Mock questions 2016/2017

Question 1

One of the key roles of an insurance broker is to
A. act as an intermediary between the insurer and the regulator.
B. calculate the insurance premium.
C. conduct insurance mediation on behalf of insurers.
D. provide independent, impartial advice to clients.

Answer 1

D. provide independent, impartial advice to clients.

Question 2

How does the use of an insurance broker benefit an insurer?

A. All material facts will always be declared by the broker to the insurer.

B. It enables the insurer to easily cross-sell insurance policies for other classes of business to anexisting insured.

C. It reduces the time spent by the insurer in explaining and administering a policyholder’s insurance requirements.

D. The responsibility for the payment of Insurance Premium Tax is passed to the broker.

Answer 2

C. It reduces the time spent by the insurer in explaining and administering a policyholder’s insurance requirements.

Question 3

What type(s) of insurance broker is able to offer Lloyd’s policies to its clients?
A. Aggregators only.
B. Lloyd’s brokers only.
C. Wholesale brokers only.
D. All types of insurance broker.

Answer 3

D. All types of insurance broker.

Question 4

An insurance broker is approached for a quotation by the owner of an engineering business. The broker obtains a number of quotations, helps the proposer to formulate a business continuity plan and then places the risk. The new insurer arranges a survey. Which of these elements is an added value service?
A. Assisting with the business continuity plan.
B. Obtaining the quotations.
C. Placing the risk.
D. Surveying the risk.

Answer 4

A. Assisting with the business continuity plan.

Question 5

Insurance brokers are least likely to be involved in placing which type of insurance?
A. Construction.
B. Extended warranty.
C. Marine cargo.
D. Motor fleet.

Answer 5

B. Extended warranty.

Question 6

The back office function within a firm of insurance brokers will NOT include
A. compliance.
B. marketing.
C. placement of risks.
D. settlement of insurer accounts.

Answer 6

C. placement of risks.

Question 7

Under a delegated underwriting authority agreement, when would a coverholder normally declare bound risks by completing a bordereau and submitting it to the insurer?
A. Immediately the risk is bound.
B. Weekly.
C. Monthly.
D. Annually.

Answer 7

C. Monthly.

Question 8

What action should an insurance broker take immediately upon notification from an insured of a third party injury claim?
A. Contact the third party to request full details.
B. Inform the Claims and Underwriting Exchange.
C. Notify the insurer.
D. Request completion of a claim form

Answer 8

C. Notify the insurer.

Question 9

At what point in the placing process must the insurance broker first take into account the client’s demands and needs?
A. When completing the demands and needs statement.
B. When completing the initial disclosure document.
C. When presenting the suitability statement to the client.
D. When sourcing the most appropriate insurance policy.

Answer 9

D. When sourcing the most appropriate insurance policy.

Question 10

If a proposer requests that no excess applies to his new insurance policy, the insurance broker should explain the
A. consequent limitations on cover.
B. effect on premium levels.
C. imposition of warranties.
D. restrictions on the policy term.

Answer 10

B. effect on premium levels.

Question 11

Which document will an insurance broker normally use to establish the demands and needs of a potential client who requires professional indemnity insurance?
A. A proposal form.
B. A statement of fact.
C. A suitability statement.
D. A Terms of Business Agreement.

Answer 11

A. A proposal form.

Question 12

A Lloyd’s broker will prepare a Market Reform Contract to
A. detail the monthly risks under a delegated authority agreement.
B. identify a client’s demands and needs.
C. notify an insurer of a claim.
D. provide underwriting information to an insurer.

Answer 12

D. provide underwriting information to an insure

Question 13

Whom must a Lloyd’s broker initially notify under an insurance policy placed with a Lloyd’s underwriter when a catastrophe claim is reported by a client?
A. The Council of Lloyd’s.
B. The leading underwriter only.
C. Xchanging Claims Services.
D. All underwriters who have insured the risk.

Answer 13

B. The leading underwriter only.

Question 14

A retail insurance broker has a fully-owned managing general agency (MGA). When considering delegated authority agreements, how does this arrangement affect the broker’s relationship with the delegating insurers?

