1
Q
Which of the following is not a defined ‘regulated activity’:
a) Arranging
b) Advising
c) Assisting
d) Enabling
A
d) Enabling
2
Q
Which of the following is not within the definition of a ‘large risk’
a) credit and suretyship
b) railway rolling stock
c) goods in transit
d) payment protection
A
d) payment protection
3
Q
Which of the following does not relate to the FCA’s operational objectives?
a) consumer protection
b) integrity
c) adverse effect
d) competition
A
c) adverse effect
4
Q
Which of the following is unlikely to be an ‘eligible complainant’?
a) a micro-enterprise
b) a large trade association
c) a guarantor
d) a consumer
A
b) a large trade association
5
Q
The FSCS levy provides 100% protection for which of the following?
a) a compulsory insurance
b) professional indemnity insurance
c) long-term insurance
d) all of the above
A
d) all of the above
6
Q
Under contract certainty rules, timescales for issuing documentation are measured from the latest of:
a) the inception date of the contract
b) the date on which the insured and insurer enter into the contract
c) where there is more than one participating insurer, the date on which the final insurer enters into the contract
d) any of the above
A
d) any of the above
7
Q
Under IDD, there is a new category of insurance settler called:
a) additional insurance intermediaries
b) alternative insurance intermediaries
c) accessory insurance intermediaries
d) ancilliary insurer intermediaries
A
d) ancilliary insurer intermediaries
8
Q
Which of the following is the main insurance commissioner in the USA?
a) FSAP
b) NCIOL
c) NAIC
d) None of the above
A
c) NAIC
9
Q
Which of the following does ICOBS not apply to?
a) motor insurance
b) critical illness cover
c) reinsurance
d) employers liability insurance
A
c) reinsurance
10
Q
The definition ‘a customer who is not a consumer’ is associated with which of the following?
a) a policyholder
b) a customer
c) a consumer
a) a commercial customer
A
a) a commercial customer
11
Q
‘A benefit that is offered to a firm, with a view to that firm or that person adopting a particular course of action’ is called an:
a) inducement
b) incitement
c) incentive
d) induction
A
a) inducement
12
Q
ICOBS 3 applies if a broker sells or distributes its broking services direct to its clients via:
a) the internet
b) the telephone
c) email
d) all of the above
A
d) all of the above
13
Q
A firm can consolidate all the information it needs to give to a customer through:
a) initial distribution documentation
b) initial disclosure documentation
c) initial declaration documentation
d) initial domestic documentation
A
b) initial disclosure documentation
14
Q
Under FCA transparency rules, insurance providers must identify consumers who have renewed with them:
a) two consecutive times
b) three consecutive times
c) four consecutive times
d) five consecutive times
A
c) four consecutive times
15
Q
IPIDs relate to policies aimed at:
a) wholesale consumers
b) commercial customers
c) retail consumers
d) wholesale customers
A
c) retail consumers
16
Q
Cancellation rights on pure protection policies and PPI policies are:
a) 14 days
b) 15 days
c) 20 days
d) 30 days
A
d) 30 days
17
Q
Which of the following are not subject to cancellation rights?
a) household policy
b) gadget policy
c) travel policy
d) none of the above
A
c) travel policy
18
Q
What is the exception to the ICOBS rule that an insurer cannot unreasonably reject a claim?
a) when a policyholder is not a consumer
b) where there is evidence of fraud
c) where the premium has not been paid
d) where the claim is subject to coverage issues
A
b) where there is evidence of fraud
19
Q
Claims advocacy involves:
a. producing periodic claims statistics for the client.
b. assisting the client if there are any problems with a claim.
c. analysing claims records to identify any trends that need addressing.
d. processing the claim on the client’s behalf.
A
b. assisting the client if there are any problems with a claim.
20
Q
A small delivery firm with a turnover of £250,000 has a goods in transit policy but when it makes a £1,000 claim for damaged goods, it learns that the insurer had gone into liquidation. How much could it claim from the Financial Services Compensation Scheme?
a. £1,000.
b. £900.
c. £500.
d. Nil.
A
d. Nil.
The general insurance that falls within the FSCS’s scope excludes
insurance for aircraft, ships, goods in transit, aircraft liability, the liability of ships and credit insurance. Contracts of reinsurance are also not protected.
21
Q
A haulage company decides to reduce the cover under its motor fleet policy and instead pay for vehicle repairs out of current revenue. This is an example of a[n]:
a. actively retained risk that is unfunded.
b. passively retained risk that is funded.
c. actively retained risk that is funded.
d. passively retained risk that is unfunded.
A
a. actively retained risk that is unfunded.
Risk retention means that an organisation will itself meet, in whole or in part, the cost of losses resulting from a particular risk. This can take place in two ways:
Passive risk retention
Applies to situations where the organisation is unaware that a risk exists or,
alternatively, where the existence of a risk is recognised but no active plan has been evolved to deal with it.
Active retention of ris
Arises when an organisation takes a conscious decision to bear the cost of any losses resulting from a recognised risk
Unfunded: Current revenue is used to meet the cost of any
resultant losses as they arise.
Funded: Current revenue is used to meet the cost of any
resultant losses as they arise.
