chapter 4

Question 1

In sales, what is a product FEATURE vs a BENEFIT?

Answer 1

Feature = what the product is/does. Benefit = what it does FOR the client (solves their problem).

Question 2

In insurance broking, what do clients usually express: features or benefits?

Answer 2

Benefits – they say what outcome they want, not the policy features that deliver it.

Question 3

In insurance, what are BENEFITS vs FEATURES?

Answer 3

Benefits = client wants (e.g. ‘cover if we are sued’). Features = policy details that meet that want (e.g. public liability cover, limits, clauses).

Question 4

Why must a broker translate client ‘benefits’ into policy ‘features’?

Answer 4

To choose the right policy, limits, conditions and extensions that actually deliver the outcome the client wants.

Question 5

Why be cautious when clients use insurance jargon (e.g. ‘I need PL cover’)?

Answer 5

They may misuse terms – you must check what they REALLY want and need, not assume their wording is correct.

Question 6

What should a broker do when a client states their insurance request in vague terms?

Answer 6

Ask probing questions to clarify the risk, exposures, priorities, budget and existing covers.

Question 7

According to ICOBS 5.3.1R, what must a firm ensure about its advice?

Answer 7

It must take reasonable care to ensure the suitability of its advice for the customer’s demands and needs.

Question 8

When assessing if a policy meets a customer’s demands and needs, what THREE things must a broker consider?

Answer 8

1) Sufficient cover level? 2) Cost? 3) Are exclusions, excesses, limits and conditions appropriate.

Question 9

Why is it important to identify any existing insurance when assessing demands and needs?

Answer 9

To avoid gaps or overlaps and ensure the whole risk is properly covered.

Question 10

What is the purpose of a demands and needs assessment?

Answer 10

To identify what the client requires from their insurance so you can recommend suitable cover.

Question 11

What is the purpose of a STATEMENT of demands and needs / suitability statement?

Answer 11

To record the client’s demands and needs and show how your recommended policy meets them.

Question 12

When must a statement of demands and needs be provided?

Answer 12

Before conclusion of the contract, on paper or other durable medium, clearly and free of charge.

Question 13

Why must the level of detail in a demands and needs statement reflect policy complexity?

Answer 13

Simple covers need brief explanation; complex covers need more detail so the client can understand suitability.

Question 14

What should a suitability / demands and needs statement link together?

Answer 14

Client’s demands and needs ↔ policy chosen ↔ reasons why it is suitable.

Question 15

Why must brokers explain the insurance in plain language?

Answer 15

Clients often do not understand insurance jargon; clear language is needed so they can make informed decisions.

Question 16

What key things should a broker explain about a policy?

Answer 16

Scope of cover, key exclusions, limits, excesses, conditions, duration, cancellation rights and claims procedures.

Question 17

Why should brokers check a client’s understanding after explaining cover?

Answer 17

To confirm the client really understands what is and is not covered, reducing mis-buying and later disputes.

Question 18

How do client needs differ between small simple risks and large complex risks?

Answer 18

Small clients focus on basic cover and price; large corporates need advice on risk management, programme design and alternative risk financing.

Question 19

Why must a broker locate the client on the ‘simple–complex’ service scale?

Answer 19

So the broker can tailor the depth of advice and services (from basic placement to full risk consultancy).

Question 20

After agreeing services with a client, what must the broker always do?

Answer 20

Confirm in writing what has been agreed – scope, responsibilities and service levels.

Question 21

What FOUR main elements do written agreements with clients usually cover?

Answer 21

1) Regulatory information. 2) Terms of business agreement (TOBA). 3) Service level agreement / service standards. 4) Broker’s remuneration.

Question 22

Why have brokers moved towards formal written agreements with clients?

Answer 22

To meet FCA information requirements and clearly document the contract and services.

Question 23

What regulatory information must a broker give BEFORE the client commits to buy?

Answer 23

FCA regulation confirmation, FCA registration number and how to check it, authorised activities, cooling‑off rights for consumers, complaints process, FOS/FSCS availability.

Question 24

What is a TOBA (Terms of Business Agreement) between broker and client?

Answer 24

A formal contract setting out services, remuneration, payment terms, duties and key legal terms of the broker–client relationship.

Question 25

Why do many firms have separate TOBAs for consumers and commercial clients?

Answer 25

Because duties, disclosure rules and wording differ between consumer and commercial insurance.

Question 26

What typical items does a client TOBA include about services and remuneration?

Answer 26

Services the broker will perform; how they are paid (fee and/or commission); that commission is usually earned in full at inception.

Question 27

What typical items does a TOBA include about premium payment and client duties?

Answer 27

Premium payment terms; client’s duty not to misrepresent (consumers) or to make a fair presentation (commercial); responsibility for checking information.

Question 28

What key legal terms are usually included in a TOBA?

Answer 28

Duration and termination; governing law; limitation of liability; confidentiality; how conflicts of interest and complaints are handled.

Question 29

What does ‘client money’ usually refer to in a TOBA?