A. The MGA must be used in separately defined market areas to those of the owning broker.

B. The MGA must have lower authority limits than the owning broker.

C. The MGA provides the owning broker with increased capacity on separately negotiated terms.

D. All delegated authority business must be placed with the MGA.

Answer 14

C. The MGA provides the owning broker with increased capacity on separately negotiated terms.

Question 15

When a Lloyd’s broker agrees to place business on behalf of a broker who is NOT a Lloyd’s broker, the Lloyd’s broker is operating as a
A. consolidator.
B. producing broker.
C. retail broker.
D. wholesale broker.

Answer 15

D. wholesale broker.

Question 16

What is the role of reinsurance brokers?
A. Aggregators.
B. Loss adjusters.
C. Market placement specialists.
D. Risk surveyors.

Answer 16

C. Market placement specialists.

Question 17

An insurer is concerned that it stands to suffer financially from future claims. How can a
reinsurance broker best assist the insurer?
A. By advising the insurer’s clients on risk reduction.
B. By advising the insurer regarding warranties and exclusions.
C. By helping the insurer to withdraw from the market.
D. By spreading the risk in the market.

Answer 17

D. By spreading the risk in the market.

Question 18

Where a retail broker uses a wholesale broker to place business, who has a duty of care to the insured?
A. It is shared equally between the brokers.
B. It remains with the retail broker.
C. It solely depends on the terms of business agreed between the brokers.
D. It transfers from the retail broker to the wholesale broker.

Answer 18

B. It remains with the retail broker.

Question 19

The Insurance Act 2015 emphasises what role for brokers with regard to material facts?

A. To ensure all material facts are supplied to enable accurate presentation of the risk.

B. To explain to the proposer that any misrepresentation will be treated as deliberate or reckless.

C. To explain to the proposer that failure to disclose a material fact is an offence under the Act.

D. To verify the accuracy of all information supplied by the proposer.

Answer 19

A. To ensure all material facts are supplied to enable accurate presentation of the risk.

Question 20

What is one of the benefits to the client where an insurance broker provides a detailed
underwriting submission to an insurer?
A. A faster quotation will always be obtained.
B. Fewer exclusions and warranties.
C. Increased probability of more favourable terms.
D. Wider cover will always be offered.

Answer 20

C. Increased probability of more favourable terms.

Question 21

The Insurance: Conduct of Business sourcebook (ICOBS) states that an insurance broker, when explaining to a client why an insurer has been approached, must

A. demonstrate that all insurers have been approached.

B. demonstrate that the quotations are reasonable based on the client’s circumstances.

C. provide the client with a list of the leading insurers in the market sector and those which have been approached.

D. tell the client the basis of the broking procedure used.

Answer 21

D. tell the client the basis of the broking procedure used.

Question 22

What should an insurance broker check before approaching a UK insurer to underwrite a risk?
A. That the insurer is regulated to underwrite the required class of insurance.
B. The amount of the insurer’s claim reserves.
C. The insurer’s underwriting profit.
D. That the insurer is a member of the Association of British Insurers

Answer 22

A. That the insurer is regulated to underwrite the required class of insurance.

Question 23

Where a broker operates a no service claims-handling arrangement, what action must be taken when a claim is notified by a client?

A. Advise the client that the broker can only become involved if there are problems with the claim.

B. Advise the client that they have a duty to notify the insurer and the broker has no involvement.

C. Advise the insurer that the broker will forward the initial paperwork but that the insurer must then respond directly to the client.

D. Advise the insurer that a claim is being made but also tell the client to deal directly with the insurer.

Answer 23

D. Advise the insurer that a claim is being made but also tell the client to deal directly with the insurer.

Question 24

Whom should an insurance broker inform if he suspects that a claim may be fraudulent?
A. The claimant.
B. The insurer.
C. The police.
D. The regulator

Answer 24

B. The insurer.

Question 25

An insurance broker suggests to a client that risk control measures are introduced to limit the extent of any physical damage if a loss occurs. This is known as
A. risk avoidance.
B. risk elimination.
C. risk minimisation.
D. risk prevention

Answer 25

C. risk minimisation.

Question 26

An insurance broker’s risk survey has identified the potential for small, high-frequency claims. The same risk also results in occasional significantly higher claim values. What is likely to be the most appropriate recommendation from the broker based on this information?
A. Advise the client to self-insure in respect of this entire risk.
B. Exclude this risk from cover.
C. Make this risk subject to a warranty.
D. Set an excess to eliminate the smaller claims.

