I10 1 Understand the insurance broking market Flashcards
A reinsurance broker arranges reinsurance cover for a client who is a reinsurer [ABC Reinsurance Ltd.]. Cover is arranged with another reinsurer [XYZ Reinsurance Ltd.]. In this example, XYZ Reinsurance Ltd. would be the:
A. Client.
B. Primary Insurer.
C. Retrocessionaire.
D. Cedant.
C. Retrocessionaire.
An insurance broker decides to apply a fee in addition to the policy premium in order to reflect the extra work involved on a case. Which of the following assumptions is incorrect?
A. As the fee is for the broker’s service, it does not need to be separately shown on an invoice.
B. Fees are paid by the insured to the broker for the service they provide.
C. The fee would generally not be reimbursed to the client following a mid-term adjustment.
D. The fee should be agreed prior to the contract.
A. As the fee is for the broker’s service, it does not need to be separately shown on an invoice.
A Lloyd’s broker finds that a slip submitted to underwriters has become oversubscribed. To correct the matter, what action should the Lloyd’s broker take?
A. Proportionately reduce each underwriter’s line.
B. Submit the slip ‘as is’ to the Bureau for amendment.
C. Liaise with the Council of Lloyd’s to correct the matter.
D. Cancel the slip, create a new one and start again from the beginning.
A. Proportionately reduce each underwriter’s line.
Most insurance brokers will deal with retail customers, however what type of broker specifically has other brokers as its clients?
A. A general insurer.
B. An online broker.
C. An aggregator.
D. A wholesale broker
D. A wholesale broker
Although insurance brokers can engage in a wide range of financial services activities, nowadays the term is generally used to describe organisations that:
A. Offer independent advice.
B. Introduce customers to other intermediaries.
C. Function as tied agencies.
D. Assist with insurance claims.
A. Offer independent advice.
A broking account executive successfully negotiates some revised terms with the head underwriter at the holding insurer on behalf of a client. The broker has used their broking network facility to arrange a 5% discount. The principal in this relationship is the:
A. Underwriter who agreed to the policy terms.
B. Insurer who carries the risk and agrees to accept the cover.
C. Network which arranged the 5% discount.
D. Client who instructed the broker to arrange the cover.
D. Client who instructed the broker to arrange the cover.
Which of these is a benefit to both a client and their insurer of using an insurance broker?
A. Time and money saved in relation to administration.
B. The ability to quote from a range of insurers.
C. Technical expertise to explain products in full.
D. The delegation of tasks such as premium collection.
C. Technical expertise to explain products in full.
Insurance brokers often offer a range of ‘Added Value Services’ to assist with the needs of their clients. Can you identify which of the following options would NOT be typical of an ‘Added Value Service’ offered by a broker?
A. Property surveys.
B. Specialist tax advice.
C. Health and safety consultation.
D. Business continuity planning.
B. Specialist tax advice.
Identify which of the following statements is NOT true of Lloyd’s of London?
A. The Lloyd’s market is made up of syndicates.
B. Lloyd’s is a subscription market.
C. Lloyd’s is an insurer.
D. Broking firms must be registered with the Council of Lloyd’s to act as ‘Lloyd’s brokers’.
C. Lloyd’s is an insurer.
Broking firms whose principal method of growth is through mergers and acquisitions which result in a smaller number of larger firms are known as:
A. Global firms.
B. Consolidators.
C. Aggregators.
D. Wholesale brokers.
B. Consolidators.
One of the main differences between a wholesale broker and a retail broker, involved in the same placement, is that only the retail broker
A. acts on behalf of the principal.
B. deals directly with the proposer.
C. is remunerated from the overall commission available.
D. will have access to the Lloyd’s market.
B. deals directly with the proposer.
The principal of a reinsurance broker is the
A. insurance broker.
B. insured.
C. insurer.
D. reinsurer
C. insurer.
What is the benefit to an insurer of having an insurance policy placed through an insurance
broker?