22
Q
Under the contra proferentem rule, who would be responsible for any mistakes in the policy wording if bespoke wording was drafted by the broker and submitted to the insurer?
a. The broker only.
b. The insurer only.
c. The client.
d. The insurer and the broker jointly.
A
b. The insurer only.
23
Q
Global Pharmaceuticals plc has a master policy issued in Germany. If claims arise in Italy and the USA, what is the status of the master policy in relation to these claims?
a. The master policy would be admitted in both Italy and the USA.
b. The master policy would be admitted in Italy and non-admitted in the USA.
c. The master policy would be non-admitted in Italy and admitted in the USA.
d. The master policy would be non-admitted in both Italy and the USA.
A
b. The master policy would be admitted in Italy and non-admitted in the USA.
24
Q
When buying a motorbike, the dealer introduced Sally to a firm of specialist insurance brokers. To comply with the ICOBS 4 rules, the dealer must tell Sally:
a. whether it is owned in whole or in part by the broker.
b. details of how Sally can check the broker’s authorisation from the FCA.
c. details of any connection the broker has with any insurer.
d. how to contact the Financial Ombudsman Service if she needs to make a complaint.
A
a. whether it is owned in whole or in part by the broker.
25
If a broker's classification guide shows that an insurer is listed under the category of 'classified', the insurer can:
a. be used on an unrestricted basis for any type of business.
b. only be used on express instructions from the client.
c. only be used if the client is provided with certain information about them.
d. only be used for certain types of business.
a. be used on an unrestricted basis for any type of business.
26
The FCA ICOBS rules do NOT apply to:
a. insurance purchased by any commercial customer.
b. any pure protection contracts.
c. insurance on a second home in Spain.
d. insurance purchased by a captive.
d. insurance purchased by a captive.
27
Innovation is one of the criteria brokers use when selecting which insurers to approach for a particular risk. An example of innovation is:
a. prompt notification of proposed changes in market practice.
b. web and email based claims notification.
c. writing a self-insured programme rather than a conventional one.
d. having a sympathetic approach to the client.
c. writing a self-insured programme rather than a conventional one.
28
When helping a client to complete an insurance proposal form, the broker must:
a. explain the importance of data protection.
b. countersign the proposal form.
c. review the answers provided by the client.
d. explain that any errors or omissions may affect the cover or payment of claims.
d. explain that any errors or omissions may affect the cover or payment of claims.
29
Risk avoidance is:
a. the process of taking active steps to lessen the degree of hazard of a risk.
b. the introduction of physical controls to stop the possibility of a loss occurring.
c. action taken to evade entirely the possibility that an undesirable event will happen.
d. introducing physical measures that will not stop a loss occurring, but will lessen its effects.
c. action taken to evade entirely the possibility that an undesirable event will happen.
30
Under the FCA ICOBS rules, what type of insurance is subject to additional disclosure rules?
a. Professional indemnity policies.
b. Extended warranty policies.
c. Personal lines motor policies.
d. Income protection policies.
d. Income protection policies.
31
In addition to setting out regulatory information, a client agreement will also provide details of the:
a. services provided and the broker's terms of business only.
b. services provided and the broker's terms of business and remuneration.
c. broker's remuneration and the terms of business only.
d. services provided and the broker's remuneration only.
b. services provided and the broker's terms of business and remuneration.
32
The most straightforward approach to ensuring that cover is agreed before inception is:
a. separating clause into different categories.
b. using agreed wordings.
c. negotiating the wording as part of placing the risk.
d. specifying all clauses in full.
b. using agreed wordings.
33
The use of alternative risk transfer involves transferring risk to:
a. an insurer.
b. the capital markets.
c. a captive.
d. the other party to a contract.
b. the capital markets.
34
One advantage of a client having a cross-class retention is that:
a. it makes funding the retention easier.
b. it will make dealing with the business acquisition easier.
c. it is a flexible arrangement that can be easily unwound.
d. the insured's retention account can be closed at the end of each policy year.
a. it makes funding the retention easier.
35
What type of insurance programme is most likely to be appropriate for an international household goods manufacturer with a pharmaceuticals division?
a. Global.
b. Decentralised.
c. Divisional.
d. Regional.
c. Divisional.
36
Under the Fraud Act 2006, which scenario would NOT fall under the definition of fraud?
a. When arranging motor insurance, Martin omits to tell his insurer that he was prosecuted for drink driving three months ago.
b. Helen notices that a series of transactions made by one of her clients look suspicious, but decides not to say anything as they are a close friend of the Managing Director of the broking firm she works for.
c. Robert works as an Account Executive for a firm of insurance brokers. When submitting his expenses claim at the end of the month, he inflates his mileage thinking no-one will notice.
d. Sukheev discovers that one of her clients forgot to arrange insurance on a new car before collecting it and has since been involved in an accident. She issues a cover note dated for the day before he collected the car.
b. Helen notices that a series of transactions made by one of her clients look suspicious, but decides not to say anything as they are a close friend of the Managing Director of the broking firm she works for.