Answer 26

D. Set an excess to eliminate the smaller claims

Question 27

When a multi-national business places insurance, which party is normally responsible for designing its insurance programme?
A. The insurance broker.
B. The insurer.
C. The policyholder.
D. The reinsurance company.

Answer 27

A. The insurance broker.

Question 28

What should an insurance broker do when there is increased capacity in the insurance market?
A. Encourage clients to increase excess levels to maintain current premiums.
B. Encourage clients to invest in additional risk management.
C. Recommend clients to remain with existing insurers despite increasing premiums.
D. Search the market for more competitive terms for clients.

Answer 28

D. Search the market for more competitive terms for clients.

Question 29

Why may a client use an insurance broker’s rent-a-captive facility in preference to establishing its own captive insurance company?

A. Administrative costs are reduced because a number of facilities are collectively managed by the broker.

B. It requires less insurance premium to fully fund the calculated risk.

C. There will be more funds available to settle claims.

D. To avoid conflicts of interest.

Answer 29

A. Administrative costs are reduced because a number of facilities are collectively managed by the broker.

Question 30

How is an insurance broker normally remunerated for supplying additional risk management services to a client?
A. As a first charge on any claim payment.
B. As a separate negotiated fee.
C. As part of the total insurance premium.
D. It is automatically included within the commission payment.

Answer 30

B. As a separate negotiated fee.

Question 31

A delegated authority agreement will normally be arranged between an insurance broker and
A. the Financial Conduct Authority.
B. an insurer.
C. a policyholder.
D. a reinsurer.

Answer 31

B. an insurer.

Question 32

Who is normally the client of a wholesale insurance broker?
A. The insurer.
B. The proposer.
C. The reinsurer.
D. The retail broker

Answer 32

D. The retail broker

Question 33

For what purpose does a firm of insurance brokers send a Terms of Business Agreement to a client?
A. It contains the client’s insurance quotation.
B. It details the services that the broker will provide to the clients.
C. It provides a summary of the client’s insurance coverage.
D. It states the client’s insurance requirements.

Answer 33

B. It details the services that the broker will provide to the clients.

Question 34

What does the duty of obedience require an insurance broker to do when acting for a client?
A. Act in the client’s best interests at all times.
B. Avoid any conflict of interest.
C. Keep accurate records of monies handled.
D. Perform all of the client’s lawful instructions in a timely manner.

Answer 34

D. Perform all of the client’s lawful instructions in a timely manner.

Question 35

Under the principle of tort, for what are insurance brokers legally responsible to their principal?
A. To abide by all statutory requirements.
B. To achieve contract certainty.
C. To exercise reasonable care.
D. To maintain Continuous Professional Development records.

Answer 35

C. To exercise reasonable care.

Question 36

During the claim process, when may a conflict of interest occur at a firm of insurance brokers?
A. When a claim payment is received from an insurer.
B. When a loss assessor and a loss adjuster are both involved in a claim.
C. When notifying an insurer of a claim.
D. When two or more clients are involved in the same claim.

Answer 36

D. When two or more clients are involved in the same claim.

Question 37

Why might a conflict of interest arise if an insurance broker has a delegated authority, which includes a profit commission, with an insurer?
A. Business can only be placed with an insurer specifically requested by the client.
B. Business may be placed with other insurers who quote preferential terms.
C. Only good quality risks may be placed under the delegated authority.
D. Only sub-standard risks may be placed under the delegated authority.

Answer 37

C. Only good quality risks may be placed under the delegated authority.

Question 38

In which document will an insurer detail the level of authority that is provided to an insurance broker?
A. The demands and needs statement.
B. The policy wording.
C. The suitability statement.
D. The Terms of Business Agreement.

Answer 38

D. The Terms of Business Agreement.

Question 39

In accordance with the Insurance: Conduct of Business sourcebook (ICOBS), what must an insurance broker disclose to a potential client regarding the premium to be paid?
A. The amount of commission within the premium.
B. The full premium calculation, including loadings and discounts.
C. The premium with any fee shown separately.
D. The premium both with and without Insurance Premium Tax.

