Main reasons why certain forms of insurance are compulsory:
- to provide funds for compensation; and
- in response to national concerns.
history of:
- motor insurance
- employers liability
- motor insurance came into effect 1930s
- UK employers’ liability dates back to Employers’ Liability Act 1880. Employers’ Liability Assurance Corp set up in 1880.
features of many of the compulsory insurances:
- cover financial impacts of situations where the insured is to legally liable
for injury to people or loss or damage to their property. - insurers defend claims against the insured
- require the insured to purchase insurance for a period of time after the business ceases to operate.
what is warranty?
and what is the effect of a breach?
promise made by the insured to the insurer.
Breach suspends contract for the period of the breach. Breach of good faith permits an insurer to ‘come off’ risk. Doesn’t apply to motor 3rd party or employers’ liability. Insurer can’t refuse to deal with the 3rd party claims, as they have to protect the innocent.
Compulsory Insurance in other countries:
Turkey
property-owners to purchase insurance against earthquake risks, and some compulsory motor insurance.
Compulsory Insurance in other countries:
Australia
compulsory third party motor insurance to the UK. in all but two states in Australia theres only 1 provider of this insurance
Compulsory Insurance in other countries:
Germany
third party liability in relation to an event where a German court might consider you negligent.
Compulsory Insurance in other countries:
UK
- workers’ compensation
- motor insurance for commercial vehicle owners – not private vehicle owners.
- employers buy short-term disability insurance for their employees. This covers illnesses + disabilities not related to employment and pays out a weekly benefit
insurance law which impacts business written in the London Market are:
- Consumer Rights Act 2015.
- Contracts (Rights of Third Parties) Act 1999.
Consumer Rights Act 2015
- terms and notices in consumer contracts have to be fair.
- ‘unfair term’ in a consumer contract is not binding.
- if a term is unfair, subject matter of the contract will be taken into account, and circumstances and all other terms
- should be transparent, prominent, legible.
Contracts (Rights of Third Parties) Act 1999
- contract is an agreement between 2 or more parties. The people who party to the contract can enforce terms, legal term is ‘privity of contract’.
- if contract is made with benefiting someone whos not a party, that person can’t sue for breach of contract.
- Contracts Act 1999 reformed the privity rule and set out the circumstances, where 3rd party has a right to enforce a term.
what is insurance premium tax (IPT)
a tax levied by the UK Government on
general insurance premiums in the UK. There are two rates: standard and higher.
what is the standard rate of IPT
12%
what is the higher rate of IPT
20%
for travel insurance and some insurances,
i.e. sold in conjunction with the purchase of vehicles and electrical appliances
what insurances are exempt from IPT
- long-term insurance
- reinsurance
- insurance on ship and aircraft
- international goods in transit
- most risks located outside the UK.
how IPT is collected
- insurer collects the premium tax from insured with the premium and paying it onto the tax authorities in the UK.insured and pays both to the insurer.
- IPT has been paid via broker to insurer and held in an account from where they pay funds onwards to Her Majesty’s Revenue and Customs (HMRC) on a quarterly basis.
what is The Senior Managers and Certification Regime (SM&CR)
new regulatory framework to replace Approved Persons regime (APER). Focuses on senior individuals in firms who hold key roles and responsibility. Applies to both insurers and brokers/ intermediaries.
what are Firms are required to do under SM&CR
- ensure senior managers has a statement of responsibilities, setting out areas they are accountable for
- produce ‘firm responsibilities map’
- ensure senior managers are approved by regulators
what does the regulators want SM&CR to do
- encourage staff to take responsibility for actions
- improve conduct at all levels
- staff understand and demonstrate who does what within the firm
The Government introduced ‘duty of responsibility’ to ensure…
senior managers are to prevent a regulatory breach from occurring.
This is part of the Bank of England and Financial Services Act 2016.
SM&CR has three parts:
- Senior Managers Regime.
- Certification Regime.
- Rules of Conduct.
Senior Managers Regime
applies = senior role aka senior managements functions (SMFs). These roles are specified in rules made by PRA + FCA. Firms planning a new senior manager appointment, or material change in role, must submit an application to regulators for approval.
senior manager regimes apply to these roles as well as APER:
- Head of key business area – individuals managing a business area so large it could jeopardise the safety + soundness of the firm, so would warrant a separate SMF
- Group entity senior manager
- Significant responsibility function
what are statement of responsibilities
prepared for each senior manager, setting
out responsibilities in managing the firm. should include CV, personal development plan, job description, organisation chart and responsibilities map. This map sets out firm’s management and governance arrangements, includes reporting lines and responsibilities.
