IF1 CH.2 Flashcards
The Insurance Market
The Insurance Market is made up of five components
1;Buyers(Policy holder)
- Insurers(Sellers)
- Intermediaries
- Comparison 5.Websites(aggregators)
- Reinsurers
There Five types of Insurance Buyers
- Private Individuals
- Partnerships
- Companies
- Public Bodies
- Associations and Clubs
Which type of Insurance are high on the list for Private Individuals
Motor Insurance is the most likely as it is compalsory, and then household buildings and contents Insurance
What are the needs of most partnerships
Their Insurance needs are mostly on professional negligence(giving poor professional advise), they are catered for by specialist schemes
which type of Insurance buyers set up their own insurance fund through which they insure some risks
Public Bodies
What type of Insurance do Associations and clubs usually buy
Liability Risks and Damage to own property
What is the PRA
Prudential Regulation Authority, they authorize any company in the UK wishing to transact Insurance
What are the six types of Insurers as defined by Ownership
- Proprietary Companies
- Societas Europaeas
- Mutual Companies
- Captive Comapnies
- Protected cell Companies
- Lloyds
What are Proprietary Companies
These companies are owned by shareholders, who by buying shares have contributed to the share capital of the firm
They have limited liability
What is Societas Europaeas
Are Public EU company, that can register in any Member State of the EU,
What are Mutual Comapnies
These are companies owned by policyholders. The policyholders share in the profit of the company by way of lower premiums
Where are Mutual Indemnity Associations active
They are primarily active in marine Insurance
What are Captive Insurer
This is an Insurance Company established by its parent company or group(usually a large corporation) that provides insurance coverage primarily, if not soley to the parent company
How are Captive Insurance Tax efficient
- Premium payable to the captive may be taxdeductible at source
what are the two parts that PCC operate as
Pcc operates as Core and unlimited number of cells
What are the two types of Insurers defined as type of function
they are Composite Companies and Specialist Insurers
What are takaful Insurance Companies
Takaful is the type of insurance that has its roots in the ISalmic financal service
What is the Lloyds Market
Lloyd is an organisation that provides facilities on the place risks in its own market
What are Syndicates
These are private individuals or corporate members who carry risks( the financial burden)
Who syndicates employ, to accept risks on their behalf
Syndicates employ managing agents who also appoint underwriters to accept risks on their behalf
What does it mean when you say the Managing Agents are Dual- regulated
This meand they are regulated by the PRA and FCA. This Meaning they are approved by the PRA and their business conduct activites are regulated by the FCA
what are Memebers’ Agent
They advise their clients on the advantages and disadvantages of investing in the Lloyd’s Market,syndicate selection,performance,reserve requirement and compliance issues
What are the responsibilities of Member Agents
They act as a communicating Channel between members and various managing agents running their syndicates
Who approves the Member Agents
Currently there are three active member Agents, approved by the FCA and Lloyd’s Specifically
What is MRC?
Market Reform Contract also known as slips, this is how most risks are placed in the Lloyd’s market
What are NAmes
These are people who have demonstrated a certain level of financial wealth,provide capacity for insuring risks
What did the Legislative REform(Lloyd’s )Order 2008 allow
This Legislative allowed non Lloyd brokers to place business in the Lloyd market. Ensuring the same minimum standards apply to these non-Lloyd brokers as the Lloyd Brokers.
More Commoditised Risks like motor and household can be written outside the Lloyd’s Office and presented to underwriters without using the Slip.
Other Risks are written directly with insured by managing agents owned service companies
Removed the divestment rule, that stated underwriting and broking activities should be different
What is Contract Certanity
Contract Certanity is achived by the complete and final agreement of all terms between Insured and Insurer before Inception
What is an Agent
Is one who is authorized by the principal, to bring the principal into a contractual relationship with the third party. E.g of an Agent is an Insurance Intermediary
Inorder to be a person who carry on Insurance mediation activities you must either be directly authorised b ythe FCA or be exempt by adopting which status
The Intermediary can adopt status of Appointed Representative (AR) or Introducer Appointed Representative(IAR) or be a memeber of a professional body that has equivalent rules to the FCA (designated professional body
An Authorised Person
is an Individual or firm outhorized by the FCA to engage in regulated activities.
An intermediary must apply for direct authorization by the FCA
In what areas are the FCA rules demanding
The rules are demanding in terms of
- Finacial Accounting
- Training
- Competence
- Reporting Requirement
What is an Appointed Representative(AR)
An Individual or company that is appointed by the authorized person under the terms of a contract
What is the Appointed Representative Agreement
Is a Contract which sets out the terms of business between Authorised person and appointed representative. It determines AR role and responsibilities
What shall the principle do if it enters into an AR that has other principles
The Principle(Authorized Person) must enter into a written multiple principle agreement with every principal the AR may have
What is the duty of the Authorized Person for the AR
The authorized person must insure that the AR is abiding by all FCA rules in relation to any regulated activities performed
Thus having adequate oversight arrangments in place over the AR
Who is an Introducer Appointed Representative(IAR)
Is one whose scope of appointment by the authorized person/firm is limited to effecting introduction and distributing non-real time financial promotions. I.E proposal forms and brochures
What must brokers satisfy to join the Lloyd Council
Brokers show their expertise, integrity and financial standing to the council
Who is an independent Intermediary
An intermediary who works on the behalf of the client, when placing the business.
