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CII > IF1.2 - The Insurance Market > Flashcards

IF1.2 - The Insurance Market Flashcards

1
Q

What are the 5 main types of buyers of insurance

A
  1. Private Individuals
  2. Partnerships
  3. Companies
  4. Public bodies e.g. schools, councils
  5. charities, Associations and Clubs
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2
Q

What is an Intermediary

A

A link between customers & insurers e.g. an agent or a broker

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3
Q

What are the two categories of intermediary

A
  1. Those who must be authorised
  2. Those who are exempt from authorisation
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4
Q

What are the main types of intermediary

A
  1. Appointed Representative
  2. Independent Intermediary
  3. Introducer AR
  4. Ancillary Insurance Intermediary
  5. Lloyds Brokers
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5
Q

What is an appointed representative?

A

An individual or company appointed by a directly authorised person under contract that specifies the scope of its role. (may act for more than one company)

I.e. someone to sell and give advice.

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6
Q

What is an independent Intermediary (broker)

A

A person who acts on behalf of clients, advises fairly & recommends based on the market

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7
Q

What is an introducer authorised representative

A

they cannot give advice but can only introduce their principal to customers and supply things such as brochures.

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8
Q

What is a Lloyds broker

A

an Independent intermediary who is registered by the council of Lloyds

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9
Q

What is an ancillary insurance intermediary

A

those who can sell insurance but not as the main part of their business e.g. travel operators

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10
Q

What is a consolidator

A

a company that buys independent small brokers

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11
Q

What is a broker network

A

An organisation that can offer AR status to those joining the network.

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12
Q

What are the 8 types of insurers?

A
  1. Proprietary Companies
  2. Mutual Companies
  3. Mutual Indemnity Associations (P&I club)
  4. Captive Insurers
  5. Protected cell companies
  6. takaful insurers
  7. the state
  8. Bancassurance
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13
Q

Define Proprietary insurance company

A

those that are owned by shareholders (PLC).

Shareholders contribute a capital, which is money for expansion (not for claims)

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14
Q

Define a mutual insurance company

A

those that are owned by the policyholders

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15
Q

What is a benefit of a mutual insurance company

A

if a company profits => lower premiums

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16
Q

Define a mutual indemnity association (P&I Club)

A

a mutual company that focusses of marine hull liability markets

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17
Q

Benefits of a captive insurer

A

A tax efficient and cost effective risk transfer mechanism for large international organisations.

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18
Q

Define a captive insurer

A

An insurance company that is wholly owned by its insured (e.g. a parent company sets up a subsidiary company to underwrite some of the parent companies insurable risk)

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19
Q

Define a protected cell company

A

A type of captive insurer who ‘rents’ their captive insurance company to other companies with similar needs.

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20
Q

Define a Takaful insurance company

A

An Islamic insurer within the Islamic financial services (any risk and profit should be shared among the participants)

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21
Q

Define how the state acts as an insurance company

A

e.g. for social welfare and pension provision
Or alternatively, it acts as a guarantor to the insurance sector in relation to terrorism risk and flood risks.

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22
Q

Define Bancassurance

A

An arrangement between a bank and an insurance company e.g. insurance products sold to banking customers.

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23
Q

What is Lloyds?

A

An insurance and reinsurance marketplace

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24
Q

How does Lloyds work?

A

members form syndicates to accept risks . Then they employ a managing agent who in turn appoints an underwriter for the syndicate.

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25
Q

What is a managing agent responsible for in the lloyds market?

A

The day-to-day running of a syndicate, including employing underwriters & claims adjustors.

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26
Q

What happens with a Market reform Contract (MRC) / Slip

A

Brokers approach as many syndicates (their underwriters) as are required until their slip is full. (scratching the slip)

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27
Q

What is the london market

A

A group that represents a variety of insurers including:
- Lloyds syndicates
- insurance and reinsurance companies
- protection and indemnity clubs

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28
Q

What is contract certainty

A

Makes all parties fully aware of the coverage of the policy before a risk starts to be covered.

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29
Q

What is reinsurance?

A

An insurer can pass any or all of a risk it holds to another insurer with the purpose to share losses.

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30
Q

What are the 3 categories of reinsurers?

A
  1. Lloyds
  2. specialist reinsurers
  3. insurance companies
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31
Q

What is a treaty?

A

An arrangement of reinsurance to place a range of risks that fall within an agreed set of criteria.

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32
Q

What is a facultative reinsurance?

A

A reinsurance on a single risk.

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33
Q

What does marketing risk involve decisions on?

A
  1. the product
  2. the price of the product
  3. promotion
  4. place to promote
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34
Q

define direct distribution

A

contracts arranged directly between the insured and the insurer.