37
Broker A has been paid a commission for placing a client's employers' liability cover. Under common law, what is the position with claims handling under this policy where the client moves their business to Broker B at next renewal?
a. Broker A is responsible for handling all claims that are notified up to renewal. The client must then decide who will deal with any claims that are notified after renewal.
b. Broker A is responsible for handling all claims that are notified up to renewal and Broker B for claims notified after renewal.
c. Broker A is responsible for handling all claims under the policy it has arranged regardless of when they arise.
d. Broker A is responsible for handling all claims that are notified up to renewal, but can pass any claims that are outstanding at renewal to Broker B. Broker B must also deal with any claims notified after renewal.
c. Broker A is responsible for handling all claims under the policy it has arranged regardless of when they arise.
38
What document provides the client with details of the agreement between them and their broker?
a. Client agreement.
b. Suitability statement.
c. Terms of business agreement.
d. Demands and needs.
c. Terms of business agreement.
39
Which case confirmed that an individual employee can be held personally liable to the insured?
a) Winter v Irish Life Association
b) HH Casualty and General Insurance v JLT Risk Solutions
C) Pryke v Gibbs Hartley Cooper Ltd
D) Merret v Babb
D) Merret v Babb
40
The Prevention of Corruption Act 1906 relates to:
a) conflicts of interest
b) fudiciary duties
c) confidential information
d) secret profits
d) secret profits
41
The Enterprise Act 2016 is an extension of which Act?
a) Consumer Rights Act 2015
b) Insurance Act 2015
c) Marine Insurance Act 1906
d) Consumer Insurance (Disclosure & Representations) Act 2012
b) Insurance Act 2015
42
Which of the following is not a formal stage of money laundering?
a) placement
b) concealment
c) integration
d) layering
b) concealment
43
Which Act made ‘tipping off’ a money launderer an offence?
a) anti-terrorism crime and security act 2001
b) sanctions and anti-money laundering act 2018
c) proceeds of crime act 2002
d) serious organised crime and police act 2006
c) proceeds of crime act 2002
44
Which piece of legislation altered the doctrine of privity of contract?
a) Insurance Act 2015
b) Consumer Rights Act 2015
c) Contracts (Rights of Third Parties) Act 1999
d) Enterprise Act 2016
c) Contracts (Rights of Third Parties) Act 1999
45
Data rooms are likely to be used for:
a) small personal lines risks
b) small and complex clients
c) large personal lines risks
d) large and complex risks
d) large and complex risks
46
Which of the following may allow an insurer to be categorised as ‘classified but restricted’?
a) type of business
b) any sanctions policies
c) geography
d) all of the above
d) all of the above
47
Which of the following will make insurers liable for the whole loss from the ground up once a particular level has been exceeded?
a) franchise
b) excess
c) deductible
d) self insured retention
a) franchise
48
What are ‘zero losses’?
a) claims that were staged incidents
b) small claims within the deductible
c) claims that are closed at zero
d) small claims that did not require a reserve
c) claims that are closed at zero
49
Which of the following is not a main reason for signing up to a policy term beyond the standard one year?
a) premium stability
b) continuity
c) ongoing commitment to the current low pricing
d) client familarity
d) client familarity
50
What is the typical discount that can be expected for an LTA of five years?
a) 2%
b) 5%
c) 10%
d) 15%
c) 10%
51
Which of the following is not an alternative programme term?
a) short-term agreement
b) long-term agreement
c) evergreen policy
d) multi-year policy
a) short-term agreement
52
NFIP, NPR&M and Stormradet are all examples of what?
a) facilities in the london market
b) international programmes
c) schemes covering natural hazards
d) agreements with international insurers
c) schemes covering natural hazards
53
Which programme works effectively when the client exerts central control?
a) a regional programme
b) a divisional programme
c) a global programme
d) a horizontal programme
c) a global programme
54
A policy where an insurer can pay claims and defend an insured in a particular country is called:
a) an alternative policy
b) an aligned policy
c) an agreed policy
d) an admitted policy
d) an admitted policy
55
Which of the following would be a characteristic of a ‘soft market’?
a) an Insurers capacity increases
b) capital markets invest in insurance
c) claims exceed premiums
d) premiums exceed claims
c) claims exceed premiums
56
Which one of the following is not in the ICOBS claims handling rules?
a) handle claims promptly and fairly
b) provide an indication of settlement within three months of notification
c) not unreasonably reject a claim
d) settle claims promptly once settlement has been agreed
b) provide an indication of settlement within three months of notification
57
Which online portal is used for personal injury claims?
a) employers liability tracing office
b) association of British insurers portal
c) claims and underwriting exchange
d) ministry of justice
d) ministry of justice
58
Triangulations are typically used for which of the following claims?
a) business interruption
b) commercial property
c) liability claims
d) kidnap and ransom
c) liability
59
Under ELTO, a CRN stands for:
a) claims reference number
b) company registration number
c) contribution recall number
d) client rating number
b) company registration number
60
Where criminal gangs take out insurance policies with the specific intention of committing fraud, this is:
a. Organised fraud
b. Opportunistic fraud
c. Money laundering
d. Exaggerated fraud
a. Organised fraud
61
The definition ‘the examination of the activities of an organisation in order to ascertain features which may prove hazardous to the furthering of its objectives’ describes:
a. Risk evaluation
b. Risk identification
c. Risk improvement
d. Risk reduction
b. Risk identification
62
Which of the following is not a technique for risk control and elimination?
