1
Q
What are the legal implications of an insurer providing a quotation?
A
- don’t remain valid indefinitely. insurer indicates the period of validity
- If the client accepts the quotation after expiry, insurer can agree if wishes, not obliged to.
- If the insurer does not specify the time period of validity, concept of ‘reasonable time’ applies.
- insurer is not on risk if a client has received its quotation and not accepted it.
- If client accepts the quotation on the terms provided in the time period, insurer can’t back out. if client seek to change terms, offer and acceptance process starts again.
2
Q
what happens when the underwriter accepts the quote
A
- ‘scratches’ the slip (sign initials) and adds date. indicate the share of the risk they are taking. insurer will state the underwriting reference that’s applying to the risk. This is specific to insurer and contain data that’s internal, i.e. class of business code or whether reinsurance is purchased.
- If risk is placed electronically underwriters will agree their lines electronically. system records a timestamp and identification code for the insurer/ underwriter based on logins to the system.
- line the insurer has agreed to is their ‘written line’.
3
Q
what happens if the broker hasnt been asked to place the whole risk
A
- broker might place part of the risk. They may only have a share of the risk to place, another share maybe in a different market
- share is called ‘order’ – broker will say they have a ‘50% order to place’.
4
Q
at what point are the underwriters on risk?
A
depends on the inception date of the
policy
5
Q
signing down
A
- when shares of a risk are reduced to 100%’, so each insurer’s written line is reduced so total lines add up to 100%. This reduced line is known as the ‘signed line’.
- theres a time lag between writing risk and notification of signed lines through Velonetic, broker should give underwriters indication if there’ll be any signing down.
- signing down process is performed by broker without underwriters. if a broker is struggling to place a risk, they can’t increase underwriters’ lines without permission.
6
Q
Reasons for natural termination of an insurance contract:
A
- Cancellation by insured
- Cancellation by insurer - clear provisions which state termination if certain things happen. When an insurer cancels a policy they send NOC.
- Fulfilment - policy pays out in full,
- Expiry of the policy period -policies are 12 months (some shorter/longer). contract is for the policy period and terminates at the end of period.
7
Q
cancellation by the insured as a reason for termination
A
- buyers of commercial insurance don’t have the same rights as consumers to cancel during first 14 days (cooling-off period) most contracts allow concept of cancellation.
- insurers require payment of premium to represent time they were on risk unless cancellation is from inception
- If whole premium was paid up front, insurer returns all of it on cancellation by insured – subject to any specific wording
- policy can contain short rate premium provision (table showing the % of premium the insurers will be entitled to keep) depending on how many days the policy was in force
- insured could invoke a downgrade clause. Provides insured the right to remove an insurer from their policy under circumstances, most typical: security rating reduced, run-off, bought by another insurer or a certain underwriter leaving
8
Q
Reasons for unexpected termination
Under the Insurance Act 2015, reasons for unexpected termination (caused by the
behaviour of the parties) are:
A
- Breach of the duty of fair presentation -
insured presents material facts about risk they know/ought to know, or give insurers info to put a prudent insurer on notice that it should ask questions. insured has to provide info to insurers thats clear and accessible. - Breach of warranty - contracts suspended for period of the breach. If the insurer wants to use the breach to refuse a claim, they cant if insured can show breach didn’t increase the risk of the loss that occurred.
- Fraud - If an insurer can prove fraud in relation to a breach, it can be discharged from liability but can keep the premium
9
Q
what does ‘ought to know’ mean
A
insured ‘ought to know’ - info that should have been revealed by a ‘reasonable search’ of info available to the insured.
10
Q
what happens if a breach occurs
A
- If breach falls into deliberate or reckless, insurer avoids contract and retains premium.
- If the breach was neither, insurer may avoid the contract if they can show that they wouldn’t have written the contract. Must return the premium.
- If insurer would have had different T&C’s the policy is rewritten from inception, including those new terms.
- If claims were handled before issue was discovered, insurer revisits claims and reconsiders them under new policy terms. may result in a different outcome
- If insurer would have applied same T&C’s but a higher premium, claims are reduced by same % as the premium was underpaid.
11
Q
renewal process
A
- if a risk is renewed, broker doesn’t have to approach the current insurers for renewal terms.
- speaking to them and requesting a renewal quote is market courtesy, the broker must try to obtain best options for the client.