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34
Q

Which of the two marketing mix decisions are related to distrubution?

A

promotion & place

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35
Q

Define indirect distribution

A

An intermediary is involved in the sales process.

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36
Q

examples of indirect marketing distrubution

A
  • agents
  • brokers
  • consultants or advisors
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37
Q

positives of direct marketing distrubution

A
  • competitive premiums (saving on commision)
  • immediate cover
  • insurers can control customer experience
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38
Q

negatives of direct marketing distrubution

A
  • only one companies product is on offer (cover may not be obtainable)
  • there may be no independent advice
  • advertising costs may increase premiums
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39
Q

Positives of indirect distribution channels

A
  • independent advice
  • a range of services available
  • prices and cover can be compared
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40
Q

Negatives of indirect distribution channels

A
  • no quotes direct from insurers
  • some intermediaries can only advise on one insurance product
  • danger of churning
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41
Q

What is churning

A

replacing policies to frequently (a danger of indirect distribution channels)

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42
Q

What do Schemes and delegated authority (binders allow?

A

allow intermediaries to issue cover within defined parameters

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43
Q

What are the advantages of schemes and delegated authorities

A
  • insurers benefit from an increased flow of business
  • intermediaries give better service and can benefit from profit sharing provision.
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44
Q

What is another name for a price comparison site

A

aggregators

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45
Q

What is a disadvantage of an aggregator (price comparison site)

A

the quotes provided may not accurately represent the cost and specifics of cover.

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46
Q

What is an actuary

A

A professionally qualified person who applies statistical and probability theory to problems of insurance, investment, financial & risk management and demography.

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47
Q

What is an underwriter?

A

A person who decides how much premium to charge for insurance cover.

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48
Q

What are claims personnel

A

Those who deal with all claims quickly, fairly and cost effectively.
They must distinguish between real and fraudulent claims.

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49
Q

What are some experts who may be involved in claims?

A
  • loss adjustor
  • loss assessor
  • forensic investigators
  • surveyor
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50
Q

Who is a loss assessor hire by?

A

the insured

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51
Q

A loss adjustor and loss assessor are…

A

independent of the insurance company

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52
Q

What is a risk manager

A

a person who manages, controls and transfers risk. They also provide guidance for senior management.

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53
Q

what is a surveyor

A

someone who:
- give advice of immediate action after a loss
- makes sure recommendations as to any underwriting action necessary
- checks if advised requirements from the insurer are complied with

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54
Q

What is a loss adjustor

A

they investigate and negotiate a settlement which is fair to both the insurer and the insured

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55
Q

What is a loss assessor?

A

they present and negotiate settlement of a claim under the insurance policy

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56
Q

what is a forensic investigator?

A

Someone who in specific circumstances investigates fraud, deliberate acts or collusion by employees.

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57
Q

What is internal audit?

A

someone who provides independent and objective assessment of how well risk are being managed by a firm.

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58
Q

what are compliance officers?

A

someone who ensure the firm abides by the rules and regulations set out by the FCA

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59
Q

What is the Association of British Insurers (ABI)?

A

Largest Insurance market association which is the voice of the insurance industry.

60
Q

What are the objectives of the Association of British Insurers (ABI)?

A
  • create beneficial debates between groups
  • public voice of the sector
  • encourage consumer understanding
  • support a competitive insurance industry
61
Q

What does the International Underwriting Association of London (IUA) do?

A

protects and strengthens the business environment for its member companies.

62
Q

What are the objectives of the International Underwriting Association of London (IUA)?

A
  • modernising, digitising and automating business processes
  • deliver knowledge for underwriting and claims handling
  • represent members of matters of public policy and regulation.
63
Q

What is the British Insurance Brokers’ Association (BIBA)?

A

The trade association that represents the interests of brokers and improves business conduct.

64
Q

What is the London Market regional Comittee (LMRC)?

A

An arm of BIBA specifically for London market brokers

65
Q

What is the London and International Insurance Brokers Association (LIIBA)?

A

an independent trade body representing the interest of brokers in the London and worldwide markets.

66
Q

What is the Lloyds market Association (LMA)?

A

The voice of syndicates: they represent, provide information and provide technical services to businesses in the Lloyds market.

67
Q

Chartered Institute of Loss Adjusters

A

Represents loss adjusters: provides training and a code of conduct.

68
Q

Institute and Faculty of Actuaries IFoA

A

Chartered body for actuaries: education, standards of conduct & public awareness.

69
Q

Institute of Risk Management (IRM)

A

Qualifications & training in risk management

70
Q

Association of Insurance and Risk Managers in Industry AIRMIC

A

Transform risk management through networking, professional development and leadership

71
Q

IUK is an organisation for what?

A

Trade body to push tech innovations to improve the insurance industry.

