chapter 2

Question 1

What EU directive first brought UK statutory regulation of insurance intermediaries?

Answer 1

The Insurance Mediation Directive

Question 2

Which directive replaced the Insurance Mediation Directive?

Answer 2

The Insurance Distribution Directive (IDD) 2016

Question 3

What does the FCA call non-investment insurance contracts?

Answer 3

General insurance and pure protection policies that are not investment-based.

Question 4

What is a protection contract?

Answer 4

A policy paying benefits on death or specified adverse events, such as critical illness or income protection.

Question 5

What is a regulated activity?

Answer 5

An activity defined in law that only authorised firms may carry out.

Question 6

What must a firm be to carry out regulated insurance activities?

Answer 6

Authorised by the FCA (or exempt).

Question 7

What are the four core regulated activities for insurance intermediaries?

Answer 7

Arranging, advising, dealing and assisting in the administration and performance of policies.

Question 8

What does arranging insurance involve?

Answer 8

Helping a customer enter an insurance contract without giving an opinion.

Question 9

What does advising on insurance involve?

Answer 9

Giving a personal recommendation or opinion on which policy the customer should buy.

Question 10

What is introducing in insurance?

Answer 10

Signposting a customer to an insurer or broker without giving advice.

Question 11

Who is responsible for compliance where there is an introducer?

Answer 11

The insurer or intermediary whose product is promoted.

Question 12

What is ‘dealing as agent’ in insurance?

Answer 12

Entering into insurance contracts with customers on behalf of an insurer.

Question 13

What is assisting in the administration and performance of a policy?

Answer 13

Helping with policy changes and claims on behalf of a customer.

Question 14

What other FCA-regulated area often affects brokers?

Answer 14

Consumer credit activities, such as premium finance.

Question 15

What is meant by ‘conclusion of contract’?

Answer 15

The moment a customer accepts an insurer’s quotation of cover.

Question 16

What is a ‘durable medium’?

Answer 16

A format that lets information be stored and reproduced unchanged, such as paper or PDF.

Question 17

What is a distance contract?

Answer 17

A contract agreed using only distance communication like phone, post or internet, with no face-to-face contact.

Question 18

Who is the customer under a group policy?

Answer 18

The legal holder of the policy, such as the employer.

Question 19

Who is a policyholder under a group policy?

Answer 19

An individual entitled to claim under the policy.

Question 20

In ICOBS terms, what are ‘large risks’ and why do they matter?

Answer 20

Big, sophisticated commercial risks (e.g. very large companies). Some ICOBS rules don’t apply, especially for large risks outside the EEA, so they get lighter regulatory protection than consumers/smaller firms.

Question 21

Which Act created the FCA and PRA?

Answer 21

The Financial Services Act 2012.

Question 22

What is the FCA’s strategic objective?

Answer 22

To ensure that relevant markets function well.

Question 23

What are the FCA’s three operational objectives?

Answer 23

Consumer protection, market integrity and competition in the interests of consumers.

Question 24

What is the role of the FSCS?

Answer 24

To compensate customers when authorised firms or insurers are in default.

Question 25

Does the FSCS cover negligence where the firm is still trading?

Answer 25

No, it only covers firm failure.

Question 26

What FSCS % protection applies to compulsory general insurance

Answer 26

100% of the claim up to statutory limits.

Question 27

What FSCS % protection applies to most other general insurance

Answer 27

90% of the claim with no upper limit.

Question 28

What must usually happen before the FSCS pays compensation?

Answer 28

Premiums must be paid, policy terms followed and the firm declared in default.

Question 29

If a broker holds money under risk transfer and fails, what happens?

Answer 29

The money is treated as received by the insurer and cover continues.

Question 30

What regulatory style does the FCA mainly use?

Answer 30

Principles-based, outcomes-focused regulation.

Question 31

What is one advantage of principles-based regulation?

Answer 31

It can cope with new situations by applying high-level principles.

Question 32

What is one drawback of principles-based regulation?

Answer 32

Principles may be open to interpretation.

Question 33

What is contract certainty?

Answer 33

Having all policy terms agreed before inception.

Question 34

How has the market improved contract certainty?

Answer 34

Through industry codes of practice and agreed standards.

Question 35

What sits at the heart of FCA regulation of brokers?

Answer 35

The fair treatment of customers.

Question 36

Which FCA Principle is about customer interests?

Answer 36

Principle 6 – Customers’ interests.

Question 37

Which FCA Principle is about skill, care and diligence?

Answer 37

Principle 2.

Question 38

Which FCA Principle is about management and control?

Answer 38

Principle 3.

Question 39

Which FCA Principle is about client communications?

Answer 39

Principle 7.

Question 40

What does RPPD stand for?

Answer 40

Responsibilities of Providers and Distributors for the Fair Treatment of Customers.

Question 41

What must firms have for financial promotions under RPPD?

Answer 41

Systems and controls to manage promotion risks.

Question 42

What must a firm do if it does not understand a product it sells?

Answer 42

Seek more information or training and not distribute it until it understands it.

Question 43

What must distributors do with customer communications intended for providers?

Answer 43

Pass them on promptly and accurately.

Question 44

What is TCF Outcome 1?

Answer 44

Fair treatment is central to firm culture.

Question 45

What is TCF Outcome 2?

Answer 45

Products are designed for and targeted at the right consumers.

Question 46

What is TCF Outcome 3?

Answer 46

Consumers receive clear information before, during and after the sale.

Question 47

What is TCF Outcome 4?

Answer 47

Advice is suitable and takes account of the customer’s circumstances.

Question 48

What is TCF Outcome 6?

Answer 48

Consumers do not face unreasonable barriers to switching, changing products or claiming.

Question 49

What is the aim of Consumer Duty?

Answer 49

To set higher, clearer standards and ensure good outcomes for retail customers.

Question 50

What does the FCA expect on remuneration transparency for intermediaries?

Answer 50

Clear, comparable information for commercial customers on remuneration and intermediary chains.

Question 51

What must intermediaries tell commercial customers about commission?

Answer 51

That they have a right to request information on commission levels.

Question 52

What two types of conflict did an FCA review highlight?

Answer 52

Conflicts from revenue structures and from acting for both insurer and customer.

Question 53

What weak approach to conflicts do some firms rely on?

Answer 53

Relying mainly on disclosure rather than strong controls.

Question 54

What directive now governs insurance distribution in the EU?

Answer 54

The Insurance Distribution Directive (IDD).

Question 55

Name one extra requirement introduced by IDD.

Answer 55

Higher knowledge and competence, or pre-contract disclosure of ownership and remuneration nature.

Question 56

Who regulates insurance in the USA?

Answer 56

Each individual state regulates insurance within its territory.

Question 57

Why is broker licensing complex in the USA?

Answer 57

Brokers may need separate licences in multiple states with different rules.

Question 58

In US terms, who does an insurance agent usually represent?

Answer 58

The insurer.

Question 59

In US terms, who does an insurance broker usually represent?

Answer 59

The insured.

Question 60

What does the US term 'insurance producer' cover?

Answer 60

Both insurance agents and brokers.

Question 61

Which Act after the financial crisis affected US insurance oversight?

Answer 61

The Dodd-Frank Act 2010.

Question 62

What office did Dodd-Frank create in the US Treasury?

Answer 62

The Federal Insurance Office (FIO).

Question 63

What is the main role of the Federal Insurance Office?

Answer 63

To monitor the insurance sector and advise on modernising regulation.