IF1- Chapter 2 Flashcards
who are the 5 main participants in the market
buyers- PH/insured
insurers- sellers
intermediaries- brokers
aggregators- price comparison websites
reinsurers- further means of spreading the risk
5 main types of buyers
private individuals
companies
partnerships
public bodies
charities, associations, clubs
Definiton of companies
large multinational or self employed- limited liability companies have seperate legal existence from those who own the company
definiton of partnerships
do not have seperate legal existance- each of the partners being jointly and severaly liable- medical, veterinary, legal professions
definiton of public bodies
local authorities and schools
who are exempt from insurance
policemen
charities, associations and clubs what type of insurance do they require
liability risks for damage to owned property
type of insurer as defined by ownership
Properietary companies
mutual companies
captive insurers
proctected cell companies
lloyds
definition of properietary companies
registered under Companies Act 1985- owned by shareholders who contribute to capital, profit after expenses belongs to shareholders
Limited liability companies- plc companies
publically quoted companies
private properietary companies
shares owned by a few or single shareholder- shares not available to general public- ltd companies, often small to meduim
mutual companies
owned by PH- PH share in profits of company by lower premiums
PH are liable for any losses made by company-
Trend for insurers owned in this way to become proprietary companies due to demutalisation
captive insurers
established by parent companies providing cover primarily to parent company
benefits of captive insurers
tax efficient method of transferring risk-
premuims payable to captive may be tax deductible
captive established in favourable tax rate areas- Isle of man, bermuda
Captive insurers dont offer insurance to general public
Avoiding paying extra premuims to meet overheads- use of reinsurance
Protected Cell companies
‘ring’ fences assets of participating cells allowing them to operate as distinct insurance entities
PCC single entity
PCC used as risk transfer vechiles and also for niche products
Minimum establishment and administration costs due to tax favourable areas
Takaful insurance
roots in Islamic financial services industry
Rules of islamic law
forbids sale where there is risk to the buyer unless risk is reasonable
gambling forbidden- traditional insurance policies viewed as form of gambling
Forbidden to make money from money (interest)- wealth can only be made through assets and investments
The state
acts as an insurer in welfare benefits, pension- guarantor to the insurance sector for terrorism and flood risks
syndicates
groups of private individuals or corporate investors who carry the risks- underwriting members or names
managing agents
syndicates outsource day to day running of business to managing agent- regulated by FCA and PRA
capital and member/names
capital provided by corporate investors - used to have personal liability with no limit- no longer the case after series of exponential losses
what did reconstruction and renewal lead to
equitas created and no new individual names with unlimited liability permitted to join lloyds
member agents
advises on advantages and disadvantages of investing in the market- communication channel between member and various managing agents
subscription market
not sensible for single underwriter to accept 100% of a risk- each underwriter the broker approaches will accept a percentage share for their syndicate
london market and gross income
members of International Underwriting association- main providers of insurance and reinsurance companies- income 53.1 billion in 2023
contract certainty
all parties are aware of coverage and terms of policy before a risk starts
distinctions for contract certainty
Certainty as to final share of risk each insurer takes
documentation within 30 days
if broker involved in placement, brokers and underwriters share the responsibility for making sure contract certainty achieved
intermediaries
agent bringing two parties together- ‘agent’ authorised by one party ‘principal’ to bring principal into contractual relationship with a third party
Who are we regulated by and what are exemptions
FCA- if exempt intermediary must adopt status of an appointed representative or introduced appointed representative
Insurance distribution directive
ancillary insurance intermediary- distributes insurance on an ancillary purpose
authorised person
individual or firm authorised by FCA to engage in regulated activities
Appointed representatives
individual or company appointed by ‘principal’ AR can act for more than one principal
Includes those with non-insurance main products- EG motor garage
issues with AR
shortcomings from principal firms not having enough control-
inadequate oversight and control once AR begins regulated activities
introducer appointed representatives
scope of appointment by the firm limited to effecting introduction and distributing ‘non real time financial solutions’
principals responsible for IAR
services provided by intermediaries
intermediaries act on behalf of client when placing business- advises whether product recommended is a personal recommendation
intermediaries service for clients
decide best market and negogiate
provide advice around policy wordings
review client needs
intermediaries service for insurers
commiting insurer to cover risk
settling claims on behalf of insurer
broker networks
market consolidation- benefits such as centralised services, cost saving
consolidators
companies growing by acquisition- insurers want to transact business due to potential for growth
what do some consolidators demand
preferential rates and enhanced commission- blurs line between insruers and intermdiaries
what is legislative reform act 2008
removed ‘divestment rule’- where broking and underwriting activities must be completely seperated
direct marketing and distribution
employees of the insurer sell the insurance products or direct mailing to promote sales
