Insurance, legal and regulatory Flashcards
Why is some insurance made compulsory?
To provide funds for compensation, and that there are fund available when there is been a loss, which is not their fault.
What is the legal act, which made motor insurance compulsory?
and what does it require?
When does a certificate need to delivered?
The Road traffic act 1998.
Made it a crime to drive/use a vehicle on the road without insurance, which would provide cover against third party property damage and third party bodily injury.
The motor insurance certificate still needs to be delivered, but is no longer required for the policy to be effective.
Other then motor insurance what is the other form of liability insurance which is compulsory for private individuals?
What level of cover, would be satisfactory
The ownership of Dangerous wild animals or dangerous dogs.
The nature and scope of such insurance is not defined in the Dangerous Wild Animals Act 1976. However, the local authority which issues the appropriate licence, must be satisfied as the adequacy of the insurance.
What did the Employers’ Liability Act 1969, make compulsory?
For employers in the UK to effect employers liability insurance. Which would insure them against their liability to pay compensation to employees who sustain bodily injury or disease, arising out of liability to pay compensation to employees who sustain bodily injury or disease arising out of and in the course of their employment.
The minimum required limit is £5 million, though the insurance market sets £10 million as standard.
No certificate needs to be show, employees just need reasonable access (this would be via an electronic format)
What must the proprietors of riding establishments must have
It is compulsory that these owners, have public liability.
The insurance must indemnify the insured against the claims arising from the use of the insured’s horses.
What professions need to get Professional indemnity insurance?
1) Solicitors: need to get insurance that cover them against claims for financial loss suffered by clients as a result of the solicitors’ professional negligence.
2) Insurance intermediaries: This insurance must cover against financial loss suffered by third party caused by their professionals negligence up to the substantial limits.
The minimum level is currently 1,300,380 (eruos) for a single claim, and for aggregate losses, the higher of 1924500(euros) or 10% of annual income (up to £30m)
What does privity of contract mean?
And what did the Contracts (rights of third parties ) act 1999 do?
That a person can only enforce a contract if they are a party to it. Therefore, even is a contract is made with the purpose of benefitting someone who is not a party to it, that person has no right to sure for breach of contract .
The Act reforms this rule and sets out the circumstances in which a third party will have a right to enforce a term of the contract.
What did the Third parties (right against insurers) Act 2010 do.
What must happen in order for the Act to apply?
Sets out to protect insurance proceeds from the effects of insolvency.
The act permits a third party to bring a claim directly against a insurer, without having to restore the insolvent company to the register.
Prevents insurance monies being paid to the insolvent insured and then on to general creditors s part of insolvency proceedings, rather than being paid to the intended beneficiaries of an insurance policy.
For the Act to apply an insured must:
Incur a liability to a third party for which they have insurance.
Be insolvent.
What does good faith mean
Means that disclosure must be made in a reasonably clear and accessible manner and material representation of fact, expectation or belief must be “substantially correct”
What does the principle of good faith mean?
That the parties to a contract must volunteer material information in all negotiations before the contract come into effect.
What does the principle of good faith mean to the prosper
They have a duty to duty to disclose all material circumstances about the risk to the inurer.
What does the principle of good faith mean to the insurer?
They cannot introduce new non-standard terms into the contract that were not discussed during negotiations, neither can the insurer withhold the fact that discounts are available for certain measures that improve a risk
What is the Insured’s duty of disclosure - consumer insurance.
What Acts governs it?
Consumer insurance ( Disclosure and Representations) Act 2012.
Removed the common law duty on consumer to disclose any information that a prudent underwriter would consider material and replaces it with a duty to take reasonable care not to make a misrepresentation - By making sure that questions asked by insurers are answered fully and accurately
-This only applies to consumers, not business/commercial insurance
What is the Insured’s duty of disclosure - non-consumer insurance.
What Acts governs it?
The insurance Act 2015
Policyholders are now obligated to make a fair presentation of the risk.