- broker essentially starts quotation process again for renewal
12
Q
The existing insurers may not want to quote for the renewal for the following reasons:
A
- contract has been loss-making.
- exiting that class of business.
13
Q
underwriter may wish to keep as much business as possible for two practical reasons:
A
- costs less to renew business than to write it from scratch. As the risk is known to the insurer. so its analysis is less time-consuming
- more stable the portfolio of clients, the more reliable the statistical data.
14
Q
New regulatory rules were introduced by FCA in 2017 which affect personal insurances. These require insurers and intermediaries selling retail general insurance products to:
A
- disclose last year’s premium on renewal notices
- encourage consumers to check their cover and shop around at each renewal
- identify consumers who have renewed with them four consecutive times, give
these consumers a prescribed message encouraging them to shop around.
15
Q
what are ‘Days of grace’
A
described as a perceived ‘elastic’ end to the previous policy which allows the insured some scope should they be late in renewing their insurance. Unless the policies specifically make provision, then they do not exist.
16
Q
Writing a risk after the risk has incepted
A
possible for an underwriter to be shown a risk incepted. Due to placement process being drawn-out, or renewal process not being efficient. underwriter doesn’t want to pick up losses which might have occurred by the time they confirm their participation. use a specific warranty ‘Warranted no known or reported losses’ (WNKORL). Underwriters note this on MRC so parties are clear about their position.
17
Q
proposal forms
A
- not used in London market, but in yacht and PI insurance.
- yacht insurance. Regulator makes yacht insurer ask all questions it wants answered. Proposal form is completed by the insured, or insured and broker is used with the MRC, to present risk to insurer for a quotation and to accept the risk.
- proposal form created by insurer or broker, so allows them to include any questions they consider to be material.
- End of the form theres a declaration proposer (insured) must sign which says answers on the form are true. If insurers accept the form without following up on missing info, cant argue non-disclosure
18
Q
Proposal forms include general questions such as:
A
- name, address, nature of business
- info about past insurance history, including previous losses and claims
- turnover and info relating to the size of exposure
- geographical spread of the risk
- amount of insurance being requested
19
Q
Other ways to present the client’s risk to the underwriter, which aren’t proposal forms:
A
- brokers and clients can invite underwriters to presentations where they give more info or provide info in the form of documents.
- underwriters can handle business over email and telephone, or electronic placing systems such as PPL or Whitespace.
20
Q
MRC has distinct roles:
A
- document which the broker makes that summarises the client’s risk into a standardised format for presentation to underwriters.
- document which underwriters can indicate their written lines
- document which is sent to client as their copy of the insurance contract.
21
Q
clear benefits to producing MRC, its easier…
A
- for insurers to find info in a standardised document
- to perform other processes, i.e. creation of contract
- comply with contract certainty requirements
- work towards electronic submission of info if its already in a standard form
22
Q
what is an Open Market MRC.
A
the broker places each risk individually one by one, and visits each underwriter separately.
23
Q
what is a Lineslip MRC.
A
group of underwriters arranged by the broker, with an agreement that, as long as the nominated 1/2 of them agree to the attachment of a particular individual risk to that contract, remainder will be bound to the risk as well. Its possible to have lineslip where there’s a group of insurers brought together by a broker, but each insurer agreeing to their own share risks being attached.
24
Q
what is a Binder MRC.
A
underwriters have given delegated authority to an external third party that operates within strict parameters. Third party operates within a preset limit of authority and reports back the risks they have written each month.
25
The main difference with a lineslip or binder MRC compared to an open market
the risk details section of the open market MRC is removed and replaced with the details of delegation given. All other sections are the same
26
MRC is split into six sections:
- Risk details
- Information
- Security details
- Subscription agreement
- Fiscal and regulatory
- Broker remuneration and deductions
27
what is a Unique Market Reference (UMR)
unique reference generated by the broker for each risk.
28
what is a loss payee, in an MRC
Another party to whom insurance proceeds might be paid – i.e. bank which lent funds under a mortgage
29
what are Bureaux arrangements, in the MRC
If policy is signed on a de-linked basis, this should be captured here. De-linking is where the risk is sent into Velonetic to be entered into the market database as early as possible – premium paid sometime later, depending on what underwriters have allowed as credit period. Early data entry leads to getting data to underwriters and giving risk central references aka signing numbers and dates
30
what is fiscal and regulatory in an MRC
‘fiscal’ - relating to public money, i.e. taxes.