Answer 29

Premiums and claims monies held by the broker on the client’s behalf and how these are protected and used.

Question 30

Why is confidentiality mentioned in broker–client TOBAs?

Answer 30

To confirm the broker will keep client information confidential and only share it where necessary or permitted by law.

Question 31

What is the purpose of a privacy notice within or alongside the TOBA?

Answer 31

To tell clients what personal data is collected, why, legal basis, who it is shared with and their data protection rights.

Question 32

What are SERVICE PLANS or SLAs usually used for?

Answer 32

To set out in detail what services the broker will provide, to what standard and within what timescales, often for larger clients.

Question 33

Give examples of service standards that might be in a service agreement.

Answer 33

E.g. renewal terms issued X days before expiry, meeting frequency, time to issue documentation, claims reporting support, premium allocation deadlines.

Question 34

Why is it important to measure performance against agreed service standards?

Answer 34

To demonstrate delivery, identify any shortfalls early and support continuous improvement and client retention.

Question 35

What does FCA guidance say about disclosing broker remuneration to commercial clients on request?

Answer 35

Brokers must disclose the amount and nature of their remuneration (e.g. commission, fees, profit shares) when a commercial client asks.

Question 36

Why is clear remuneration disclosure important for managing conflicts of interest?

Answer 36

It helps clients see how the broker is paid and judge whether there might be any bias in insurer or product selection.

Question 37

What is the broker’s duty of disclosure TO the client in written agreements?

Answer 37

To clearly explain their role, services, remuneration, conflicts, and key information the client needs to make informed decisions.

Question 38

What is a ‘complaint’ in an FCA sense?

Answer 38

Any expression of dissatisfaction from a client, whether oral or written, about the firm’s provision of, or failure to provide, a financial service.

Question 39

What is an E&O (errors and omissions) claim against a broker?

Answer 39

A claim alleging the broker’s error, omission or negligence caused the client financial loss.

Question 40

Give examples of broker mistakes that can lead to E&O claims.

Answer 40

Failing to arrange cover, under‑insurance, missing key extensions, not passing on instructions, errors in policy wording, late or missed renewal, poor advice.

Question 41

How can failing to explain exclusions and conditions create complaints/E&O?

Answer 41

Client may expect cover which is actually excluded or conditional, leading to disputes and alleged mis‑selling when a claim is refused.

Question 42

Why is poor documentation a common cause of complaints and E&O?

Answer 42

If advice and instructions are not recorded, it is hard to prove what was agreed or that the client was properly advised.

Question 43

What simple rule does the text give for preventing complaints and E&O claims?

Answer 43

Do it right first time, ask if you don’t know, and put everything in writing.

Question 44

Why should a broker ‘ask if they don’t know’ rather than guess?

Answer 44

Guessing increases the risk of incorrect advice and negligence; checking with colleagues, compliance or insurers lowers E&O risk.

Question 45

Why is good record‑keeping essential for E&O risk management?

Answer 45

File notes and emails evidence what was asked, advised and agreed, helping defend allegations of negligence.

Question 46

When you receive a complaint, what is the FIRST thing you should do?

Answer 46

Take it seriously and follow your firm’s complaints/E&O procedures immediately.

Question 47

When handling a complaint, what two things must you NOT do?

Answer 47

Do not conceal the problem and do not lie or alter records.

Question 48

Why must you not admit liability or offer compensation personally when a complaint may involve E&O?

Answer 48

Because this may prejudice your firm’s E&O insurance; decisions on liability and settlement must involve management and insurers.

Question 49

Who should you notify internally when a serious complaint or potential E&O issue arises?

Answer 49

Your line manager and/or compliance team, and where required the firm’s E&O insurer according to internal procedures.

Question 50

Why remain personally interested in your firm’s E&O policy as an employee?

Answer 50

Employees can be personally liable for their actions; the firm’s E&O policy usually protects them when acting in the course of their employment.

Question 51

Who owns most insurance placing and claims documents held by a broker?

Answer 51

The insured client, because the broker is their agent. Documents about their insurance generally belong to them.

Question 52

What documents do insurers normally have a right to see from the broker’s file?

Answer 52

The market slip and the policy wording – not the broker’s internal working papers, unless the client authorises release.

Question 53

Why is there a special exception on document disclosure in the Lloyd’s market (Goshawk v Tyser)?

Answer 53

Because brokers traditionally hold the placing and claims files at Lloyd’s, the court recognised an implied obligation to provide documents to underwriters when reasonably necessary.

Question 54

If a client changes broker, when must the outgoing broker transfer documents?

Answer 54

When the client instructs them to do so – the client has the right to their own documents.

Question 55

When sending files to a new broker, what THREE checks should the outgoing broker make?

Answer 55

1) Only send documents the client owns. 2) Remove internal broker documents. 3) Keep copies of everything passed on.

Question 56

Why should an outgoing broker review documents before handing them to a new broker?

Answer 56

To identify and correct any errors or areas of concern promptly, reducing E&O exposure.