I10 5 Understand the Key Financial Issues affecting Insurance Brokers Flashcards
A firm of insurance brokers arranges a business interruption review for a client by an independent third party provider. Into which account will they pay the fee received from the client for this
service?
A. Broker funds.
B. Client assets.
C. Insurer funds.
D. Risk transfer.
A. Broker funds.
Why must an insurance broker segregate client assets from broker funds?
A. To allow claims payments to be made to clients.
B. To allow the offsetting of transactions against monies held for clients.
C. To ensure client monies are protected in the event of the failure of the broker.
D. To facilitate the addition of interest earned on balances held.
C. To ensure client monies are protected in the event of the failure of the broker.
What money may be retained in an insurance broker’s client asset account?
A. Commission earned on insurance premiums.
B. Fees received from clients for insurance services.
C. Income received from investments.
D. Return premiums from insurers prior to payment to clients.
D. Return premiums from insurers prior to payment to clients.
When a risk transfer arrangement is in place with an insurer, who is responsible for client funds if the money is lost due to the bankruptcy of an insurance broker?
A. The client.
B. The Financial Conduct Authority.
C. The Financial Services Compensation Scheme.
D. The insurer
D. The insurer
What is the principal aim of the Insurance Distribution Directive?
A. Consumer protection.
B. Data protection.
C. Prevention of bribery in insurance.
D. Prevention of money laundering.
A. Consumer protection.
What should a firm of insurance brokers consider to help maintain client retention levels?
A. Ensure faster premium payments are made to insurers.
B. Increase the level of claims reserves.
C. Recruit and train quality employees.
D. Request increased commission levels from insurers
C. Recruit and train quality employees.
How does an insurance broker obtain additional income by up-selling?
A. By extending cover under an existing policy.
B. By providing insurance for a different class of business to an existing client.
C. By referrals from existing clients.
D. By targeting competitors’ clients.
A. By extending cover under an existing policy.
Broker X focuses on motor insurance and Broker Y on complex commercial risks. Both brokers offer high levels of customer service. Which broker, if either, would normally achieve ongoing renewal retention rates of above 95%?
A. Neither broker.
B. Broker X only.
C. Broker Y only.
D. Both brokers
C. Broker Y only.
Why is it important that an insurance broker with a high client retention level also focuses on attracting new clients?
A. The client base will naturally erode.
B. Commission rates are always higher for new business.
C. Cross-sold business levels are always significantly lower than new client levels.
D. The regulator requires a balanced approach to business.
A. The client base will naturally erode.
What is the main disadvantage to a firm of insurance brokers of placing policies on a loss-leader basis?
A. Attraction of poor quality business in the early stages.
B. The need to increase the incentivisation of sales staff.
C. Significantly reduced profits in the early stages.
D. Such policies have a high claims ratio
C. Significantly reduced profits in the early stages.
Why must an insurance broker have more than one bank account?
A. The Financial Services Compensation Scheme limits the amount of compensation payable following financial failure.
B. To keep money owed to clients and insurers separate from income earned by the broker.
C. To separate insurance premiums received from domestic and international clients.
D. Terms of Business Agreements require that separate accounts operate for each insurer.
B. To keep money owed to clients and insurers separate from income earned by the broker.
A firm of insurance brokers will use the insurer funds account for
A. holding earned commission.
B. payment of insurer accounts statements.
C. payment of employees’ salaries.
D. receipt of fees paid by clients for risk management services.
B. payment of insurer accounts statements.
For what main reason, do most insurance brokers try to maintain service excellence to their clients?
A. To encourage new business.
B. To increase commission payments
C. To reduce administrative expenses.
D. To retain client business at renewal.
D. To retain client business at renewal.
With what minimum frequency must earned commission be taken from insurer’s funds?
A. Every 5 business days.
B. Every 14 business days.
C. Every 25 business days.
D. Every 90 business days.
C. Every 25 business days.
From which bank account would an insurance broker pay a return premium to a client?
A. Broker funds.
B. Client assets.
C. Contingency funds.
D. Insurer assets
B. Client assets.
In what circumstances, if any, is an insurance broker permitted to retain a client’s return premium?