A. Full disclosure of the policyholder’s material circumstances will always be made.
B. The insurance broker is responsible for paying the insurance premium in the event of
non-payment by the policyholder.
C. The insurance broker will explain the technical aspects of the insurance policy to the
policyholder.
D. The policyholder retention rate is always greater than that achieved for a direct placement.
C. The insurance broker will explain the technical aspects of the insurance policy to the
policyholder.
What type of risks are placed by insurance brokers?
A. All types of risk.
B. Commercial risks only.
C. Global risks only.
D. Personal lines risk only.
A. All types of risk.
Within an insurance brokerage, who is usually responsible for ensuring that mediation activities
comply with the Financial Conduct Authority’s requirements?
A. An account executive.
B. The compliance officer.
C. The data protection officer.
D. The finance director.
B. The compliance officer.
When a Lloyd’s insurance broker uses the subscription market to place an insurance policy, this is a process of
A. co-insurance.
B. co-ordination.
C. consolidation.
D. contribution.
A. co-insurance.
A firm of insurance brokers which establishes a network will seek to attract members who are
A. clients.
B. insurers.
C. other insurance brokers.
D. reinsurers.
C. other insurance brokers.
An insurance broker obtains quotations from a number of insurers for a client. In what circumstances may the broker take into account the amount of commission that will be paid when deciding which insurer to recommend?
A. Where no fee is charged in addition to the commission earned.
B. Where the approval of the regulator has been obtained.
C. Where the client’s interests are not prejudiced.
D. Where the policy is placed via Lloyd’s.
C. Where the client’s interests are not prejudiced.
Why does an insurer use a reinsurance broker to place its property catastrophe worldwide reinsurance exposure?
A. To provide an enhanced claims service.
B. To reduce its administration expenses.
C. To use the reinsurance broker’s expertise to reinsure the exposure with one large reinsurer
only.
D. To use the reinsurance broker’s expertise to reinsure the exposure with a number of financially strong reinsurers.
D. To use the reinsurance broker’s expertise to reinsure the exposure with a number of financially strong reinsurers.
Who instructs a wholesale insurance broker to place an insurance policy?
A. An appointed representative.
B. An insured.
C. An insurer.
D. A retail insurance broker
D. A retail insurance broker
Which element of the amount payable by a client must an insurance broker show separately on an invoice?
A. Commission.
B. Fee.
C. Administrative charges.
D. Work transfer fee
B. Fee.
Where a retail broker uses a wholesale broker to place business, who has a duty of care to the insured?
A. It is shared equally between the brokers.
B. It remains with the retail broker.
C. It solely depends on the terms of business agreed between the brokers.
D. It transfers from the retail broker to the wholesale broker
B. It remains with the retail broker.
How much commission does an insurance broker receive on placement of an insurance policy with a premium of £500 plus Insurance Premium Tax and a 20% commission rate?
A. £88
B. £100
C. £112
D. £120
B. £100
One of the key roles of an insurance broker is to
A. act as an intermediary between the insurer and the regulator.
B. calculate the insurance premium.
C. conduct insurance mediation on behalf of insurers.
D. provide independent, impartial advice to clients
D. provide independent, impartial advice to clients
How does the use of an insurance broker benefit an insurer?
A. All material circumstances will always be declared by the broker to the insurer.
B. It enables the insurer to easily cross-sell insurance policies for other classes of business to an
existing insured.
C. It reduces the time spent by the insurer in explaining and administering a policyholder’s insurance requirements.
D. The responsibility for the payment of Insurance Premium Tax is passed to the broker
C. It reduces the time spent by the insurer in explaining and administering a policyholder’s insurance requirements.
What type(s) of insurance broker is able to offer Lloyd’s policies to its clients?
