Questions from study text - Chapter Four

Question 1

List four duties of an insurance broker

Answer 1

• Establish their client’s needs
• Negotiate with insurers on their client’s behalf
• Take instructions from their client to place insurance
• Negotiate with an insurer in the event of a claim
• Make a mid-term adjustment to a client’s policy
• Negotiate a renewal
• Provide advice and make recommendations to their client

Question 2

What does the law of agency require brokers to do when acting as agents of their principal?

Answer 2

• perform all their principal’s lawful instructions and do this in a timely fashion - duty of obedience
• exercise reasonable skill and care in the performance of their principal’s instructions - the duty of skill and care
• act at all times in the best interests of their principal, to avoid conflicts of interest and to disclose to their principal fully any circumstances which may give rise to the appearance of conflict - the duty of good faith
• account to their principal for all monies they may have received on their principal’s behalf - the duty of accountability

Question 3

List five situations when a broker may need to manage a conflict of interest

Answer 3

• when operating a delegated authority agreement
• if a broker is owned by or has close links to an insurer
• when a broker is both the direct placing broker and the reinsurance broker
• when accepting contingent commissions or overriders
• when accepting inducements; and
• when acting for two or more clients with similar interests

Question 4

What four key elements should be included in a TOBA

Answer 4

• regulatory information
• the broking firm’s terms of business
• details of the services provided
• the broker’s remuneration

Question 5

What is the difference between a risk transfer TOBA and a non-risk transfer TOBA?

Answer 5

A risk transfer TOBA is used where the insurer has given the broker permission to hold
funds on its behalf. A non-risk transfer TOBA does not include this permission.