local deductible that is acceptable to the local client.

Question 99

what can a regional programme also often be referred to and what does this mean?

Answer 99

A regional or decentralised programme is one where the exposures are split by geography or trade. This can make it easier to access market capacity and meet additional limits.

Question 100

when is a divisional programme beneficial?

Answer 100

Where a client has a diverse range of operations with a discrete high exposure, it may be more beneficial for the respective operations to have their own programme. Examples could include a merchant bank with a large property portfolio or a household goods manufacturer with a pharmaceutical division. The separate programmes could possibly be combined at the higher level by an excess layer or umbrella policy

This option would also be appropriate if the client was considering disposing of a particular
business or division.

Question 101

A manufacturer has factories in five different countries, which are separately insured in each country. One advantage of consolidating its current insurance arrangements into one global programme is:

a. to increase the choice of insurers.

b. that global programmes are always cheaper in aggregate terms.

c. that it overcomes legislative problems.

d. to provide central control over cover and cost.

Answer 101

d. to provide central control over cover and cost.

Question 102

The objective of programme design is to:

a. make available a range of off the shelf insurance policies that will meet a variety of client needs.

b. deliver a programme that is bespoke to an individual client’s needs.

c. create a policy wording that is tailored to the needs of a specific trade or business sector.

d. establish a preferred panel of insurers for placing risks.

Answer 102

b. deliver a programme that is bespoke to an individual client’s needs.

Question 103

Which risk would definitely fall within the FCA definition of a large risk?

a.A business interruption policy for an insured with a net turnover of €6m and average of 350 employees during the financial year.

b.A fire policy for an insured with a balance sheet of €7m and average of 300 employees during the financial year.

c.A motor fleet policy for an insured with a balance sheet of €5m and average of 350 employees during the financial year.

d.A combined liability policy for an insured with a net turnover of €10m and a balance sheet of €8m.

Answer 103

b.A fire policy for an insured with a balance sheet of €7m and average of 300 employees during the financial year.

Large risks are defined as follows:

1. Railway rolling stock, aircraft, ships (sea, lake, river and canal vessels), goods
   in transit, aircraft liability and liability of ships (sea, lake, river and canal
   vessels).
2. Credit and suretyship – where the policyholder is engaged professionally in an
   industrial or commercial activity or in one of the liberal professions and the risks
   relate to such activity.
3. Land vehicles (other than railway rolling stock), fire and natural forces, other
   damage to property, motor vehicle liability, general liability and miscellaneous
   financial loss, in so far as the policyholder exceeds the limits of at least two of
   the following three criteria:
   * balance sheet total Euro 6.2 million;
   * net turnover Euro 12.8 million; and
   * an average number of employees during the financial year of 250

Question 104

The FCA definition of a pure protection contract would include:

a.extended warranty policies.

b.engineering inspection contracts.

c.critical illness policies.

d.buildings insurance policies.

Answer 104

c.critical illness policies.

A pure protection contract is either:
* a reinsurance contract covering all or part of a risk to which a person is exposed under a long-term insurance contract; or
* a long-term insurance contract where the following conditions are met:
– the benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or infirmity;
– the contract has no surrender value, or the consideration consists of a single premium and the surrender value does not exceed that premium; and
– the contract makes no provision for its conversion or extension in a manner which would result in it ceasing to comply with the first two conditions.

Examples of pure protection contracts are term life, critical illness and income protection policies

Question 105

what are Long Term agreements also often known as?

Answer 105

LTUs - Long term undertakings

Question 106

What are PPI contracts defined as

Answer 106

A payment protection insurance (PPI) contract is defined as:

A non-investment insurance contract which has the elements of a general
insurance contract and the benefits of which are described as enabling a policyholder to protect his ability to continue to make payments due to third
parties, or can reasonably be expected to be used in this way.

PPI policies are typically sold alongside mortgages, personal loans and other credit
arrangements.

Question 107

what does uberrimae fidei mean?

Answer 107

utmost good faith.

Insurance contracts are dependant on both sides observing utmost good faith, supported by complete transparency on all material circumstances.

Question 108

Under the Insurance Act 2015, insurance brokers need to explain the need for commercial customers to make a fair presentation of the risk to the insurer. In practice, this requires the insured to:

a. disclose all material facts under the concept of uberrima fides.

b. complete the question on the proposal form only and not disclose anything further [even if it might relate to the insurance being proposed].

c. just disclose every material circumstance that the insured is aware of.

d. disclose every material circumstance that the insured knows, or ought to know, or disclose enough to put a prudent insurer on notice to make further enquiries.

Answer 108

d. disclose every material circumstance that the insured knows, or ought to know, or disclose enough to put a prudent insurer on notice to make further enquiries.