A. Aggregators only.
B. Lloyd’s brokers only.
C. Wholesale brokers only.
D. All types of insurance broker.
D. All types of insurance broker.
The back office function within a firm of insurance brokers will NOT include
A. compliance.
B. marketing.
C. placement of risks.
D. settlement of insurer accounts
C. placement of risks.
Insurance brokers are least likely to be involved in placing which type of insurance?
A. Construction.
B. Extended warranty.
C. Marine cargo.
D. Motor fleet.
B. Extended warranty.
Under a contract of insurance, what is brokerage?
A. The commission paid to the broker by the insurer, which is included in the premium.
B. The commission rebated by the insurer to the insured in cases with limited broker involvement.
C. A fee paid by the insured directly to the broker.
D. A fee paid by the insured directly to the insurer, in addition to the premium
A. The commission paid to the broker by the insurer, which is included in the premium.
When a Lloyd’s broker agrees to place business on behalf of a broker who is NOT a Lloyd’s broker, the Lloyd’s broker is operating as a
A. consolidator.
B. producing broker.
C. retail broker.
D. wholesale broker.
D. wholesale broker.
What is the role of reinsurance brokers?
A. Aggregators.
B. Loss adjusters.
C. Market placement specialists.
D. Risk surveyors
C. Market placement specialists.
An insurer is concerned that it stands to suffer financially from future claims. How can a reinsurance broker best assist the insurer?
A. By advising the insurer’s clients on risk reduction.
B. By advising the insurer regarding warranties and exclusions.
C. By helping the insurer to withdraw from the market.
D. By spreading the risk in the market
D. By spreading the risk in the market
Who is normally the client of a wholesale insurance broker?
A. The insurer.
B. The proposer.
C. The reinsurer.
D. The retail broker.
D. The retail broker.
What is the benefit to an insurer of having an insurance policy placed through an insurance broker?
A. Full disclosure of the policyholder’s material circumstances will always be made.
B. The insurance broker is responsible for paying the insurance premium in the event of non-payment by the policyholder.
C. The insurance broker will explain the technical aspects of the insurance policy to the policyholder.
D. The policyholder retention rate is always greater than that achieved for a direct placement.
C. The insurance broker will explain the technical aspects of the insurance policy to the policyholder.
One of the main differences between a wholesale broker and a retail broker, involved in the same placement, is that only the retail broker
A. acts on behalf of the principal.
B. deals directly with the proposer.
C. is remunerated from the overall commission available.
D. will have access to the Lloyd’s market.
B. deals directly with the proposer.
In addition to traditional insurance services, what additional service may insurance brokers normally offer their clients?
A. A cost-effective distribution network.
B. Loss-adjusting Services
C. A proposal form completion facility.
D. Risk management assistance.
D. Risk management assistance.
When providing claims management support, to which party does the broker’s main responsibility lie?
A. The adjuster.
B. The insured.
C. The insurer.
D. The regulator.
B. The insured.
What type of risks are placed by insurance brokers?
A. All types of risk.
B. Commercial risks only.
C. Global risks only.
D. Personal lines risks only.
A. All types of risk.
Within an insurance brokerage, who is usually responsible for ensuring that mediation activities comply with the Financial Conduct Authority’s requirements?
A. An account executive.
B. The compliance officer.
C. The data protection officer.
D. The finance director
B. The compliance officer.
One of the main differences between a wholesale broker and a retail broker, involved in the same placement, is that only the retail broker
A. acts on behalf of the principal.
B. deals directly with the proposer.
C. is remunerated from the overall commission available.
D. will have access to the Lloyd’s market.
B. deals directly with the proposer.
The principal of a reinsurance broker is the
A. insurance broker.
B. insured.
C. insurer.
D.reinsurer.
C. insurer.
What is the benefit to an insurer of having an insurance policy placed through an insurance broker?
A. Full disclosure of the policyholder’s material circumstances will always be made.
B. The insurance broker is responsible for paying the insurance premium in the event of non-payment by the policyholder.
C. The insurance broker will explain the technical aspects of the insurance policy to the policyholder.
D. The policyholder retention rate is always greater than that achieved for a direct placement.
C. The insurance broker will explain the technical aspects of the insurance policy to the policyholder.
What type of risks are placed by insurance brokers?