Regulatory - relating to any regulatory authority.
31
what is Allocation of premium to coding in an MRC
risks written in Lloyd’s have a code applied to them which identifies types of business it is. This code is called a risk code. Lloyd’s creates these codes in accordance with internal requirements for reporting.
32
Core Data Record (CDR)
programme that moves data + documents of current electronic placing to fully computable contracts. Had to create and agree a CDR for direct and Fac RI business using ACORD standards. CDR provide transaction data thats captured at the point of bind to complete downstream processing:
- Premium validation and settlement (Lloyd's + companies)
- Claims matching at first notification of loss ( Lloyd's + companies)
- Tax validation and reporting (Lloyd's only)
- Regulatory validation and reporting (Lloyd's only)
33
what is the MRC v3
next step of development after CRD is the MRC v3. for open market business as a stepping stone into developing data discipline between market participants.
Note: not all fields in CDR are in the MRC v3. CDR has 37 mandatory and 180 conditional depending on class of business
34
The General Underwriters’ Agreement (GUA) has a distinct purpose which is :
- create an agreement between underwriters on a MRC as to who will deal with contract changes
- clarify the extent of the authority given to the leaders and other underwriters to agree changes
- enable flexibility for each class of business
- ensure all underwriters are advised of the changes even if they're not involved
35
combinations of risks that need to be known by underwriters
- Part 1 - slip leader only
- Part 2 - slip leader plus agreement parties
- Part 3 - all underwriters
36
what comes under a part 1 risk
- Anything the slip says can be changed by leader only
- a typographical error
- change which reduces monetary exposure
- Restrictions in coverage
- Return premiums if provided for in slip
- Agreement of wording if leader only agreement is provided for in the MRC
37
what comes under a part 2 risk
- Anything in MRC to be agreed by leader and agreement parties.
- does not fall into Part 1 or Part 3
38
what comes under a part 3 risk
- has to be agreed by all underwriters
- Anything slip leader or agreement parties feel should be agreed by underwriters
- Changes to geographical scope
- Policy extensions in excess of 30 days or calendar month
- Changes to jurisdiction of the contract
- Backdating of the policy period
39
what is a GUA stamp
When endorsement is presented to the slip leader, they should attach a GUA stamp to endorsement and indicate which combo of underwriters is required to agree, by signing the appropriate box.
40
why is the marine stamp different to the typical GUA one
marine stamp is different as marine market has had historic notification or listing practices which are being maintained, even though the GUA provides for advising all underwriters if the agreement parties request.
41
electronic systems use when there's been a change to the slip
Electronic systems i.e. PPL and Whitespace can notify followers of changes made, even if they are not an agreement party.
42
The Market Reform Contract Endorsement (MRCE) document contains:
- Risk and endorsement identification
-Contract changes
- Information
- Agreement
- Contract administration and advisory
If change requires premium to be paid/ refunded, settlement due date is shown
43
endorsements can be evidenced to insured by sending them one of the following:
- copy of the MRCE
- copy of MRCE with the contract administration and advisory section removed
- formal policy endorsement
- broker insurance document (BID)
44
Premium processing
Once risk has been placed, or a change is made which has premium consequences, broker prepares various documents:
- document for client showing how much premium they'll pay, with added tax i.e. IPT. This takes the form of a debit note from broker to client and client will pay funds to broker.
- Documents for insurers who don't use London Market central settlement system to show premium they'll receive and deductions i.e. brokerage. overseas insurers require this.
* London Premium Advice Note for insurers who use central settlement. one created for Lloyd's and company market, more might be required if there are complex tax or regulatory coding splits
45
Premium processing:
After the various documents have been created...
- brokeruse the A & S system to submit the slip, LPANs, documents i.e. tax schedules to Velonetic. these are checked by Velonetic and risk data is on database for Lloyd's (LIDS) and company market (POSH), with premium info.
- Signing number and date is created for every premium payment due, and overnight messaging will update insurers systems. Premium will move from brokers' accounts into insurers.
