Questions from study text - Chapter Three

Question 1

What are the three fundamental factors which distinguish Lloyd’s brokers from other insurance brokers?

Answer 1

• the market in which in they operate
• their methods of transacting business; and
• many of the risks they place

Question 2

What are the three methods of transacting business at Lloyd’s?

Answer 2

• face to face
• through the use of a delegated authority; and
• through businesses set up outside Lloyd’s by syndicates

Question 3

State three purposes of reinsurance

Answer 3

The purposes of reinsurance are to smooth peaks and troughs in claims experience, to protect the portfolio of risks being insured, to improve customer service and support insurers entering new areas of business

Question 4

Describe the role of the reinsurance broker

Answer 4

The reinsurance broker seeks to place the risks of their clients (insurance companies, Lloyd’s syndicates and other reinsurers) with reinsurers

Question 5

Describe the role of the retail insurance broker

Answer 5

The retail insurance broker acts directly for their clients, the insured

Question 6

Describe the role of the wholesale insurance broker

Answer 6

Wholesale brokers place risks on behalf of other brokers (known as producing or sub-brokers) within their markets, but do not deal directly with the insured

Question 7

What is risk management?

Answer 7

Risk management is the identification, analysis and economic control of those risks which can threaten the assets or earnings capacity of an enterprise

Question 8

List four benefits of risk management

Answer 8

• a reduction in the potential for loss by identifying and managing hazards
• provision of greater shareholder confidence in a company’s ability to manage its risks.
• a disciplined approach to quantifying risks; and
• a potential reduction in insurance premiums where an insurer can see that a company is positively engaged in managing its risks

Question 9

List eight specialist risk management services which could be offered by a broker

Answer 9

• property surveys
• business continuity planning
• business interruption reviews
• health and safety consultation
• liability surveys
• motor fleet risk management
• environmental risk surveys
• post-loss control surveys
• disaster recovery services

Question 10

What is ART?

Answer 10

a generic phrase to denote various non-traditional forms of (re)insurance and techniques where risk is transferred to the capital markets. More broadly, it refers to the convergence of (re)insurance, banking and capital markets

Question 11

How does the delegated authority process operate?

Answer 11

Step 1 - Agree the business case
Step 2 - Agree authority
Step 3 - Operate the agreement
Step 4 - Ongoing transaction
Step 5 - Audit and monitoring

Question 12

What can an insurer delegate?

Answer 12

Insurers can delegate underwriting, credit control, document issuance and management, claims and/or recoveries