indirect marketing
intermediaries paid by insurer to promote products on insurers behalf
delegated authority
known as binders give flexibility to intermediaries
managing general agents
specialist type of intermediary with authority to act for one or more insurers
bancassurance
arrangement between bank and insurance company- products sold to banks clients- leads to m and a
benefits of bancassurance
access to each parties resources
lower risk to business and value chain efficiency
opportunities for joint product development and market development
PCW/ aggregators
web based tools to collect info
Aggregation- retrieval for goods and services online
reinsurance
transfer of risk by using reinsurers- can be individual risk basis, event or portfolio
purposes of reinsurance
large losses shared between reinsurers
losses shared by risk by risk basis
smooth peaks and troughs in trading results
protect portfolio
smoothing peaks and troughs
insurers keen to ensure their trading results show gradual trends rather than huge peaks- stability
reinsurance spreads cost of large losses over period of time
Facultative reinsurance
protecting portfolios- reinsurance on a single risk
insurers also need to protect pool of accumulated funds
captives usually only offer cover to companies…
owned by same parent company
types of insurer
specialist reinsurance companies- don’t transact original (direct) business
lloyds syndiactes
insurance companies that also act as insurers
Types of reinsurance terms
retroceding- transfering their risks to other insurer
risk is placed- retrocession
2 main reinsurance centres
lloyds
international underwriting association
tasks of underwriter
manage pool effectively and profitably
assess risk
decide whether to go ahead with risk or not
determine t and c - scope of voer
calculate premiums to cover claims, reserves, expenses and profits
loss adjusters
acts for the insurer
investigate circumstances
decide if policy covers the loss
emergency measures for EG property
negogiate amounts claimed- recommendation for settlement to insurers
loss assessors
acts for the insured
determine exact cause for loss
gather evidence to suggest fraud/ accelerants
if lack of maintenance caused damage
proximity of cause of a loss
acturies:
applies probability and theory to insurance, investment, financial and risk management- life insurance
probability of loss and prediction of claim numbers and future values
risk managers
develop formal strategy for probability of loss and prediction of claim numbers-
meets solvency II requirements
members of trade associations- Airmic
functions of risk managers
identification, analysis, economic or control risks that threaten business
provision of guidance on best practices and transfer of appropriate risks
compliance officeres
oversight and function reports to governing body
communicating policy to staff
regular reports on governance, finance
review stages of business
perform role of money laundering
internal auditors
monitor and evaluate how risks are managed- business being governed
They look into wider issues such as company reputation
under solvency II- auditors role in asessing reliability of financial reporting and compliance
association of british insurers
market association- 300 member companies
Gather relevant statistics, framing codes of practice
public voice of sector
british insurance brokers association
non statutory trade association for insurance intermediaries- 1800 firms
promote member views on legislation
nominating memberes to sit on committees
lloyds market association
provides representation, info, services to underwriting businesses- all lloyds member agents are members of LMA
represent members interest to governments, regulators, EU
london market group
brings together specialist commercial reinsurance- works with government to promote london market
encourage young ppl to see insurance as a career
international underwriting association of london
IUA worlds largest organisation for internional and wholesale insurance and reinsurance companies
strengthen business environment- transform business process
deliver knowledge and expertise
Managing General agents association-
function provision of underwriting services to insurers
their clients often SME
Chartered insurance of loss adjusters
impartial specialists- membership consists of individual loss adjusters rather than firms that employ them
institute and faculty of acturies:
UKs only chartered body dedicated to acturies- 32000- they operate as single entity
provides manuals of practices- provide education
association of insurance and risk management in industry and commerce
Airmic-promotes interest of corporate insurance buyers and those involved in risk
membership individual or corporate
support by training, info, and encourage best practices
insurtech 2019
trade body- to position UK as leading force in technological innovation
PPI
designed to cover monthly loans and credit card payments opposed to replacing percentage of insureds income
liability insurance
legal liability to pay compensation and costs awarded against insured in favour of another party- death , disease
employers liability
compensate in respect of legal liability to pay damages to employees arising out of injury, disease, illness, death
public liability
compensate in respect of claims from members of public- accidental injury
products liability
cover for 3rd party injury or damage caused by products
directors and officers liability
costs incurred by individual directors and officers for financial loss
professional indemnity
protects people acting in professsional capacity against claims alleging injury or loss from negligence
pecuniary insurance
relating to money- intangibles such as income, revenue or value
also covered; political risk, business interuption
credit
fidelity guarantee
financial results from lack of fidelity arising from dishonesty of employee- losing money or stock
cyber insurance
protects businsses for 3rd and first party losses arising from cyber attacks