- process repeated for additional/ return premiums during the policy period
46
2 particular types of condition that we need to consider:
- condition precedent to contract
- condition precedent to liability
47
A condition precedent to contract
- ‘precedent’ means condition must be satisfied for the contract to exist or for insurer to have liability under the contract.
- A condition precedent to contract needs insurable interest. non-marine insurance, insurable interest is required at point of purchase and claim. If no insurable interest exists at these points, contract is not valid.
48
conditions precedent to liability
- commercial insurance contracts, there are specific claims notification clauses and are stated to be conditions precedent to liability. wording is ‘Its a condition precedent to liability that all claims are notified within x days’. if this provision not be complied, insurer could refuse claim
- From a legal standpoint, condition does not have to be stated to be a condition precedent to liability for court to interpret it as one
- courts interpret terms in a policy according to legal measures of their intention/ effect, not what they are called.
49
Exclusions
- exclusion - risk the insurer wont cover under a policy. some risks are market exclusions i.e. radioactive contamination.
- exclusions that are present in individual policies, can have coverage purchased separately from specialist underwriters. i.e. war risks, in marine and aviation.
- there are stricter restrictions where you have to request permission to write war business as part of business planning process in Lloyd’s.
50
a warranty is the insured saying that:
an example of some warranties
- something will or will not be done
- a certain fact exists or does not exist.
- property risk – warranty that there's a operational sprinkler system.
- aviation risk – warranty only personnel with a certain number of flying
hours operates the equipment.
- marine risk – warranty the vessel will not trade in certain areas of the world.
51
Warranties
Most warranties are in the policy (express warranties). in marine insurance, implied warranties apply if the policy is subject to English law. Implied warranties aren't written.
Consumer Insurance Act 2012 (April 13). Act removed ability of insurers to rely on contract clauses to create a warranty
52
Suspensive conditions in a warranty
Insurance Act 2015, if theres a breach of warranty, policy is suspended until the breach is remedied and suspension lifts. insurer has no liability under contract for loss which occurs or anything which takes place during suspension.
53
Link between breach and loss
(warranties)
- insurance Act, insurers not able to rely on a breach if insured shows there was no increase in the risk of the loss which actually occurred
- Act suggest the ability for insured to argue the breach had no impact on the loss what happened doesn't apply if term defines the risk as a whole.
54
Basis of contract clauses
(warranties)
Insurance Act - removes insurer’s ability to use basis of contract clauses to convert representations made into warranties. Not possible to contract out of this provision.
55
Sources of wordings and clauses:
LSW
ISO
LMA
NMA
AVN
- LSW – London Standard Wording
- ISO – International Standards Organisation
- LMA – Lloyd’s Market Association
- NMA – Non-Marine Association (now part of LMA)
- AVN – Aviation Market
56
How the London Market uses other markets’ policy forms
insurers London Market use another market’s policy wording, as they've led the risk, or writing primary layer when London is providing excess layer.
i.e. LPO 348, non-marine market.
57
service companies
operate in Lloyd’s Market where managing agents set up insurance organisations in various locations. These organisations underwrite business on behalf of syndicate. Backed by syndicate, rules and requirements of operating in the Lloyd’s Market still apply
58
Branch offices
Lloyd’s obtains regulatory permission worldwide for syndicates to write risks, without physical presence. Insurance companies obtain permission individually, normally permission is granted if insurer sets up a branch office in that country to write risks ‘on the spot’.
59
Insurers working in the EU allows insurers to operate in 2 different ways:
- Services - insurers stay in country and write risks coming out of other countries on a cross-border basis. Regulated only by home regulator.
- Establishment - insurers choose to set up an office in another country and write the risks from there.
60
Lloyd’s Brussels / Lloyd’s Insurance Company S.A
Belgian insurance company - subsidiary of Lloyd’s. Set up to ensure that, during brexit, syndicates in Lloyd’s market still had mutual recognition by regulators, allowing them to operate cross border in Europe. Risks are written by Lloyd’s Brussels, underwriting is outsourced to Lloyd’s syndicates. Each risk written is reinsured back to Lloyd’s syndicates. Underwriting stamps are different and the primary risk bearer is Belgian company. Lloyd’s Brussels is authorised to write direct and reinsurance business in EEA + Monaco.
61
Contract certainty
parties to a contract knowing exactly what is going on at inception.
2004, regulators set a challenge to end ‘deal now, detail later’ mentality.
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