IF2 - Module 9

Question 1

What is an appointed representative?

Answer 1

Acts on behalf of an authorised insurer or intermediary who accepts responsibility for their actions.

Question 2

What is an introducer appointed representative?

Answer 2

They issue literature but aren’t involved in the placement or negotiation process.

Question 3

What is a wholesale broker?

Answer 3

They are used to access a certain market (such as Lloyd’s or the London Market) by another intermediary. Regulatory responsibility for dealing with the customer stays with the client-facing intermediary.

Question 4

What is contract certainty?

Answer 4

The complete and final agreement of all terms by the time a contract is entered into and contract documentation provided promptly thereafter.

Question 5

FCA rules state that certain information about the intermediary and its services must be provided prior to the conclusion of the contract.

What document has traditionally been used to fulfil this obligation?

Answer 5

Initial Disclosure Document (IDD)

Question 6

Which of these are requirements for an intermediary under the identifying client needs and advising rules?

Answer 6

• Establishing the clients demands and needs before providing a recommendation
• Providing suitable advice
• Providing the customer with a statement of their demands and needs

Question 7

Lionel has received a quotation for home contents insurance. He considers the price and terms of the insurance to be reasonable and wants to go ahead.

Which of these would you expect Lionel to be given by the intermediary or the insurer before the contract is concluded?

Answer 7

• A summary of the key features of the insurance
• The right to change his mind and cancel the insurance without penalty
• Information about how to make a claim
• Information about how to claim compensation if the insurer goes bankrupt before honouring their commitment under the insurance

Question 8

What is included in a key features document?

Answer 8

Key features document

This includes:

• the name of the insurer;
• the product (e.g. type of cover, significant features and benefits, exclusions or limitations, duration, the need to review and update cover periodically to ensure it remains adequate (where relevant), price (optional));
• a statement that the policy summary does not contain the full terms and conditions of the policy;
• cancellation rights (usually 14 days for general insurance contracts, 30 days for protection);
• how to claim and how to complain;
• the possible entitlement to compensation from the Financial Services Compensation Scheme (FSCS) should the insurer be unable to meet its liabilities;
• and the key facts logo.

Question 9

What is a key features document?

Answer 9

Insurers generally provide information to consumers by means of a key features document.

Question 10

In what situations do cancellations rights not apply?

Answer 10

Cancellation rights do not apply to a number of contracts including:

• policies for commercial customers (although some insurers do provide these rights);
• short-term policies (e.g. package travel) of less than a month’s duration irrespective of when they are taken out;
• pure protection policies of six months or less which are not distance contracts; and
• policies where there has been performance by both parties before the consumer exercises their right to cancel (e.g. where a claim has been made).

Question 11

For commercial general insurance customers, what information must be provided by the intermediary before conclusion of the contract?

Answer 11

• appropriate information in good time to enable the client to make an informed decision about the proposed contract;
• the law applicable to the policy;
• arrangements for handling complaints; and
• the address of the appropriate (head or branch) office of the insurer providing cover.

Under contact certainty rules, on conclusion of the contract the intermediary must normally provide the commercial client with a policy document promptly, meaning within 30 days.

Question 12

What document is sent to the proposer, by the insurer, to sign, and is a printed version of the information provided by the proposer?

Answer 12

A Statement of Facts

The proposer is asked to check the Statement of Facts and inform the insurer of any inaccuracies.

Question 13

How are premiums calculated by insurers?

Answer 13

Premiums are often calculated by applying a premium rate to a premium base.
The rate is intended to reflect the hazards associated with a certain insured and the premium base is the measure of exposure.

If, for example, the insurer sets its premium rate for fire damage on commercial office properties at 2% and the policyholder requires a sum insured of £1m, the annual premium will be:

£1,000,000 x 2% = £20,000

Question 14

What is an adjustable premium?

Answer 14

An adjustable premium is charged where the premium base cannot certainly be stated at the beginning of the period of insurance.

The premium rate is therefore applied to an estimated figure, and then the ‘deposit’ premium charged is adjusted at the end of the period of cover when the true position is known.

Question 15

How is a flat premium calculated?

Answer 15

The flat premium is arrived at by taking account of the hazards associated with the individual insured (e.g. age, experience, occupation, location) and the insured’s vehicle (e.g. make and model, performance, value, where garaged).

In this way those who present a lower risk pay less in premium (as illustrated in our earlier example comparing an accountant with a taxi driver).

Question 16

Which of these would you expect to see recorded on the motor insurance certificate?

Answer 16

Registration number of the vehicle

Name of policyholder

Date of commencement and expiry of cover

Persons or classes of persons entitled to drive

Question 17

An employers’ liability insurance certificate must show:

Answer 17

• the name of policyholder;
• the date of commencement and expiry date of cover; and
• confirmation that cover complies with UK statutory requirements and the minimum amount of cover is not less than £5 million.

Question 18

At what point do you think that a valid contract of insurance exists between insurer and insured?

Answer 18

When the insured has paid the premium

Question 19

What is the rate of insurance premium tax (IPT)?

Answer 19

The current level of IPT is 12% of the premium for all policies except travel insurance and some insurances in vehicles and domestic/electrical appliances, where the rate is 20%.

It is payable by the insured in respect of new insurance contracts, renewals and mid-term changes. The insurer is responsible for collection and accounting to HMRC.