72
Q

CII is an organisation for what?

A

professional development within the insurance industry (education, code of conduct, resources & development)

73
Q

What is the Motor Insurance Bureau (MIB)

A

an organisation to protect victims of road accidents where there is an uninsured or an untraced driver.

74
Q

Objectives of the Motor Insurance Bureau (MIB)

A
  • reduce the level and impact of uninsured driving in the UK
  • compensate victims of uninsured and untraced drivers fairly and promptly.
  • provide 1st class data asset management and specialist claims services.
75
Q

What are 2 agreements from the Motor Insurance Bureau (MIB)

A
  1. untraced drivers’ agreement
  2. uninsured drivers agreement
76
Q

What are 2 lines of insurance?

A

personal and commercial

77
Q

What is personal insurance

A

insurance that protects the policyholder from loss or damage to personal property or from damages for which the policy holder may be held responsible.

78
Q

Types of personal insurance

A
  • Motor
  • Home
  • Travel
  • Pet
  • Health (personal accident, sickness, private medical, critical illness, payment protection)
79
Q

Types of Commercial Insurance

A
  • liability
  • property
  • Pecuniary
  • Marine
  • Aviation (+satellite)
  • Cyber
79
Q

types of health insurance

A
  • personal accident
    -sickness
  • private medical
    -critical illness
    -payment protection
80
Q

What is pecuniary Insurance?

A

Insurance of intangibles e.g. loosing money or stock due to dishonesty of others, legal expenses, non-payment by creditors, business interruption, political risk & guaranteed asset protection.

81
Q

What is insurance tax premium (ITP)

A

tax collected by insurers on all general insurance premiums and passed to HMRC

82
Q

What is the standard rate of ITP

A

12%

83
Q

What does the higher rate of 20% for ITP apply to

A

travel insurance, some cars and domestic appliances.

84
Q

what is exempt from ITP?

A

long term insurance, reinsurance, ships, aircraft, goods in transit & risk outside of the UK.

85
Q

Remuneration

A

Commission paid by the insurer to the agent for selling their insurance products.

86
Q

LTD, PLC =>

A

Companies

87
Q

LLP =>

A

Partnerships

88
Q

What is particular about a partnership

A

Partnerships do not have a separate legal existence, each of the partners are jointly liable for the company.

89
Q

What does MRC stand for?

A

market reform contract

90
Q

5 Main components of the insurance market

A
  1. Buyers
  2. Insurers
  3. Intermediaries
  4. Comparison Websites
  5. Reinsurers
91
Q

Commercial Buyers of Insurance

A
  1. Partnerships
  2. Companies
  3. Public bodies e.g. schools, councils
  4. charities, Associations and Clubs
92
Q

Insurance for partnerships tend to be…

A

catered for by specialist schemes

92
Q

Public bodies will insure in which two ways?

A
  1. Setting up their own insurance fund (self insurance)
  2. using the insurance market for certain bigger risks.
93
Q

What does it mean if a company is limited?

A

Shareholders/ Members liability for the company’s debts is limited to the nominal value of the shares they own/ the premium they paid.

If they company goes bankrupt you don’t loose more than you put it.

93
Q

How do mutual companies share profits with members?

A

Lower premiums for returning customers.

94
Q

Positives of a captive insurance company

A
  • tax efficiency (avoids tax on ‘profits’ as they’ve been paid to the captive company as a ‘premium’.
  • Smaller premiums (don’t have to pay for another companies overhead costs/profit margins)
  • Very well understood risks
95
Q

Can captive insurance be offered to the general public?

A

No

96
Q

What are the two parts of a protected cell company?

A

core & cells (unlimited number)

97
Q

benefits of a protected cell company

A
  • minimises admin costs
  • favourable tax rates
98
Q

What is a composite insurance company

A

companies which accept several types of business (most insurance companies)

99
Q

What is a specialist insurance company?

A

One which issues policies for only one class of business.

99
Q

What is a Name

A

investors in syndicates.

100
Q

What do syndicates provide?

A

financial backing

101
Q

what types of risks do syndicates deal with?

A

Low frequency high severity.

102
Q

How is risk taken on in the Lloyds market?

A

Risk is split between syndicates (which in turn is shared among investors)

103
Q

What is a members agent in the lloyds market?

A

advises potential Names on the advantages and disadvantages of investing in the lloyds market. (including syndicate selection & performance, reserve requirements and compliance issues)

104
Q

What is the Subscription Market

A

The sharing of the risk between a number of insurers in the Lloyds market.

105
Q

What happens when the MRC/slip is fully placed?

A

the risk is submitted electronically to XChanging Ins-Sure Services (XIS)

106
Q

What type of risk is placed on the London Market?