a. Avoidance
b. Transfer
c. Maximisation
d. Prevention
c. Maximisation
63
Unfunded risks can also be described as:
a. Self insurance
b. Active risk retention
c. Actively retained risks
d. Passive funding
c. Actively retained risks
64
Which of the following can be owned or managed by brokers?
a. Run-a-captive
b. Rate-a-captive
c. Rent-a-captive
d. Risk-a-captive
c. Rent-a-captive
65
Which of the following is a specialist risk management service?
a. Business interruption reviews
b. Household reviews
c. Marine cargo reviews
d. Cyber reviews
a. Business interruption reviews
66
What is usually the overriding factor for a broking firm when choosing whether to trade with a particular insurer?
a. Financial security.
b. Reputation and experience.
c. Brokerage.
d. Credit facilities offered.
a. Financial security.
67
A commercial client has instructed its broker to use an unclassified insurer, against the broker's recommendation. What action should the broker take?
a.Make sure it obtains written instructions from the client.
b.Refuse to use the client's preferred insurer as per FCA rules.
c.Seek authorisation from the FCA to use this insurer.
d.Tell the client that it is unable to follow their instructions and suggest they find an alternative broker.
a.Make sure it obtains written instructions from the client.
68
A Lloyd's underwriter initials a slip to take a following share of 10% for a particular risk. At what point does the contract of insurance become binding?
a. When confirmation of cover is received from the broker.
b. From the attachment date shown on the slip.
c.When the slip is complete.
d.When the slip is initialled.
d.When the slip is initialled.
69
When a large national broker places a multinational programme with an insurer, the payment will usually be required within:
a.30 days.
b.60 days.
c.90 days.
d.the same working day.
b.60 days.
70
A 'lineslip' is the name given to a method:
a.used exclusively to place reinsurance.
b.where both the underwriting of risk and claims handling authority is always delegated to the broker.
c.of underwriting risk with a single insurer, without delegated authority.
d.of underwriting risk with Lloyd's underwriters, with or without delegated authority.
d.of underwriting risk with Lloyd's underwriters, with or without delegated authority.
71
Who provides the majority of the capacity at Lloyd's?
a.Corporate members with limited liability.
b.Individual members with limited liability.
c.Individual members with unlimited liability.
d.Corporate members with unlimited liability.
a.Corporate members with limited liability.
72
What is one of the main differences between an underwriting surveyor and a risk management surveyor?
A. A risk management surveyor provides detailed recommendations.
B. A risk management surveyor will be seeking the most competitive terms, particularly in a hard market.
C. An underwriting surveyor will consider historic surveys.
D. An underwriting surveyor will be solely concerned with business interruption reviews
A. A risk management surveyor provides detailed recommendations.
73
In what circumstances would a broker be found liable under the principle of tort for an error in the placing of an insurance policy?
A. Information was disclosed to the insurer that was in the public domain.
B. Quotations were not obtained from all available insurers.
C. Relevant information was deliberately withheld from underwriters.
D. There was insufficient care in the advice that was given to his client.
D. There was insufficient care in the advice that was given to his client.
74
Which class of business is NOT defined by the Financial Conduct Authority as a non-investment insurance contract?
A. Critical illness.
B. Employers’ liability.
C. Long-term care.
D. Payment protection insurance.
C. Long-term care.
75
When the Financial Conduct Authority switched from a rules-based approach to regulation to a principles-based approach, what main impact did this have on brokers?
A. There were fewer prescriptive administrative requirements to meet.
B. They could delegate their compliance responsibilities to specialist outsourcers.
C. They could spend less time interpreting and assessing day-to-day situations.
D. They were subject to less stringent enforcement penalties
A. There were fewer prescriptive administrative requirements to meet.
76
An employee at a firm of insurance brokers has received a complaint but believes he can resolve it himself, to the client’s satisfaction, without involving others. He should be aware that he
A. cannot deal with the complaint if it related to his own actions.
B. has 24 hours to resolve the issue or it must be formally logged.
C. has 3 business days to resolve the issue or it must be treated as a complex complaint.
D. is only permitted to make a response if the complaint relates to his own actions.
C. has 3 business days to resolve the issue or it must be treated as a complex complaint.
77
A broker needs to refer to the Subscription Agreement section of the Market Reform Contract when
A. confirming the current level of brokerage and fees.
B. extending coverage to an additional location.
C. processing a post-placement amendment or transaction.
D. verifying each insurer’s share of the risk.
C. processing a post-placement amendment or transaction.
78
What is the main difference between an introducer and a sub-broker?
A. The insured will only have a contractual relationship with the introducer.
B. The insurer will only pay commission to the introducer.
C. Only the introducer must be regulated by the Financial Conduct Authority.
D. Only the sub-broker must be regulated by the Financial Conduct Authority
D. Only the sub-broker must be regulated by the Financial Conduct Authority
79
35. What is the basis of fair analysis of the market in the selection of insurers by an insurance broker?
A. All insurers must be considered by the broker.
B. At least five insurers must be approached to underwrite all categories of business.
C. Only one insurer can be used for each category of business.
D. The broker will have a panel of insurers which are used to place business.
D. The broker will have a panel of insurers which are used to place business.
80
Before placing a UK insurance risk, why must an insurance broker make sure that an insurer is licensed to underwrite the applicable class of business?