Answer 39

C. The premium with any fee shown separately.

Question 40

The Financial Conduct Authority’s approach to supervision requires insurance brokers to
A. deal only with insurers who are members of the Association of British Insurers.
B. identify and reduce risks which may affect its clients.
C. improve the level of qualifications of its team.
D. submit details of complaints on a monthly basis.

Answer 40

B. identify and reduce risks which may affect its clients.

Question 41

What type of insurance broker is the Financial Conduct Authority responsible for regulating?
A. All European insurance brokers who place insurance risks with UK insurers.
B. Only those insurance brokers who conduct general insurance mediation activities.
C. Only those insurance brokers who conduct insurance mediation activities in the UK.
D. Only those insurance brokers who place consumer insurance.

Answer 41

C. Only those insurance brokers who conduct insurance mediation activities in the UK.

Question 42

When does an insurance broker’s duty to treat a customer fairly expire?
A. When an insurance placement is completed.
B. At policy inception.
C. At policy termination only.
D. After policy termination when all claims have been settled.

Answer 42

D. After policy termination when all claims have been settled.

Question 43

What is the maximum time period after inception during which an insurance broker should send an insurance policy to a consumer to comply with the Contract Certainty Code of Practice?
A. 5 days.
B. 7 days.
C. 10 days.
D. 14 days.

Answer 43

B. 7 days.

Question 44

What does the regulator require in order for firms of insurance brokers to demonstrate the competency of employees?
A. Annual appraisals.
B. Continuing professional development.
C. Success in approved examinations.
D. The issuance of suitability statements.

Answer 44

B. Continuing professional development.

Question 45

In order to satisfy regulatory requirements, what is the minimum number of years for which an insurance broker must keep training records?
A. 3 years.
B. 5 years.
C. 7 years.
D. 10 years.

Answer 45

A. 3 years.

Question 46

Where an employee of a firm of insurance brokers suspects that a client may be involved in money laundering, what action must initially be taken?
A. Cease any business transactions with the client.
B. Confront the client.
C. Freeze any assets held by the broker on behalf of the client.
D. Report the suspicion.

Answer 46

D. Report the suspicion.

Question 47

Why is an insurance broker required to check the sanctions list?
A. To avoid placing business for a prohibited client.
B. To check a client’s financial assets.
C. To establish in which territories a business client operates.
D. To verify the legal existence of a business client.

Answer 47

A. To avoid placing business for a prohibited client.

Question 48

How may an insurance broker inadvertently receive a bribe from a client?

A. By accepting a lunch invitation to discuss the renewal of a client’s insurance programme.

B. By receiving a client request to conduct a risk management site inspection.

C. By receiving a gift for placing a client’s insurance programme.

D. By receiving a request to speak at an international insurance conference.

Answer 48

C. By receiving a gift for placing a client’s insurance programme.

Question 49

A client telephones an insurance broker to request details of the data that is held about him. What data, if any, must the broker provide?
A. Full details of the data, but it is illegal for a fee to be charged.
B. Full details of the data, but a fee may be charged.
C. A summary of the data.
D. Such data cannot be provided.

Answer 49

B. Full details of the data, but a fee may be charged.

Question 50

For how long may an insurance broker retain personal data about a UK policyholder?
A. For the policy period only.
B. For a maximum of 10 years only.
C. Until the death of the policyholder only.
D. Only for the time period that is required for its purposes.

Answer 50

D. Only for the time period that is required for its purposes.

Question 51

An insurance broker placed a risk based on information supplied by a consumer. Although the broker had every reason to believe the information to be accurate, deliberate misrepresentation was proven at the time of a claim. How is responsibility for this misrepresentation allocated under the Consumer Insurance (Disclosure and Representations) Act 2012?
A. Equally between the broker and consumer.
B. Fully with the broker.
C. Fully with the consumer.
D. It depends on whether or not the information was available on an industry database

Answer 51

C. Fully with the consumer.

Question 52

An insurance broker must comply with the requirements of the Consumer Insurance (Disclosure and Representation) Act 2012 when placing what type of insurance?
A. Business interruption.
B. Household.
C. Marine cargo.
D. Motor fleet.

Answer 52

B. Household.

Question 53

The Financial Conduct Authority’s rules relating to identifying client needs, product information and claims handling are stated in the
A. Consumer Insurance Act 2012.
B. Insurance: Conduct of Business sourcebook (ICOBS).
C. Insurance Mediation Directive 2012.
D. Terms of Business Agreement.