A

sizeable and complex industrial risks from all over the world.

107
Q

How does the London market work?

A

In the same way as lloyds except Insurance companies are approached instead of syndicates (e.g. Aviva)

108
Q

What is an agent?

A

someone who is authorised by one party (the principal) to bring that principal into a contractual relationship with another (the third party)

108
Q

Intermediaries that are exempt from authorisation from the FCA

A
  • appointed representatives (AR)
  • Introducer appointed representatives (IAR)
109
Q

Define Authorised Person

A

An individual or firm authorised by the FCA to engage in regulated activities.

109
Q

Examples of appointed reprenresentatives

A
  • full time insurance agents who are tied to one or more insurers
  • employees at motor garages who sell relevant insurance products.
110
Q

Services intermediaries provide for clients

A
  • deciding the best markets to place risks
  • negotiate initial terms and conditions
  • provide advice to the client in relation to policy wording
  • review clients needs
  • negotiate renewals
  • advise the client on the validity of claims
111
Q

What does TOBA stand for?

A

terms of business agreement

112
Q

Services intermediaries provide for insurers

A
  • collecting premium
  • committing the insurer to cover the risk
  • settling claims on behalf of the insurer
  • issuing motor & giving evidence of cover.A
113
Q

ARs can only…

A

give advice in elation to a specific insurers product.

114
Q

What is a consolidator

A

An insurance company that buys small independent brokers

115
Q

Examples of direct marketing channels

A
  • telephone calls
  • social media
  • direct mailing
  • company sales staff
116
Q

What are schemes and delegated authorities

A

A product that is unique to a specific trade which are pre-written and fall within specified criteria.

117
Q

Advantages of Bancassurance

A
  • benefits that both companies have for operating at a large scale
  • lower risk to the business
  • access to previously unavailable resources
  • opportunities for joint product development
  • Access to each others brands and reputations in their respective sectors
    Market development (more customers)
118
Q

2 main ways of reinsurance

A

facultative (on a single risk) & treaty (on multiple risks)

119
Q

What is reinsurance?

A

A company may reinsure a risk because the financial loss of a claims payment may be too great. hence, the insurer is able to pay any (or all) of the risk to another insurer.

120
Q

Does the insured need to know about reinsurance?

A

no

121
Q

Is there a contractual relationship between the insured and the reinsurer/

A

no

122
Q

Why bother with reinsurance?

A
  • Smooths peaks and troughs (trading results remain as gradual trends which investors prefer)
  • Protecting the portfolio (keeps the pool working)
  • improve customer service & allows to enter new business areas (due to increased capacity)
123
Q

What are the 3 types of reinsurer?

A
  1. specialist reinsurance companies
  2. Lloyds syndicates
  3. Insurance companies
124
Q

What is retroceding

A

reinsuring something that is already reinsured.

125
Q

What are the main functions of an underwriter?

A
  • assess the risks that people bring to the pool
  • decide whether or not to accept a risk
  • determine the terms & conditions of the cover
  • calculate suitable premiums
126
Q

What is personal accident cover

A

cover in the event of accidental death or injury

126
Q

what is Sickness cover

A

Cover for an inability to work due to sickness

127
Q

What is Private medical insurance

A

cover for individuals who seek medical treatment outside the NHS when they are ill

128
Q

What is Short-term income protection

A

payment of an agreed monthly amount when an individual can’t work because of accident sickness or redundancy.

129
Q

What is critical illness cover

A

cover in the even of the diagnosis of a serious illness

130
Q

Many insurance and reinsurance companies are members of what?

A

IUA

131
Q

Key roles of British Insurance Brokers Association (BIBA)

A
  • promoting members views
  • encourage training
  • encourage networking
  • liaising with outside bodies
  • members committees
132
Q

What is an MGA

A

Managing General Agent - similar to brokers but purely there to deal with products which a group of insurers have delegated their authority to them.

133
Q

What does BIBA do?

A
  • maintain and improve high standards of business behaviour
  • protect and enhance the interests of its members for the benefit of the general public.
134
Q

What is MGAA4

A

Association to represent MGAs and give the insurance industry a better understanding of what an MGA is.

135
Q

What does the LMRC do?

A

represents the sector to the FCA & governments

136
Q

What is the IUA

A

An organisation for UK based (not Lloyds) insurance and reinsurance companies which represents them internationally.

137
Q

What does the CII provide

A

education, code of conduct, resources & development

138
Q

Who has overall responsibility for the control of self regulation at lloyds

A

Council of Lloyds

139
Q

What type of organisation is the ABI?

A

A trade association

140
Q

Insurers must be authorised by the

A

PRA & FCA

141
Q

Authorised Person

A

An individual regulated by the FCA to engage in regulated activities

CII (28 decks)

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