Structure Of The Insurance Industry Flashcards
What are the three types of Insurance Company in the UK?
Composite
A life company
General Insurance Company
What is a Composite Insurance company?
Transacts long (life) & general (motor, home, public liability) insurance
What insurance does a life company transact?
Life insurance and pensions i.e. long-term business
What is the insurance marketplace?
The mechanism by which buyers and sellers come together
According to the ABI, how big is the UK insurance industry?
Largest in Europe
4th largest in the world
ABI members hold £1.7trn invested assets
UK insurers contribute £29.5bn to the UK economy
£45.3m paid out each day in motor & property claims
307,000 people employed
(2018)
What is an insurance broker?
Provides independent advice
Access a wide range of insurers to find insurance solutions
Work closely with clients
Recommend an insurance that best suits clients needs
What is an intermediary?
Is an agent appointed by a party to seek the best cover and price
Recommends
Can be authorized to purchase (sometimes)
Some are tied agents
Can include supermarkets, banks, travel firms & electronic retailers
What are the different insurance companies? (8)
Proprietary companies Mutual companies Lloyds Captive insurance companies Takaful insurance companies Reinsurers The State Self Insurance
What is a proprietary company?
Have an authorized & issued share capital
Profits go to shareholders (dividends)
Owned by shareholders
Shareholders liability is limited to the nominal value of their shares
Most are composite or general insurance companies
What is a mutual company?
Owned by PHs or custs
Profits given to PHs via bonuses on life policies or reducing premiums
Board is elected by PHs
Does Lloyds itself transact insurance?
No
This is done by the Underwriting members of Lloyds (individual & corporate) who make up the Lloyds market
How do the underwriting members of Lloyds operate?
They underwrite for their own profit and loss in administrative groups called syndicates
They appoint independent companies, known as managing agents, to carry out the UWing business on their behalf.
When was Lloyds established
Late 17th century
How many Lloyds syndicates are there?
Circa 100
Explain Lloyds franchise structure
Lloyds = Franchisor
Managing agents & UWing members = Franchisee
What was the aim of Lloyds new franchisor structure?
Improve market profitability Allow monitoring and guidance of franchisees Lloyds approves business plans Approves new syndicate applications Can eject businesses
What is a captive insurance company?
Tax efficient method of Granada ring insurance
Parent company forms a subsidiary company to UW certain risks
Puts own capital at risk
Some formed in EEA member states for European passporting rights e.g. Ireland
Many operated offshore in Bermuda or Guernsey - easier regulation
What is a Takaful insurance company?
Has roots in Islamic Financial services industry Based on rules of Sharia law Risk, profit & loss should be shared between parties Islamic law prohibits - Gharar - uncertainty Maisir - gambling Riba - interest Takaful means “guaranteeing each other”
What is a reinsurer?
Help spread the risk of insurers
Often major international operations
Reinsurance market is a global operation
How is reinsurance provided?
By treaty where reinsurer agrees to take a part of all the insurances written
- Either proportional (each party takes a stated proportion of risk and shares the Orem & claims on same basis)
- or non proportional (insurer retains first layer)
Or facultative reinsurance - each requirement is negotiated individually e.g. building value is very high
How does The State provide insurance
Collects National Insurance contributions which pays income benefits
NHS
Pool Reinsurance Company (PoolRe)
Flood Reinsurance (FloodRe)
What is Pool Re?
Est. 1993 after lots of terror attacks
Mutual reinsurance company
Insurers offer cover
Pay up to a limit determined for each individual insurer
Losses exceeding that limit can be claimed from PoolRe
PoolRe accumulates reserves on a mutual basis on behalf of the insurance industry
If claims exceed these reserves PoolRe can claim from the Gov.
What is FloodRe?
A Memorandum of Understanding
Not for profit scheme
For home insurance policies
Launched April 2016
Insurance companies can pass on flood risk element
Will have an expected UWing loss each year
Financed through £180m levy on UK household insurers
How does Self Insurance work?
Companies feel they are large enough financially to carry losses
The cost to them is, by way of transfer to their reserve fund, is lower than premiums
What are the BRICS countries?
Brazil Russia India China South Africa
Characteristics of a multinational company
Operate in diff countries
Have a home base
Respond to local demands
Global brand
Characteristics of a Global company
Whole world is one market
Global singular brand
Centralized business
What is The London Market?
A separate part of the UK insurance and reinsurance industry centered in London.
Accepts risks from all over the world
The UK leads the world in internationally traded insurance and reinsurance
Leading global market for aviation and marine insurance
What is the LMG?
London Market Group
Set up to ensure London maintains its position in the international insurance market
Represents the orgs that make up The London Market
When is the LMG TOM?
July 2016 Target Operating Model was established
Modernized (able to bind risks electronically)
DA SATS
What are the distribution channels for insurance?
Direct Independent intermediaries & agents Internet Price comparison/aggregators Banks & Building Societies Affinity groups like retailers Market Disruptors