A. A regulated insurance broker can only place an insurance risk with a regulated insurer.
B. A regulated insurance broker can only place an insurance risk with an insurer based in the UK.
C. The Financial Services Compensation Scheme only applies to insurers who are members of the Association of British Insurers.
D. The Financial Services Compensation Scheme only applies to insurers who are registered with the Claims and Underwriting Exchange.
A. A regulated insurance broker can only place an insurance risk with a regulated insurer.
81
An insurance broker will meet its Financial Conduct Authority requirement to disclose its scope of broking services by informing a client of
A. how a client can make contact with the firm.
B. how the firm selects insurers when placing a risk.
C. the classes of insurance business that it regularly places.
D. the firm’s target levels for customer service.
B. how the firm selects insurers when placing a risk.
82
When considering the insurance market cycle, an insurance broker should be aware that
A. catastrophe losses never affect market cycles.
B. different classes of business normally have their own cycle.
C. insurance markets throughout the world always operate in a synchronised way.
D. investment income is not subject to its own cycle
B. different classes of business normally have their own cycle.
83
What is a lineslip?
A. An underwriting facility which allows an insurance broker to offer risks of a specified category to insurers who are free to quote or reject each risk.
B. An underwriting facility which allows risks that meet specified criteria to be automatically insured under the scheme.
C. The document that is used to notify insurers of risks that have been bound under a scheme.
D. The section on a Market Reform Contract where insurers’ participations on a risk are recorded.
A. An underwriting facility which allows an insurance broker to offer risks of a specified category to insurers who are free to quote or reject each risk.
84
A firm of insurance brokers underwrites risks under a delegated authority. As a consequence, the firm must
A. demonstrate that there is no conflict of interest between underwriting staff and those dealing with clients.
B. establish a subsidiary firm, owned jointly with the delegating insurer.
C. introduce rating structures separate to those provided by the delegating insurer.
D. obtain additional authorisation from the Prudential Regulation Authority.
A. demonstrate that there is no conflict of interest between underwriting staff and those dealing with clients.
85
For what reason is peer review often used in respect of outgoing letters to clients?
A. It helps to avoid errors and omissions.
B. It is a requirement of the regulator.
C. It is a warranty under professional indemnity policies.
D. It reduces the volume of work within a brokerage.
A. It helps to avoid errors and omissions.
86
A broker is negotiating a household insurance claim with the insurer. What is the primary responsibility of the broker?
A. Agree the claim settlement with the insurer.
B. Agree interpretation of the policy wording with the insurer.
C. Ensure the fair treatment of the insured.
D. Ensure the insurer settles the claim quickly.
C. Ensure the fair treatment of the insured.
87
Broker X is handling a London market liability claim and broker Y is handling a marine claim involving Lloyd’s underwriters. Which broker, if either, is responsible for maintaining the electronic claims file?
A. Both brokers.
B. Broker X only.
C. Broker Y only.
D. Neither broker X nor broker Y.
A. Both brokers.
88
A claim has been submitted by a client two years after the insurance broker ceased to act for that client, in relation to a loss which occurred three years ago under a policy arranged by the broker.
What is the legal position regarding the broker’s responsibility for handling this claim?
A. It depends on the status of the client’s new broker.
B. It depends on the Terms of Business Agreement.
C. The broker has no responsibility in any circumstances.
D. The broker will automatically be responsible and must negotiate the claim
B. It depends on the Terms of Business Agreement.
89
A landlord has just installed a sprinkler system on the premises he owns and amended the lease to make the tenant responsible for damage to the buildings. These two actions are best described as
A. risk minimisation in both cases.
B. risk minimisation and risk transfer respectively.
C. risk prevention in both cases.
D. risk prevention and risk reduction respectively.
B. risk minimisation and risk transfer respectively.
90
What is the difference between a captive insurance company and any other type of insurance company?
A. A captive insurer is always owned by its parent company.
B. A captive insurer is not regulated.
C. A captive insurer can only be registered in an offshore location.
D. A captive insurer must be established in the same country as the parent company
A. A captive insurer is always owned by its parent company.
91
What is one of the main differences between an underwriting surveyor and a risk management surveyor?
A. A risk management surveyor provides detailed recommendations.
B. A risk management surveyor will be seeking the most competitive terms, particularly in a hard market.
C. An underwriting surveyor will consider historic surveys.
D. An underwriting surveyor will be solely concerned with business interruption reviews.
A. A risk management surveyor provides detailed recommendations.
92
What does the freedom of services legislation refer to
in the EU, the FOS legislation means that a policy issued in one EU territory is valid (admitted) in another. This is the case for England too.
if the master policy was issued by a non-EU insurer, the policy would have to be non-admitted - they couldnt pay claims (and defend if liability) the insured in that territory.