This is defined as:
Makes disclosure of every material circumstances which the insured knows or ought to know.
Makes this information presentable in a way which is would be reasonably clear and accessible to a prudent insurer.
Insurer’s duty of disclosure - non-consumer insurance -what are they
Notifying the insured of a possible entitlement to a premium discount
Only taking on risks which the insurer is registered accept
Ensuring that all statement are true
Give a brief overview of Prudential Regulation Authority
PRA:
sits within the BoE and is responsible for the stability and resolvability of systematically important financial institutions.
Will not seek to prevent all firms failures but will seek to ensure that firms can fail without bringing down the system.
Will place a “judgement based” approach to supervision.
Give a brief overview of Financial conduct authority
FCA:
Responsible for conduct of business and market issues for all firms and prudential regulation of small firms.
Focused on taking early action, before consumer determinet occurs.
Shift towards thematic reviews and market - wide analysis to identify potential problems in areas such as financial incentives.
Reviews the full product life cycle from design to distribution with power to ban products where necessary.
Give a brief overview of Financial policy committee
FPC:
A committee within the BoE responsible for monitoring emerging risks to the financial systems as a whole and providing strategic direction for the entire regulatory regime.
What are the PRA’s objectives?
1) Promote the safety and soundness of the firms it regulates
2) To contribute to ensuring that policyholders (of insurance polies) are appropriate protected.
Secondary objectives: To facilitate effective competition in the markets for services provided by PRA authorised firms
What are the PRA’s threshold conditions
A firms head office to be in the UK
A firms business to be conducted in a prudent manner and that the firm maintains appropriate finanical and non-finanical resources
The firm itself to be fit and proper and appropriately staffed.
The firm and its group to be capable of bring effectively supervised
What is the PRA’s approach to supervision?
Judgement based, forward looking and focused on key risks.
Characterised by a move away from rules and a focus on forward looking analysis.
The aim is to “pre-empt raised before they crystalise”
PRA - what is the risk assessment framework
The Consideration of the potential impact on policyholders and the financial system of a firm coming under stress of failing.
Risk mitigation by the firm, which considers both operational mitigation which covers management and governance oft the firm combined with its risk management and control.
Financial mitigation and financial strength - Specifically reserves/capital/liquidity.
Structural mitigation and the firm’s resolvability.
PRA - what is the intensity of supervision.
Depends on the level of a companied riskiness: the threat of harm to policyholders and the PRA’s objectives from failure.
Supervisory resources are allocated to each firm based on the impact assessment.
FCA : what are their objectives
Overarching strategic objectives: Make sure the relevant markets function well.
Operational objectives:
1) Consumer protection - Against bad conduct.
2) Integrity: proceeding and enhancing the integrity of the UK financial system.
3) Competition: promoting effective competition in the interest of consumers
FCA: approach to regulation
Product intervention and governance - The FCA will intervene at an early stage to pre-empt and prevent widespread harm to consumers.
Super-complaints - FCA able to review and react to detailed submissions by consumer groups.
FCA - Approach to supervision
THE FCA requires all firms to meet it’s high level principle of business.
Proactive: pre-emptive identification of harm through review and assessment of firms and portfolio.
Reactive: Dealing with issues that are emerging or have happened to prevent harm growing.
Thematic: wider signastic or remedy work where there is a actural or potential harm across a number of firms.
FCA - accountability
Required to report annually to government and parliament.
Also required to make a report to the treasury in the event of a regulatory failure and where this failure was due to the FCAs actions.
What are the first 7 Principles for business (PRIN)
Business must be conducted with:
1) Integrity
2) skill, care and diligence
3) Mangerement and control: the frim has effective managerement
4)Financial prudence
5) Market conduct: the frim observes proper standard of market conduct.
6) Consumer interests: Conflicts of interests must be managed fairly
7) Communication with client: Informatin given to the consumer must be clear, fair and not misleading.