A. In all circumstances.
B. Only if the broker is registered with the regulator.
C. Only if the client agrees.
D. In no circumstances.
C. Only if the client agrees.
The requirements of the Insurance Distribution Directive 2018 enable the Financial Conduct Authority to regulate
A. all insurance contracts.
B. Lloyd’s brokers only.
C. the point of sale of consumer insurance products.
D. transactions relating to commercial insurance only
C. the point of sale of consumer insurance products.
Under the Insurance Distribution Directive 2018, in what circumstances, if any, can the requirement for an insurance broker to disclose its commission to a client be waived?
A. In no circumstances.
B. Where the client is a consumer.
C. Where the client is a professional customer.
D. Where the client is a small commercial business.
C. Where the client is a professional customer.
An insurance broker has a motor insurance portfolio with a high level of churn. What is the impact on its business?
A. Its turnover is likely to decrease.
B. Its turnover is likely to increase.
C. It will be involved in a higher number of claims.
D. It will receive a higher level of commission.
A. Its turnover is likely to decrease.
What is represented by an insurance broker’s renewal retention figure?
A. The amount of commission the broker receives from renewed policies.
B. The number of clients that increase their premium on renewal.
C. The percentage of clients that remain with the same insurer.
D. The percentage of clients that renew their policies.
D. The percentage of clients that renew their policies.
Who does an insurance broker always approach when obtaining new business by cross-selling?
A. Commercial clients.
B. Consumers.
C. Existing clients.
D. New clients.
C. Existing clients.
What action is an insurance broker most likely to take to generate new business?
A. Increasing excesses on insurance policies.
B. Increasing commission levels.
C. Investing in marketing.
D. Outsourcing all claims functions.
C. Investing in marketing.
Insurance brokers are required to make regular returns to the Financial Conduct Authority [FCA] on an integrated system called GABRIEL. What is the correct name for these returns?
A. Retail Mediation Activities Return (RMAR).
B. Activity Return Monitoring Services (ARMS).
C. Return Monitoring Retail Activities (RMRA).
D. Mediated Retail Services Activities (MRS)
A. Retail Mediation Activities Return (RMAR)
Insurance contracts are often transacted at considerable distances between the insurer, the broker and the customer. Can you identify a key consideration of the distance communications rules in ICOBS 3?
A. Transactions over the internet must be finalised through a software house using EDI.
B. Information in a durable medium must be supplied before the conclusion of the contract.
C. Policy wordings must be available in booklet form.
D. When a broker is located over 100 miles from a customer, the broker should inform the customer of this fact.
B. Information in a durable medium must be supplied before the conclusion of the contract
Of the four criminal offences under the Bribery Act 2010, which has been the main cause for concern for insurance brokers?
A. Giving, promising or offering a bribe.
B. Requesting, agreeing to receive or accepting a bribe.
C. Bribing a foreign public official.
D. Failure by a commercial organisation to prevent bribery.
D. Failure by a commercial organisation to prevent bribery.
Insurance brokers operate within a regulatory environment. Which of the following is NOT considered a direct impact of the regulatory environment?
A. Carrying on regulated activities without authorisation is a criminal offence.
B. Brokers must adhere to the rules and principles laid down by the British Insurance Brokers’ Association (BIBA).
C. Regulated firms must ensure that the insurers they deal with are properly authorised.
D. Regulated firms must follow the Financial Conduct Authority’s (FCA’s) rules and principles to maintain their authorisation.
B. Brokers must adhere to the rules and principles laid down by the British Insurance Brokers’ Association (BIBA).
Although the Financial Conduct Authority [FCA] carries out a wide range of activities, its primary objective is:
A. authorising and regulating organisations engaged in financial services.
B. policing financial services and issuing fines for breaches of regulation.
C. taking a non-risk based approach to their activities.
D. consumer protection through the fair treatment of customers
D. consumer protection through the fair treatment of customers
When authorising an insurance intermediary, governance is a key area of consideration for the Financial Conduct Authority [FCA]. Which option best describes the area of governance?
A. How the firm is managed, directed and controlled.
B. The shared values and beliefs that help define the firm.
C. The end-to-end sales processes of the firm.
D. How the firm looks to prevent financial crime.
A. How the firm is managed, directed and controlled.
An insurance broker monitors a range of their insurance mediation activities to ensure compliance with the Financial Conduct Authority’s [FCA’s] rules. Which example would NOT normally be classed as an insurance mediation activity?