93
When insurers' capacity increases in the insurance market cycle, they write:
a. more business and rates go up.
b. less business and rates go down.
c. less business and rates go up.
d. more business and rates go down
d. more business and rates go down
94
Carrying out a triangulation of claims data for clients' liability policies will show:
a. the split of the experience between accident and disease claims.
b. the effect of applying an increased deductible.
c. the development of claims over time.
d. details of losses that were not insured.
c. the development of claims over time.
95
If a three year long-term agreement is arranged on an 'offer' basis, this means:
a. the client must offer its business to the insurer for three years, but the insurer is not obliged to accept.
b. both the client and the insurer are obliged to renew the policy for three years and the premium cannot be increased by more than 5%.
c. both the client and the insurer are obliged to renew the policy for three years at unaltered terms.
d. the insurer is obliged to offer renewal at the same terms for three years, but the client need not accept.
a. the client must offer its business to the insurer for three years, but the insurer is not obliged to accept.
Traditional LTAs are arranged on what is known as the ‘offer’ basis, that is the client is obliged to offer its business to the insurer for, say, three years, but the insurer is not obliged to accept and can change the terms. The typical discount is 5% for three years and 10% for five years.
96
what are the two key issues for insurers when offering LTA's?
- poor practice of some brokers,
- limited redress available in the courts for breach of these agreements.
While court actions are very rare, the conventional view is that, although the insurer might win damages, these would be limited to the original discount for one or two years. Insurers see this as insufficient reward for the cost and risk of litigation.
97
when might a regional insurance programme be more attractive
when, for example, the market in one insurance centre is significantly out of line with that in another, i.e there is a soft market in the US, the US exposures should be placed here with cost savings, as the UK is in a hard market.
or if there are significant risks, i,e natural hazards in one territory and not another; it is prudent to split these into their required geography.
E.g. the US market is ‘soft’ when the UK market is ‘hard’. In this case, placing the US exposures in the US insurance market would result in cost savings. This potential for cost savings will make a regional programme look more attractive for parts of the business
98
what does difference in conditions mean when looking at insurance programmes?
there is a global master policy, operating across all countries (often referred to as a
differences in conditions policy (DIC));
* the master policy operates above the corporate deductible;
* the master policy sits above local policies normally giving a wider cover and, wherever possible, these local policies:
– are underwritten by the local office of the master insurer,
– provide the same cover as the master or at the very least, the widest cover available locally, and
– are subject to a local deductible that is acceptable to the local client.
99
what can a regional programme also often be referred to and what does this mean?
A regional or decentralised programme is one where the exposures are split by geography or trade. This can make it easier to access market capacity and meet additional limits.
100
when is a divisional programme beneficial?
Where a client has a diverse range of operations with a discrete high exposure, it may be more beneficial for the respective operations to have their own programme. Examples could include a merchant bank with a large property portfolio or a household goods manufacturer with a pharmaceutical division. The separate programmes could possibly be combined at the higher level by an excess layer or umbrella policy
This option would also be appropriate if the client was considering disposing of a particular
business or division.
101
A manufacturer has factories in five different countries, which are separately insured in each country. One advantage of consolidating its current insurance arrangements into one global programme is:
a. to increase the choice of insurers.
b. that global programmes are always cheaper in aggregate terms.
c. that it overcomes legislative problems.
d. to provide central control over cover and cost.
d. to provide central control over cover and cost.
102
The objective of programme design is to:
a. make available a range of off the shelf insurance policies that will meet a variety of client needs.
b. deliver a programme that is bespoke to an individual client's needs.
c. create a policy wording that is tailored to the needs of a specific trade or business sector.
d. establish a preferred panel of insurers for placing risks.
b. deliver a programme that is bespoke to an individual client's needs.
103
Which risk would definitely fall within the FCA definition of a large risk?
a.A business interruption policy for an insured with a net turnover of €6m and average of 350 employees during the financial year.
b.A fire policy for an insured with a balance sheet of €7m and average of 300 employees during the financial year.
c.A motor fleet policy for an insured with a balance sheet of €5m and average of 350 employees during the financial year.
d.A combined liability policy for an insured with a net turnover of €10m and a balance sheet of €8m.
b.A fire policy for an insured with a balance sheet of €7m and average of 300 employees during the financial year.
Large risks are defined as follows:
1. Railway rolling stock, aircraft, ships (sea, lake, river and canal vessels), goods
in transit, aircraft liability and liability of ships (sea, lake, river and canal
vessels).
2. Credit and suretyship – where the policyholder is engaged professionally in an
industrial or commercial activity or in one of the liberal professions and the risks
relate to such activity.
3. Land vehicles (other than railway rolling stock), fire and natural forces, other
damage to property, motor vehicle liability, general liability and miscellaneous
financial loss, in so far as the policyholder exceeds the limits of at least two of
the following three criteria:
* balance sheet total Euro 6.2 million;
* net turnover Euro 12.8 million; and
* an average number of employees during the financial year of 250
104
The FCA definition of a pure protection contract would include:
a.extended warranty policies.
b.engineering inspection contracts.
c.critical illness policies.
d.buildings insurance policies.
c.critical illness policies.