Question 109

The FCA ICOBS rules do NOT apply to:

a. insurance purchased by a captive.

b. any pure protection contracts.

c. insurance on a second home in Spain.

d. insurance purchased by any commercial customer.

Answer 109

a. insurance purchased by a captive.

Question 110

what kinds of contracts do ICOBS rules not relate to/ have varying rules relating to ICOBS

• not to be confused with FCA principles which are to be acted in accordance with, regardless of if they have to follow ICOBS.

Answer 110

Reinsurance - does not apply

Contracts of large risk - where the risk is located outside the European Economic Area (EEA); or for a commercial customer, where the risk is located within the EEA.

pure protection contracts are term insurance, critical illness, income protection and payment protection insurance (PPI).
Firms can elect to handle pure protection contracts under either:
* the Conduct of Business sourcebook (COBS): the general rules on the conduct of
business for firms regulated by the FCA. This is likely to be the favoured route of firms dealing primarily with life insurance; or
* ICOBS: likely to be the option where the firm is primarily engaged in ‘other’ general insurance, i.e. non-life insurance contracts.

Chains of brokers -
There can be a chain of intermediaries between the insurer and the customer, as in
wholesale business.
ICOBS has a specific rule which applies to this situation. This rule places the responsibility for complying with ICOBS on the broker dealing directly with the customer, i.e. the producing broker (R).

Group policies
Brokers must provide information to their customer to pass on to other policyholders. They need to tell their customer that the information should be given to each policyholder.

Question 111

Under the FCA ICOBS rules, what type of insurance is subject to additional disclosure rules?

a.Extended warranty policies.

b.Professional indemnity policies.

c.Income protection policies.

d.Personal lines motor policies.

Answer 111

c.Income protection policies.

additional rules apply where a pure protection contract or a
PPI policy is concerned. These are aimed at ensuring that customers make an
informed choice.

One of these rules states that where no advice is being given, i.e. the broker is not providing a recommendation but solely information about the products on offer, the broker must take reasonable steps to ensure that the customer understands that they are responsible for deciding whether the policy meets their demands and needs (R). Where a recommendation is being made, ICOBS is clear on the main factors that need to be taken into account when deciding if the policy meets the customer’s demands and needs. The factors to be described include its:
* significant benefits;
* exclusions and limitations; and
* duration and price information.

Question 112

Under the FCA’s Client Money rules [CASS], insurance brokers:

a. are advised to set up independent trust accounts to hold client funds.

b. are advised to hold client money in a separate bank account.

c. must always remit premium payments instantly to the respective insurance company.

d. must always hold client money in a separate bank account.

Answer 112

d. must always hold client money in a separate bank account.

Question 113

What is a short complaint?

Answer 113

• resolved by person recieving the complaint to the clients satisfaction
• within 3 days

these can be resolved by the person receiving the complaint, to the
client’s satisfaction, within three days. For example, a client complains that you promised to send them their policy document and it’s still on your desk.

Question 114

what is the definition of a complex complaint?

Answer 114

these types of complaints will require further investigation or consultation or maybe even referral to another organisation. For example, a client complains that they asked for cover for their new factory last year and there’s no mention of it in the policy they have just received.

Question 115

A benefit of an insurance policy is:

a. an inherent part of the policy cover; a feature is what they want.

b. what the client needs; a feature is what they want.

c. an inherent part of the policy cover; a feature is what it does for the customer.

d. what the client wants; a feature is what they need.

Answer 115

d. what the client wants; a feature is what they need.

Question 116

Where used, broker questionnaires are a means of collecting information from:

a.personal clients.

b.small commercial clients.

c.sole traders.

d.multinational clients.

Answer 116

d.multinational clients.

Some brokers prepare their own questionnaires as a means of gathering information from a large or multinational risk, where there are many individual sites or subsidiaries involved.
These forms will vary from the prosaic, asking for straightforward information such as turnover, payroll, building values etc., to much more complex forms asking for more detailed information on risk exposures, changes in business activities etc

Question 117

when are statements of facts used?

Answer 117

There has been a tendency more recently for statements of fact to replace proposal forms for some personal lines contracts and small business risks. These take the form of preprinted assumptions on which the risk is based, with the customer invited to comment on any specific aspect that may not be a correct assumption. In some, but not all, cases, the customer is asked to sign the statement of fact to confirm their understanding. Statements of fact have the same legal status as proposal forms in forming the basis of the insurance contract and are most common where risk information has been transmitted electronically.

Question 118

when are proposal forms used?

