Regulatory And Legal Requirements Applicable To Insurance Business Flashcards
What is Solvency II and its purpose?
-European Regime applicable to all 27 EU member states.
-For insurers and reinsurers, captives, mutuals.
-To make sure insurers pay claims!!!!!
What is Lloyd’s Brussels?
An insurance company set up in EU to allow underwriting business to continue in EEA.
Lloyd’s Brussels is a service company.
Risks are reinsured back to London.
What are EU Solvency Requirements: Pillar One?
Pillar One: Financial/Quantitative Requirements
-Requirement that insurers have
assets exceeding liabilities.
-Monies are monitored under two standards:
SCR-the total amount of funds insurers are required to hold.
MCR-absolute minimum monies insurers are allowed to hold to conduct business.
What are EU Solvency requirements: Pillar One (continued)?
Business Risk=Financial Resources
Credit Risk: premium not paid, reinsurer insolvent.
Operational Risk: UW/DA settling claims outside authority, building damage or market system failure.
Market Risk: failed investments, ROE losses.
Liquidity Risk: cash flow problems (assets cannot be released properly).
Group/Capital Risk: syndicate and company writing two risks in one place/same class of business.
Enterprise Risk: wider risks impacting whole business. E.g. economy.
What are EU solvency requirements: Pillar Two?
Governance and supervision
-Identify, assess and monitor short and long term risks.
-Meet SCR at all times.
-Method: Own Risk and Solvency Assessment (ORSA).
What are EU Solvency requirements: Pillar Three?
Disclosure and Reporting
-All insurers have to publish details on risks they face, capital adequacy and risk management.
What happened to Solvency II when Britain left the EU?
Solvency II and Insurance Regulations 2019
-UK follow Solvency II regime even though out of EU.
Financial Services and Markets Act 2023
-UK given control over financial services market rather than following EU requirements.
-PRA and FCA given new objectives to meet.
Who is EU supervisory body for Solvency 2?
European Insurance and Occupational Pensions Authority (EIOPA)
Aims:
-Financial stability
-Market Transparency
-Consumer Protection
How is Consumer Rights Act 2015 relevant to insurance contracts?
- Protection from harsh terms.
- Prevent avoidance of claim payment/penalising.
- Contracts must be fair.
- Unfair terms not legally binding.
E.g. unfair term-strict claims reporting.
How is Contracts (Rights of 3rd Parties) Act 1999 relevant to insurance contracts?
- 3rd parties have right to claim (no longer law of privity).
- Greater risk of suing and paying more damages.
- Injunctions (prevented from something).
- Specific performance (ordered to do something). E.g. comply with contract.
Example: Cargo insurers receive lots of 3rd party claims. Those who goods sold onto.
Why is Exclusion Clause for Right of 3rd parties Act important for insurers?
Protects them against 3rd party claims.
What are the main reasons for Compulsory Insurance?
1.Financial protection (legal fees)
2.Protection of innocent victim.
3.Consumer protection if company shuts down when loss happens.
What are the main types of Compulsory Insurance?
- Motor 3rd Party Liability (Road Traffic Act 1988)
- Employers Liability (1969 Act)
- Public Liability (Riding Establishments Act 1970)
- Dangerous Dogs/Wild Animals Liability (not free-standing)
- Professional Indemnity
All liability for bodily injury or death.
What is the indemnity limit for Employers Liability claims?
£5million but £10million standard
Employers Liability Tracing Office helps trace insurers.
Difference between Long Tail and Short Tail business?
Long-tail: losses which are notified and last for a long time due to nature (liability, asbestos)
Short-tail: losses notified and settled within relatively short amount of time (property).