Answer 53

B. Insurance: Conduct of Business sourcebook (ICOBS).

Question 54

Why must an insurance broker segregate client assets from broker funds?
A. To allow claims payments to be made to clients.
B. To allow the offsetting of transactions against monies held for clients.
C. To ensure client monies are protected in the event of the failure of the broker.
D. To facilitate the addition of interest earned on balances held.

Answer 54

C. To ensure client monies are protected in the event of the failure of the broker.

Question 55

What money may be retained in an insurance broker’s client asset account?
A. Commission earned on insurance premiums.
B. Fees received from clients for insurance services.
C. Income received from investments.
D. Return premiums from insurers prior to payment to clients.

Answer 55

D. Return premiums from insurers prior to payment to clients.

Question 56

When a risk transfer arrangement is in place with an insurer, who is responsible for client funds if the money is lost due to the bankruptcy of an insurance broker?
A. The client.
B. The Financial Conduct Authority.
C. The Financial Services Compensation Scheme.
D. The insurer

Answer 56

D. The insurer

Question 57

What is the principal aim of the Insurance Mediation Directive 2002?
A. Consumer protection.
B. Data protection.
C. Prevention of bribery in insurance.
D. Prevention of money laundering.

Answer 57

A. Consumer protection.

Question 58

How much commission does an insurance broker receive on placement of an insurance policy with a premium of £500 plus Insurance Premium Tax and a 20% commission rate?
A. £90.50
B. £100.00
C. £109.50
D. £120.00

Answer 58

B. £100.00

Question 59

Which element of the amount payable by a client must an insurance broker show separately on an invoice?
A. Commission.
B. Fee.
C. Insurance Premium Tax.
D. Work transfer fee.

Answer 59

B. Fee.

Question 60

Under a contract of insurance, what is brokerage?
A. The commission paid to the broker by the insurer, which is included in the premium.
B. The commission rebated by the insurer to the insured in cases with limited broker involvement.
C. A fee paid by the insured directly to the broker.
D. A fee paid by the insured directly to the insurer, in addition to the premium.

Answer 60

A. The commission paid to the broker by the insurer, which is included in the premium.

Question 61

How does an insurance broker obtain additional income by up-selling?
A. By extending cover under an existing policy.
B. By providing insurance for a different class of business to an existing client.
C. By referrals from existing clients.
D. By targeting competitors’ clients.

Answer 61

A. By extending cover under an existing policy.

Question 62

Broker X focuses on motor insurance and Broker Y on complex commercial risks. Both brokers offer high levels of customer service. Which broker, if either, would normally achieve ongoing renewal
retention rates of above 95%?
A. Neither broker.
B. Broker X only.
C. Broker Y only.
D. Both brokers

Answer 62

C. Broker Y only.

Question 63

Why is it important that an insurance broker with a high client retention level also focuses on attracting new clients?
A. The client base will naturally erode.
B. Commission rates are always higher for new business.
C. Cross-sold business levels are always significantly lower than new client levels.
D. The regulator requires a balanced approach to business.

Answer 63

A. The client base will naturally erode.

Question 64

What is the main disadvantage to a firm of insurance brokers of placing policies on a loss-leader basis?
A. Attraction of poor quality business in the early stages.
B. The need to increase the incentivisation of sales staff.
C. Significantly reduced profits in the early stages.
D. Such policies have a high claims ratio.

Answer 64

C. Significantly reduced profits in the early stages.

Question 65

Why must an insurance broker have more than one bank account?

A. The Financial Services Compensation Scheme limits the amount of compensation payable following financial failure.

B. To keep money owed to clients and insurers separate from income earned by the broker.

C. To separate insurance premiums received from domestic and international clients.

D. Terms of Business Agreements require that separate accounts operate for each insurer.

Answer 65

B. To keep money owed to clients and insurers separate from income earned by the broker.

Question 66

Tim is an account executive in a firm of insurance brokers. He is handling a written complaint from a client who feels he has been mis-sold a policy which incorporates options for which he is ineligible. Tim follows correct regulatory procedures and informs the client he will keep him updated as to the progress of the investigation over the next few days.