What are the 8-11 Principles for business (PRIN)
8) Conflicts of interest: must be managered fairly.
9) Customers relationship of trust
10) clients assets A firm must arrange adequate protection for clinet asessts when it is responsible for them.
11) Relationship with regulators: A firm must deal with its regulator in a open and cooperation way, and must disclose to the FCA approximately anything relating to the firm of which that regulator would be reasonably expect notice
FCA treatment of customers - What are the six positive consumer outcomes that firms should strive to deliver to ensure the fair treatment of customers
IT is the role of the firms to ensure that they implement procedures to achieve the below outcomes
1) Consumers can be confident they are dealing with a firm where the fair treatment of customers is central to corporate culture.s
2) Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
3) Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
4) Where consumers receive advise the advice is suitable and take into account of their circumstances.
5) Consumers are provided with products that perform as firms have led them to expect.
6) Consumers do not have unreasonable post-sale barriers imposed by firms to changein
What are the senior management arrangement systems
introduced as a new regulatory framework for individual accountability.
Firms are required to do:
Ensure each senior manager has a statement of responsibilities, setting out the areas for which they are persons accountable.
Ensure that all senior managers are pre-approved by the regulators before carrying out their role
What are the three pillars of the Senior Management and certificate regime
1) Senior mangers regime: Any firm wishing to apoint a new senior leader/manager, they must be prepared and then summit an application to the regulators approval. This should include a statement of responabilites should be prepared for each senior manager.
2) Certification regime: Applies to indivduals who are not senior managers, but have a role which is deemed capability of causing a significant harm to the firm. This requires the firm to annually asset the fitness and propriety of the person performing other key roles.
3) Conduct rule:
What is tested for in the Fit and proper test.
Who determines who passes?
They are tested for being “fit and proper” for their function.
They are tested for:
1) Honesty, integrity and reputation
2) Competence and capability
3)Financial soundness
The onus to determine wo is “fit and proper” is on the firm.
What is the public interest disclosure act 1988
Concerns with whistle blowing.
It states that induvial who make qualifying disclosures of information in the public interest have the right not to suffer detriment by any act or omission of their employer because of disclosure.
A qualifying disclosure can be: A criminal offence - A failure to comply with legal obligations - A miscarriage of justice -….
What are the Discipline and enforcement - PRA and FCA
Public censure: Where the FCA considers that the firm has failed to meet a requirement, The FCA may issue a public statement of misconduct on an approved person. With the effect of trying to damage their reputation (of the firm and person).
Financial penalties: FCA can impose financial penalties on a firm where the firm has broken a rule.
Prosecution of a criminal offence: The FCA can bring criminal prosecution proceeding against individual for a wide range of offences. EG: Carrying on regulated activity without authorisation.
What is the first pillar of Solvency II
1) Financial requirement: they need to meet a:
1) solvency capital requirement- The level of capital required to give 99.5% confidence that assets will be sufficient to cover liabilities over the following 12 months
2) Minimum capital requirement - the level of capital requirement to give national supervisors 85% confidence that assets will be sufficient to cover liabilities over the following 12 months.
What is the second pillar of Solvency II
Governance and supervision : - key is the own risk and solvency assessment (ORSA) - which is a set of process and procures that are used to identify, asses, monitor, manage and report the short and long term risks a (re) insurance company faces or may face.
This enables companies to determine the level of funds which would be necessary to ensure that their solvency needs are met.
What is the third pillar of Solvency II
Sets out how information should be given to the regulator.
1) Solvency and financial condition report - which is a public report
2) Regulator supervisory report - A private report between a firm and its national supervisor.
What does the insurance Distribution Directive aim to do.
Make it easier for firms to trade across borders.
Strengthen policyholders protection.
Provide a level playing field
What are the key provisions of the insurance Distribution Directive
These are overarching requirements
Professionalism.
Commission disclosure
Harmonisation
New product governess requirements
What is money laundering
The process by which criminals and terrorists convert money that has been obtained illegally into legitimate funds
What are the three stages of money laundering?