A pure protection contract is either:
* a reinsurance contract covering all or part of a risk to which a person is exposed under a long-term insurance contract; or
* a long-term insurance contract where the following conditions are met:
– the benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or infirmity;
– the contract has no surrender value, or the consideration consists of a single premium and the surrender value does not exceed that premium; and
– the contract makes no provision for its conversion or extension in a manner which would result in it ceasing to comply with the first two conditions.
Examples of pure protection contracts are term life, critical illness and income protection policies
105
what are Long Term agreements also often known as?
LTUs - Long term undertakings
106
What are PPI contracts defined as
A payment protection insurance (PPI) contract is defined as:
A non-investment insurance contract which has the elements of a general
insurance contract and the benefits of which are described as enabling a policyholder to protect his ability to continue to make payments due to third
parties, or can reasonably be expected to be used in this way.
PPI policies are typically sold alongside mortgages, personal loans and other credit
arrangements.
107
what does uberrimae fidei mean?
utmost good faith.
Insurance contracts are dependant on both sides observing utmost good faith, supported by complete transparency on all material circumstances.
108
Under the Insurance Act 2015, insurance brokers need to explain the need for commercial customers to make a fair presentation of the risk to the insurer. In practice, this requires the insured to:
a. disclose all material facts under the concept of uberrima fides.
b. complete the question on the proposal form only and not disclose anything further [even if it might relate to the insurance being proposed].
c. just disclose every material circumstance that the insured is aware of.
d. disclose every material circumstance that the insured knows, or ought to know, or disclose enough to put a prudent insurer on notice to make further enquiries.
d. disclose every material circumstance that the insured knows, or ought to know, or disclose enough to put a prudent insurer on notice to make further enquiries.
109
The FCA ICOBS rules do NOT apply to:
a. insurance purchased by a captive.
b. any pure protection contracts.
c. insurance on a second home in Spain.
d. insurance purchased by any commercial customer.
a. insurance purchased by a captive.
110
what kinds of contracts do ICOBS rules not relate to/ have varying rules relating to ICOBS
- not to be confused with FCA principles which are to be acted in accordance with, regardless of if they have to follow ICOBS.
Reinsurance - does not apply
Contracts of large risk - where the risk is located outside the European Economic Area (EEA); or for a commercial customer, where the risk is located within the EEA.
pure protection contracts are term insurance, critical illness, income protection and payment protection insurance (PPI).
Firms can elect to handle pure protection contracts under either:
* the Conduct of Business sourcebook (COBS): the general rules on the conduct of
business for firms regulated by the FCA. This is likely to be the favoured route of firms dealing primarily with life insurance; or
* ICOBS: likely to be the option where the firm is primarily engaged in ‘other’ general insurance, i.e. non-life insurance contracts.
Chains of brokers -
There can be a chain of intermediaries between the insurer and the customer, as in
wholesale business.
ICOBS has a specific rule which applies to this situation. This rule places the responsibility for complying with ICOBS on the broker dealing directly with the customer, i.e. the producing broker (R).
Group policies
Brokers must provide information to their customer to pass on to other policyholders. They need to tell their customer that the information should be given to each policyholder.
111
Under the FCA ICOBS rules, what type of insurance is subject to additional disclosure rules?
a.Extended warranty policies.
b.Professional indemnity policies.
c.Income protection policies.
d.Personal lines motor policies.
c.Income protection policies.
additional rules apply where a pure protection contract or a
PPI policy is concerned. These are aimed at ensuring that customers make an
informed choice.
One of these rules states that where no advice is being given, i.e. the broker is not providing a recommendation but solely information about the products on offer, the broker must take reasonable steps to ensure that the customer understands that they are responsible for deciding whether the policy meets their demands and needs (R). Where a recommendation is being made, ICOBS is clear on the main factors that need to be taken into account when deciding if the policy meets the customer’s demands and needs. The factors to be described include its:
* significant benefits;
* exclusions and limitations; and
* duration and price information.
112
Under the FCA’s Client Money rules [CASS], insurance brokers:
a. are advised to set up independent trust accounts to hold client funds.
b. are advised to hold client money in a separate bank account.
c. must always remit premium payments instantly to the respective insurance company.
d. must always hold client money in a separate bank account.
d. must always hold client money in a separate bank account.
113
What is a short complaint?
- resolved by person recieving the complaint to the clients satisfaction
- within 3 days
these can be resolved by the person receiving the complaint, to the
client’s satisfaction, within three days. For example, a client complains that you promised to send them their policy document and it’s still on your desk.
114
what is the definition of a complex complaint?
these types of complaints will require further investigation or consultation or maybe even referral to another organisation. For example, a client complains that they asked for cover for their new factory last year and there’s no mention of it in the policy they have just received.
115
A benefit of an insurance policy is:
a. an inherent part of the policy cover; a feature is what they want.
b. what the client needs; a feature is what they want.
c. an inherent part of the policy cover; a feature is what it does for the customer.
d. what the client wants; a feature is what they need.
d. what the client wants; a feature is what they need.
116
Where used, broker questionnaires are a means of collecting information from:
a.personal clients.
b.small commercial clients.
c.sole traders.
d.multinational clients.
d.multinational clients.