A. All types of risk.
B. Commercial risks only.
C. Global risks only.
D. Personal lines risk only
A. All types of risk.
Within an insurance brokerage, who is usually responsible for ensuring that mediation activities comply with the Financial Conduct Authority’s requirements?
A. An account executive.
B. The compliance officer.
C. The data protection officer.
D. The finance director.
B. The compliance officer.
When a Lloyd’s insurance broker uses the subscription market to place an insurance policy, this is a process of
A. co-insurance.
B. co-ordination.
C. consolidation.
D. contribution.
A. co-insurance.
A firm of insurance brokers which establishes a network will seek to attract members who are
A. clients.
B. insurers.
C. other insurance brokers.
D. reinsurers.
C. other insurance brokers.
An insurance broker obtains quotations from a number of insurers for a client. In what circumstances may the broker take into account the amount of commission that will be paid when deciding which insurer to recommend?
A. Where no fee is charged in addition to the commission earned.
B. Where the approval of the regulator has been obtained.
C. Where the client’s interests are not prejudiced.
D. Where the policy is placed via Lloyd’s.
C. Where the client’s interests are not prejudiced.
Why does an insurer use a reinsurance broker to place its property catastrophe worldwide reinsurance exposure?
A. To provide an enhanced claims service.
B. To reduce its administration expenses.
C. To use the reinsurance broker’s expertise to reinsure the exposure with one large reinsurer only.
D. To use the reinsurance broker’s expertise to reinsure the exposure with a number of financially
strong reinsurers.
D. To use the reinsurance broker’s expertise to reinsure the exposure with a number of financially
strong reinsurers.
Who instructs a wholesale insurance broker to place an insurance policy?
A. An appointed representative.
B. An insured.
C. An insurer.
D. A retail insurance broker.
D. A retail insurance broker.
Which element of the amount payable by a client must an insurance broker show separately on an invoice?
A. Commission.
B. Fee.
C. Insurance Premium Tax.
D. Work transfer fee.
B. Fee.
One of the key roles of an insurance broker is to
A. act as an intermediary between the insurer and the regulator.
B. calculate the insurance premium.
C. conduct insurance mediation on behalf of insurers.
D. provide independent, impartial advice to clients.
D. provide independent, impartial advice to clients.
How does the use of an insurance broker benefit an insurer?
A. All material circumstances will always be declared by the broker to the insurer.
B. It enables the insurer to easily cross-sell insurance policies for other classes of business to an
existing insured.
C. It reduces the time spent by the insurer in explaining and administering a policyholder’s
insurance requirements.
D. The responsibility for the payment of Insurance Premium Tax is passed to the broker
C. It reduces the time spent by the insurer in explaining and administering a policyholder’s
insurance requirements.
What type(s) of insurance broker is able to offer Lloyd’s policies to its clients?
A. Aggregators only.
B. Lloyd’s brokers only.
C. Wholesale brokers only.
D. All types of insurance broker.
D. All types of insurance broker.
An insurance broker is approached for a quotation by the owner of an engineering business. The
broker obtains a number of quotations, helps the proposer to formulate a business continuity
plan and then places the risk. The new insurer arranges a survey. Which of these elements is an
added value service?
A. Assisting with the business continuity plan.
B. Obtaining the quotations.
C. Placing the risk.
D. Surveying the risk.
A. Assisting with the business continuity plan.
Insurance brokers are least likely to be involved in placing which type of insurance?
A. Construction.
B. Extended warranty.
C. Marine cargo.
D. Motor fleet.
B. Extended warranty.
The back office function within a firm of insurance brokers will NOT include
A. compliance.
B. marketing.
C. placement of risks.
D. settlement of insurer accounts.
C. placement of risks.