Placement
Layering
Integration
Money laundering - what are the three principal offences under the terms of the criminal justice act 1993
Assistance to a criminal where you either know or suspect, or ought to have known or suspected that money laundering was taking place
failing to report either actual knowledge or suspicion of money laundering
Tipping off someone that you suspect of being involved in money laundering or that there is a formal or police investigation under way
What does the Proceeds of Crime Act 2002 (POCA) do
Extends the range of offence for money laundering.
Offences under POCA are:
Concealing/disguising/converting or transferring criminal property or removing it to the UK
Acquiring, possessing or using criminal property.
Failing to disclose that someone else is engaged in money laundering.
What is the FCA’s responsibility in regard to money laundering
Responsibility to prevent and detect money laundering.
To doe this Firm must have in place systems and control with regard to money laundering.
Who and What is the role of the MLRO
The Money laundering reporting officer (MLRO)
is a Director or senior manager who takes overall responsibility for establishing and maintaining effective anti-money laundering systems and controls within the firm.
What is expected of the MLRO
To be based in the UK
Required to have a certain level of authority and independence within the firm.
Required to have sufficient resources and information to enable them to fulfil their responsibilities.
What new criminal offences did the bribery act 2010 create
The act made it a crime to:
Giving/promising or offering a bribe
Requesting, agreeing to receive or accepting a bribe
Bribing a foreign public official
Failure by commercial organisations to prevent active bribery being committed on its behalf.
What are the three steps of risk management?
1) Risk identification
2) Risk Analysis
3) risk control
What risks are un-insurable
Non-financial risk
Speculative risk
Fundamental risk
What is a fundamental risk
A risk which arises from a cause outside the control of any one individual or group of individual and their effects are usually widespread.
What is a pure risk
Are those where there is the possibility of a loss but not a gain
What are the features of an insurable risk
Its a fortuitous event (Accidental / unexpected)
An insurable interest is present
Not against public policy
Homogenous exposures ( a large number of similar risks, which give the insurer the ability to forecast the expected frequency)
What does Equitable premiums mean
Each person wishing to join the pool must be prepared to make an equitable (fair) contribution to that pool.
What is co-insurance, and what are the two distinct ways it is seen in the insurance market?
Co-insruance is when a risk is shared being two or more parties.
Types:
Risk sharing between insurers
Risk sharing with the insured (when they take a excess or deductible)
What is Duel insurance
When there are two or more polices in force which cover the same risk.
What is self-insurance
occurs when an agent has decided to carry the risk themselves.
What are the types of insurer as defined by ownership?
Propriety companies (owned by shareholders)
Mutual companies (owned by policyholders )
Captive insurers ( An insurer owned by its parent company)
What are the types of insurer as defined by function.
Composite companies - These accept several types of business and represent the major part of the company market.
Specialist insurers - These tend to issue polices for only one class of business
What did the Lloyds act 1982 do
Created the Council of Lloyd’s, which is responsible for the management and supervision of the Lloyd’s market.
in regard to Lloyds what are Syndicates
Are the groups of private individuals or corporate investors who carry the risk.
These are also known as names.
Lloyds - What are Managing agents
These are who the syndicates outsource the day-to-day running of the insurance.
They are companies established to manage one or more syndicates on behalf of the members that will provide the capital.
Their responsibilities include employing the underwriters and claims adjusters
What are members agents?
These advise potential corporate and individual members Names on the advantages and disadvantages of investing in the Lloyds market.
This advise will cover: Syndicate selection and performance, reserve requirements and compliance issues
How do you place a risk, at Lloyds?
The broker puts a summary of the risk to be placed and the suggested terms and conditions onto a document called a Market Reform Contract (known as a slip)
What, and how information, is put on this is governed by clear market rules.
What is contract certainty?
Is achieved by the complete and final agreement of all terms between the insured and insurers by the time they enter into contract, with contract document provided promptly thereafter.