Some brokers prepare their own questionnaires as a means of gathering information from a large or multinational risk, where there are many individual sites or subsidiaries involved.
These forms will vary from the prosaic, asking for straightforward information such as turnover, payroll, building values etc., to much more complex forms asking for more detailed information on risk exposures, changes in business activities etc
117
when are statements of facts used?
There has been a tendency more recently for statements of fact to replace proposal forms for some personal lines contracts and small business risks. These take the form of preprinted assumptions on which the risk is based, with the customer invited to comment on any specific aspect that may not be a correct assumption. In some, but not all, cases, the customer is asked to sign the statement of fact to confirm their understanding. Statements of fact have the same legal status as proposal forms in forming the basis of the insurance contract and are most common where risk information has been transmitted electronically.
118
when are proposal forms used?
Formal proposal forms or statements of fact are required for certain specialised risks and the majority of medium-sized and smaller risks such as:
* small package risks;
* personal lines such as motor, household, travel and craft insurance;
* fidelity guarantee or ‘crime’;
* professional indemnity and errors and omission covers; and
* directors’ and officers’ liability and employment practices and pension trustee liability
119
what is the key issue for proposal forms?
The key issue is that the client has to sign the proposal form and warrant the truth of the information, thereby satisfying the client’s obligation to provide a fair presentation of the risk. The insurer can then rely on this warranty in the event of a claim if the insured is a commercial insured (the Consumer Insurance (Disclosure and Representations) Act 2012 does not allow this for consumers).
120
what is the function of an insurers questionnaire?
An insurer’s supplementary questionnaire, for example an additional drivers’ form for motor insurance, will often have the same function as the proposal form and the comments we’ve made on proposal forms also apply.
An insurer's supplementary questionnaire often has the same function as the proposal form
121
what are the issues with using brokers questionnaires?
- relying solely on questionnaires in this way means the broker is failing in their duty to their client. They are exposing themselves to an accusation of poor service.
- in losing touch with subsidiaries, the broker may lose an important source of information on future developments;
-inadequately completed forms may result in more costs than the savings made by not making a service call in the first place; and
-questionnaires cannot cover every eventuality
Sending the form to the client in advance and reviewing the content with them, preferably face-to-face, can overcome most of these problems. This ultimately saves time, is a more professional approach and reduces potential errors.
Cost is an important issue, but the broker has to remember that understanding their client’s business and obtaining the right information is a prime part of their service to the client.
122
from the insurers perspective, what is the best way to obtain information?
their own survey reports
123
what are the 3 key issues for a broker when using survey reports as a way of obtaining information?
- not all insurers will accept brokers’ surveys, or will only quote subject to their own survey;
- insurers’ ‘standards’ on information can change in a ‘hard’ market and became
particularly severe; and
- individual insurers have different requirements in terms of the depth of information that the survey has to contain.
Often a joint survey – where the broker accompanies the insurer – is the answer. The broker can immediately explain a situation from the client’s point of view and negotiate on the practicality (and effectiveness) of any recommendation or potential changes in cover
124
what are the two types of uninsured losses?
* deliberately uninsured, e.g. losses within the self-insured retention, losses where
insurance had deliberately not been taken out etc.; and
* unintentionally uninsured, e.g. the policy did not cover the loss, the sum insured was insufficient etc.
125
When broking liability insurance, market practice is to request five years' claims experience. A broker is approached to place a new risk that shows a sizable personal injury claim six years ago. What action, if any, should the broker take to comply with the duty of utmost good faith?
a. Take instructions from the prospect about whether to disclose the claim.
b. Only disclose the claim to any insurers who specifically ask for more than five years' claims.
c. Include details of the claim on the broking presentation.
d. There is no need to disclose this claim.
c. Include details of the claim on the broking presentation.
126
If the FCA requests sight of a client file, this must be made available within:
a. 48 hours.
b. ten working days.
c. 24 hours.
d. five working days.
a. 48 hours.
127
Chung has asked his broker to arrange material damage insurance on his factory. Who is responsible for ensuring that the insurer is fully informed of all material facts?
a. The broker and insurer jointly.
b. Chung only.
c. Chung and the broker jointly.
d. The broker only.
c. Chung and the broker jointly.
128
what do the Consumer Credit Acts 1974 and 2006 stipulate?
how many instalments an insured can pay in, depending on the nature of the transaction and the client, under the Consumer Credit Acts 1974 and 2006.
129
what are the usual payment terms in the UK?
Payment terms are now moving below 90 days for larger broking firms and much
less for smaller firms. Typically, multinational programmes are now written subject to 60-day payment and often, for classes such as EL, the premium may be required in 30 days or even on day one. In the past, insurers sometimes offered credit periods as a marketing tool to attract new intermediaries. This is rarely the case now, although some may offer interest free instalments.
130
what is the typical payment term in the US?
In the USA, the maximum is generally 30 days and for some classes of risk the
Bermuda market always requires full payment before inception of cover.
131
Originally, the investment income earned on premiums was a valuable source of income to the broker. This additional income is naturally dependent on what three factors?
* the speed with which the broker can collect the premiums;
* the time allowed to pay by the insurer(s); and
* prevailing interest rates.
132
M81
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