After two weeks, the client informs Tim that he intends to refer the complaint to the Financial Ombudsman Service (FOS) immediately. Tim’s firm is NOT yet able to give the client a final response.

The client then asks Tim what options he has if he disagrees with the FOS ruling.
After investigation, Tim discovers the client’s requirements were NOT correctly recorded at inception.

1. Tim will initially classify this complaint as what type?
   A. Complex.
   B. Formal.
   C. Investigative.
   D. Simple.
2. In what circumstances will the client’s assertions regarding mis-selling be upheld?
   A. If errors were made in completing the demands and needs statement.
   B. If less than five products were compared before making a recommendation.
   C. If incorrect advice was deliberately given.
   D. If incorrect advice was given regardless of intent.
3. In addition to supplying information to the client, to satisfy regulatory requirements Tim must also take what action before starting to investigate?
   A. Confirm the details of the complaint with the client within 24 hours.
   B. Formally record the complaint in accordance with the firm’s procedures.
   C. Obtain a complaint reference number from the regulator.
   D. Supply the client with a copy of the original Terms of Business Agreement.
4. How should Tim respond to the client’s statement that the case will be referred to the FOS?
   A. The client has an immediate right of referral but the FOS may decide not to accept the case.
   B. The FOS will accept the case immediately.
   C. The firm has a maximum of six more weeks to investigate before the FOS will become involved.
   D. The firm will send an immediate letter of referral to the FOS.
5. With regard to the client’s question concerning the FOS ruling, how should Tim reply?
   A. Both parties have 28 days to submit additional evidence for review by the FOS.
   B. Both parties may agree to arbitration through the FOS.
   C. A financial award can be challenged through the FOS.
   D. The decision by FOS may be challenged by the client through the courts.

Answer 66

1. A. Complex.
2. D. If incorrect advice was given regardless of intent.
3. B. Formally record the complaint in accordance with the firm’s procedures.
4. C. The firm has a maximum of six more weeks to investigate before the FOS will become involved.
5. D. The decision by FOS may be challenged by the client through the courts.

Question 67

Steve is an account executive at a firm of insurance brokers. He is efficient at delegating, training and mentoring junior team members. He has a high business retention rate, which he attributes to making sure that his clients get the best customer service. To maintain standards, he insists that all work procedures are performed in accordance with the guidelines issued by the firm. This includes making sure that all clients’ demands and needs are fully assessed and documented and that all clients are provided with sufficient information to make an informed decision regarding the
insurance that they purchase.

He also tries to ensure that he is perceived as being honest and trustworthy in his dealings with insurers and that broking submissions are accurate and concise, with insurance premiums being paid promptly.

The insurance business that Steve’s team provides sometimes involves business being sold in conjunction with the main insurance policy. There has been some pressure from within the firm to increase the amount of this additional coverage in order to enhance commission volumes.

1. How does Steve demonstrate good conduct in his business relationship with clients?
   A. By ensuring that key performance indicators are met.
   B. By meeting the regulatory requirements applicable to clients.
   C. By providing comprehensive insurance presentations.
   D. By providing excellent customer service.
2. Steve demonstrates good conduct in his business relationship with insurers by
   A. checking insurance policy documentation.
   B. ensuring that contract certainty is achieved.
   C. ensuring that insurance premiums are paid on time.
   D. producing extensive insurance presentations.
3. The type of corporate culture that Steve would like his team to use is
   A. client first.
   B. growth.
   C. innovation.
   D. sales.
4. Steve tries to avoid errors and omissions from occurring by
   A. insisting that Terms of Business Agreements are sent to all clients.
   B. personally training team members.
   C. recording all telephone conversations with clients.
   D. requiring work to be performed in accordance with the firm’s guidelines
5. How does Steve try to ensure that his team does NOT mis-sell additional insurance products to clients?
   A. By providing accurate policy documentation.
   B. By providing concise underwriting submissions.
   C. By providing prompt customer service.
   D. By providing sufficient product information to make an informed decision.

Answer 67

1. D. By providing excellent customer service.
2. C. ensuring that insurance premiums are paid on time.
3. A. client first.
4. D. requiring work to be performed in accordance with the firm’s guidelines

5.D. By providing sufficient product information to make an informed decision.