Chapter 8 - Business Process

Question 1

What is a quotation?

Answer 1

Indication from a insurer for terms and conditions about a risk

Question 2

What are the legal implications of an insurer providing a quotation?

Answer 2

• do not remain valid indefinitely, insurer can specify time period for validity
• if client accepts after expiry, insurer can accept but is not obliged to
• if insurer does not specify time period, “reasonable time” applies
• if client accepts in time frame, insurer obliged to honour
• if client accepts subject to changes, insurer not obliged to accept changes

Question 3

What is an insurer’s share of a risk called?

Answer 3

the order, i.e 50% order to place

Question 4

When is an insurer on a risk?

Answer 4

When they put their line on a MRC, though exact liability is not yet known

Question 5

What is signing down?

Answer 5

When a risk is over subscribed, lines are reduced proportionally to add up to 100%. New line is called “signed line”

Question 6

What happens in signing down when an insurer wants their “line to stand”?

Answer 6

They keep their exact line, other lines are reduced proportionally to add up to 100%

Question 7

What are some reasons for natural termination of a contract?

Answer 7

• cancellation by insured
• cancellation by insurer
• fulfillment
• expiry of the policy period

Question 8

Under the Insurance Act 2015, what are the reasons for unexpected termination of a contract?

Answer 8

• breach of duty of fair representation , if would’ve offered on different terms treat as though those terms etc
• breach of warranty
• fraud

Question 9

Why would an insurer not want to quote for a renewal?

Answer 9

• contract has been loss making

- exiting that class of business

Question 10

Why would an insurer want to renew business?

Answer 10

• costs less to renew business

- more stable portfolio of clients = more reliable statistical data

Question 11

What are “days of grace”?

Answer 11

Elastic policy expiry should the insured be late in renewing a policy

Question 12

How do underwriters write a risk that has incepted?

Answer 12

They write on the basis of “Warranted no known or reported losses”

Question 13

What lines of business are proposal forms common in?

Answer 13

yacht and PI

Question 14

What is the role of the market reform contract?

Answer 14

• summarises risk into standardised format for underwriters
• underwriters formally write their lines here
• sent to client as their copy of the contract

Question 15

What are the benefits of a standardised market reform contract?

Answer 15

• easy for insurers to find information
• easy to create a new one
• comply with contract certainty requirements
• works towards electronic slips

Question 16

What is an open market MRC?

Answer 16

where broker places each risk individually one by one, visits each broker separately

Question 17

What is a line slip MRC?

Answer 17

Preset group of underwriters arranged by broker, if norminated one or two agree to a risk the rest of the underwriters bound as well

Question 18

What is a binder MRC?

Answer 18

Underwriters give delegated underwriting authority to third party who can act under strict parameters

Question 19

What are the six sections of an open market MRC?

Answer 19

• risk details
• information
• security details
• subscription agreement
• fiscal and regulatory
• broker renumeration and deductions

Question 20

What is the purpose of the general underwriters agreement?

Answer 20

• agreement between underwirters on a particular MRC as to who has to deal with contract changes
• clarify extent of authority of leaders and any other identified underwriters who have to agree changes
• flexibility for each line of business to refine rules to suit requirements
• all underwriters advised of changes even if not involved in agreement

Question 21

what are the three parts of the general underwriters agreement?

Answer 21

1. slip leader only
2. slip leader plus agreement parties
3. all underwriters

Question 22

What is a market reform contract endorsement?

Answer 22

document in a set format to populate relevant information for a requested change to an mrc

Question 23

What are the sections of a market reform contract?

Answer 23

• risk and endorsement indentification
• contract changes
• information
• agreement
• contact administration

Question 24

What are the two types of conditions?

Answer 24

• condition precedent to liability

- condition precedent to contract

Question 25

What is a condition precedent to contract?

Answer 25

Example would be requirement for insurable interest

Question 26

Give an example of condition precedent to liability

Answer 26

Claims must be notified within x days

Question 27

What is a warranty?

Answer 27

Promise made by the insured relating either to facts or to the performance of a certain risk i.e. something will or will not be done, or a certain fact exists or does not exist

Question 28

What occurs if there is a breach of warranty under the Insurance Act 2015?

Answer 28

policy is suspended until breach is remedied - insurer takes no liability for loss during suspension

Question 29

Why might business not come into the london market?

Answer 29

- business is handled by regional or overseas brokers not prepared to use Lloyd's brokers to access London Market - loyalty to local insurance providers if overseas

Question 30

What is operating on a services basis?

Answer 30

insurers write EU risks without setting up an office in that country, regulated by home regulator

Question 31

What is operating on an establishment basis?

Answer 31

Setting up an office in country want to write risks in

Question 32

What is contract certainty?

Answer 32

All parties knowing exactly what is going on at the time the contract comes into force

Question 33

How is contract certainty achieved?

Answer 33

by the complete and final agreement of all terms between the insured and insurer at the time they enter into that contract with contract documentation provided promptly afterwards