There expertise is demonstrated by recommending the most appropriate insurer to place risk with
What services do the independent intermediary provide to their clients
- decide best market to place risk
- negotiate terms and conditions before inception and mid term changes
- provide advice to client on the details of policy wordings.
- Review Clients needs and negotiate renewals
- Advise clients on the validity of their claims
What services do Independent Intermediary provide on the behalf of Insurers
- Collect Premium
- Commiting the insurer to cover the risk
- settling claims on behalf of the insurer
- Issuing Motor or other cover notes to give evidence of cover
Give two Examples of Broker Netwroks
One way is when an organisation, authorized by the FCA offers AR status to those joining the network. The firms retain their ownership of the broking firms but acquire acess to centralised services of the FCA approved firm
Another example is firms who are individually authorized by FCA, come together and form an alliance
What are Consolidators
Companies (Intermediaries) growing by the formal acquisition of others in the marketplace.
Some Consolidators since they are big in size and have potential growth will require Insurers to offer preferential rates or enhanced commission for the business they bring in to the Insurers
Consolidators have given rise to blurring the boundaries between Insurers and Intermediaries, as there are some examples where Insurer has acquired a significant sized Insurance brokers,
How does the government avoid confusion
The government relys effectively on the FCA rules, that insist on conflicts of interest being managed and mitigated effectively
In Insurance, what does the marketing process involves making decisions on
The Marketing process involves the 4Ps. Product, Place,Price and Promotion. The Marketing Mix
What are the two types of Insurance Distribution Channels
They are Direct and Indirect Channels
Which groups play a role in Direct marketing channels
- Direct Insurers
- Company Sales Staff
- Home Service Agents(who sell mostly life Insurance)
What are the methods of Direct marketing channels
Methods include
- Targeted Mailings
- Telephone Calls
- Social Media Messaging directed to the targeted to specific customers
What are the benefits of using direct marketing channels
- Through directly marketing products to the public, this reduces cost of paying others(intermediary commission) to advertise your products. This saving can be passed down to customers in form of competitive pricing
- Eventhough Cost is saved through direct marketing, Insurers incur cost in advertising and promotion. This cost can passed on to customers in form of premium payable.
- Insurance becomes quickly and easy to purchase
What are the disadvantages of using direct marketing channels
- Only one product is available to the customer, unless they make several calls.
- Customer doesn’t get Independent advise on which insurance product is suitable and no advise in an event of a claim
How do Independent Intermediaries provide benefits to insurers on Indirect Distribution Channels
- They will provide clients with a whole range of suitable insurance products.
- They will provide assistance to Insurers, on completing claim forms or provide advise on claims disputes
Who is an MGA
A Managing General Agent is a specialist type of Intermediary who has the delegated authority to work for one or more insurer.
They act like an Insurer eventhough they are an intermediary, performing functions of an Insurer
What functions to the MGA perform
They perform funtions like;
- Underwriting and Prcicing
- Handling Claims.
- Binding Insurers to Cover risks
- Apponting Agents
What is Bancassuarance
This is an arrangment between bank and Insurance companies, where by they agree to sell Insurance products to the bank’s customers, through bank branches
What are the advantages enjoyed by both parties
- They have access to each party scale efficiencies, this is the benefit gained from working on a large scale
- Lower Risk to the business, since they have access to an alternative customers or businesses
- They have access to previously unavailable resources.
- Market Development, due to increased percentage share of customers availble
- Opportunity for Joint product development, by both parties to reduce cost and time
- Improves Value Chain Effciency
When does an insurer use Rei surance
When an Insurer sees that they stand to lose financially in an event of a claim from the risk they hold then they reinsure.
They will reinsure only part of the risk, not all of it. And may decide to share losses on a risk by risk basis
What is the difference between Co-Insurance and Re Insurance
The difference is with Reinsurance, the Insured needs not to know that the reinsurance occured
What is the purpose of Reinsurance
- it smooths the peaks and troughs in the claims experience, they assist in spreading the large cl;aim cost over a period of time, and high premium payment for adverse trend to not be paid immediately, but over a period of time
- Protect the Portfolio
- provide Improve Customer Services(with extra capacity from the reinsurer, they can insure more risks)
- provide support for insurers entering new business area
Arranging Reinsurance for a single risk is known as
Facultative ReInsurance
What is Catastrophe Reinsurance
This is when an Insurer seeks reinsurance to protect a pool of accumulated funds against the effect of large losses or a series of losses arising from a single cause
What type of companies are Reinsurance
They are limited liabilities, with substantial amount of paid up capital, 100 Million in excess
What are the main types of reinsurance companies
- Insurance companies, which act like reinsurers
- Lloyd Syndicates
- Specialist Reinsurance Companies, that don’t transact direct insurance business
When an Insurer seeks Reinsurance its called
Reinsurance, and the Insurer seeking insurance is known as the Reinusred/Cedant/Ceiding office
when a reinsurer seeks reinsurance its known as
It is known as Retroceding
What are the two main reinsurance centers
Lloyd
IUA
What is the IUA
Its the largest representative organisation for international Wholesalers Insurance and Reinsurance companies in the world
What is the most notable function of LUC
London Underwriting Center is most notably known for producing clause wordings for the London Market, especially for marine Insurance