A. A third party web designer creating code for an insurance broker’s website.
B. An administrative assistant who updates the details of a home insurance policy.
C. A part-time account executive at an insurance brokerage who only occasionally places cover.
D. An apprentice insurance broker who deals with clients, but has not completed their 6 month trial.
A. A third party web designer creating code for an insurance broker’s website.
An insurance broker receives instructions from a customer who is acting in both a private and a commercial capacity. According to ICOBS 2, the broker should treat the customer as a:
A. dual customer.
B. retail customer.
C. commercial customer.
D. Private customer.
C. commercial customer.
As part of your role with an international insurance broker, you often have to arrange cover on overseas assets for overseas clients. As a matter of best practice, it would be advisable to check the clients against:
A. HM Treasury’s sanctions list.
B. HM International Property Database.
C. the Home Office International list.
D. the International Sanctions Due Diligence Database
A. HM Treasury’s sanctions list.
In accordance with data protection legislation, which of the following would be considered a data subject?
A. The profit and loss accounts for a Limited Company.
B. A person who died over 10 years ago.
C. A datasheet summarising the size of the population.
D. A living person who retired 10 years ago.
D. A living person who retired 10 years ago.
The basis of how commission can be withdrawn by an insurance broker from an insurer’s money account is usually detailed in
A. a demands and needs statement.
B. a key features document.
C. the Client Assets Sourcebook.
D. a Terms of Business Agreement.
D. a Terms of Business Agreement.
With what minimum frequency must earned commission be taken from insurer’s funds?
A. Every 5 business days.
B. Every 14 business days.
C. Every 25 business days.
D. Every 90 business days.
C. Every 25 business days.
From which bank account would an insurance broker pay a return premium to a client?
A. Broker funds.
B. Client assets.
C. Contingency funds.
D. Insurer assets.
B. Client assets.
In what circumstances, if any, is an insurance broker permitted to retain a client’s return premium?
A. In all circumstances.
B. Only if the broker is registered with the regulator.
C. Only if the client agrees.
D. In no circumstances.
C. Only if the client agrees.
The requirements of the Insurance Distribution Directive 2018 enable the Financial Conduct Authority to regulate
A. all insurance contracts.
B. Lloyd’s brokers only.
C. the point of sale of consumer insurance products.
D. transactions relating to commercial insurance only.
C. the point of sale of consumer insurance products.
One of the key aims of the Insurance Distribution Directive 2018 is to
A. ensure that plain language is used in all contract terms.
B. increase the level of protection provided by the Financial Ombudsman Service.
C. make it easier for insurance broking firms to trade in another country.
D. reduce the level of reporting by insurance brokers to regulators.
C. make it easier for insurance broking firms to trade in another country.
Under the Insurance Distribution Directive 2018, in what circumstances, if any, can the requirement
for an insurance broker to disclose its commission to a client be waived?
A. In no circumstances.
B. Where the client is a consumer.
C. Where the client is a professional customer.
D. Where the client is a small commercial business.
C. Where the client is a professional customer.
An insurance broker has a motor insurance portfolio with a high level of churn. What is the impact on its business?
A. Its turnover is likely to decrease.
B. Its turnover is likely to increase.
C. It will be involved in a higher number of claims.
D. It will receive a higher level of commission.
A. Its turnover is likely to decrease.
What is represented by an insurance broker’s renewal retention figure?
A. The amount of commission the broker receives from renewed policies.
B. The number of clients that increase their premium on renewal.
C. The percentage of clients that remain with the same insurer.
D. The percentage of clients that renew their policies.
D. The percentage of clients that renew their policies.
Whom does an insurance broker always approach when obtaining new business by cross-selling?
A. Commercial clients.
B. Consumers.
C. Existing clients.
D. New clients.
C. Existing clients.
What action is an insurance broker most likely to take to generate new business?
A. Increasing excesses on insurance policies.
B. Increasing commission levels.
C. Investing in marketing.
D. Outsourcing all claims functions
C. Investing in marketing.