Answer 118

Formal proposal forms or statements of fact are required for certain specialised risks and the majority of medium-sized and smaller risks such as:
* small package risks;
* personal lines such as motor, household, travel and craft insurance;
* fidelity guarantee or ‘crime’;
* professional indemnity and errors and omission covers; and
* directors’ and officers’ liability and employment practices and pension trustee liability

Question 119

what is the key issue for proposal forms?

Answer 119

The key issue is that the client has to sign the proposal form and warrant the truth of the information, thereby satisfying the client’s obligation to provide a fair presentation of the risk. The insurer can then rely on this warranty in the event of a claim if the insured is a commercial insured (the Consumer Insurance (Disclosure and Representations) Act 2012 does not allow this for consumers).

Question 120

what is the function of an insurers questionnaire?

Answer 120

An insurer’s supplementary questionnaire, for example an additional drivers’ form for motor insurance, will often have the same function as the proposal form and the comments we’ve made on proposal forms also apply.
An insurer’s supplementary questionnaire often has the same function as the proposal form

Question 121

what are the issues with using brokers questionnaires?

Answer 121

• relying solely on questionnaires in this way means the broker is failing in their duty to their client. They are exposing themselves to an accusation of poor service.
• in losing touch with subsidiaries, the broker may lose an important source of information on future developments;
  -inadequately completed forms may result in more costs than the savings made by not making a service call in the first place; and
  -questionnaires cannot cover every eventuality

Sending the form to the client in advance and reviewing the content with them, preferably face-to-face, can overcome most of these problems. This ultimately saves time, is a more professional approach and reduces potential errors.
Cost is an important issue, but the broker has to remember that understanding their client’s business and obtaining the right information is a prime part of their service to the client.

Question 122

from the insurers perspective, what is the best way to obtain information?

Answer 122

their own survey reports

Question 123

what are the 3 key issues for a broker when using survey reports as a way of obtaining information?

Answer 123

• not all insurers will accept brokers’ surveys, or will only quote subject to their own survey;
• insurers’ ‘standards’ on information can change in a ‘hard’ market and became
  particularly severe; and
• individual insurers have different requirements in terms of the depth of information that the survey has to contain.

Often a joint survey – where the broker accompanies the insurer – is the answer. The broker can immediately explain a situation from the client’s point of view and negotiate on the practicality (and effectiveness) of any recommendation or potential changes in cover

Question 124

what are the two types of uninsured losses?

Answer 124

• deliberately uninsured, e.g. losses within the self-insured retention, losses where
  insurance had deliberately not been taken out etc.; and
• unintentionally uninsured, e.g. the policy did not cover the loss, the sum insured was insufficient etc.

Question 125

When broking liability insurance, market practice is to request five years’ claims experience. A broker is approached to place a new risk that shows a sizable personal injury claim six years ago. What action, if any, should the broker take to comply with the duty of utmost good faith?

a. Take instructions from the prospect about whether to disclose the claim.

b. Only disclose the claim to any insurers who specifically ask for more than five years’ claims.

c. Include details of the claim on the broking presentation.

d. There is no need to disclose this claim.

Answer 125

c. Include details of the claim on the broking presentation.

Question 126

If the FCA requests sight of a client file, this must be made available within:

a. 48 hours.

b. ten working days.

c. 24 hours.

d. five working days.

Answer 126

a. 48 hours.

Question 127

Chung has asked his broker to arrange material damage insurance on his factory. Who is responsible for ensuring that the insurer is fully informed of all material facts?

a. The broker and insurer jointly.

b. Chung only.

c. Chung and the broker jointly.

d. The broker only.

Answer 127

c. Chung and the broker jointly.

Question 128

what do the Consumer Credit Acts 1974 and 2006 stipulate?

Answer 128

how many instalments an insured can pay in, depending on the nature of the transaction and the client, under the Consumer Credit Acts 1974 and 2006.

Question 129

what are the usual payment terms in the UK?

Answer 129

Payment terms are now moving below 90 days for larger broking firms and much
less for smaller firms. Typically, multinational programmes are now written subject to 60-day payment and often, for classes such as EL, the premium may be required in 30 days or even on day one. In the past, insurers sometimes offered credit periods as a marketing tool to attract new intermediaries. This is rarely the case now, although some may offer interest free instalments.

Question 130

what is the typical payment term in the US?

Answer 130

In the USA, the maximum is generally 30 days and for some classes of risk the
Bermuda market always requires full payment before inception of cover.

Question 131

Originally, the investment income earned on premiums was a valuable source of income to the broker. This additional income is naturally dependent on what three factors?

Answer 131

• the speed with which the broker can collect the premiums;
• the time allowed to pay by the insurer(s); and
• prevailing interest rates.