P81 2011 April & Oct

Front 1

1. Identify six of the types of information that are defined as ‘sensitive personal data’ for the
purposes of the Data Protection Act 1998.

Back 1

Any six of the following:
• Ethnic or racial origin.
• Political opinions.
• Religious beliefs or other beliefs of a similar nature.
• Trade union membership.
• Physical and mental health.
• Sexual life.
• Commission or alleged commission of an offence.
• Any proceedings for any offence committed or alleged to be committed, the disposal of such
proceedings or the sentence of any court in such proceedings.

Front 2

2. (a) List seven service related criteria that a broker should consider when selecting
an insurer, excluding their claims service.

Back 2

(a) Any seven of the following:
• Fast and comprehensive quotations.
• An efficient system of documentation.
• Responsiveness to the broker and client needs, particularly in preparing claims experiences
and renewal terms in good time.
• A competent survey system.
• Efficient accounting.
• Suggestions for the improvement of cover.
• Prompt notification of proposed changes in market practice.
• Specialist services.
• Web-based quotation and document production.

Hint 2

notification
accounting
specialist services
quotations
documentation

Front 3

(b) In addition to timely payment, identify five aspects of claims service that a broker
should take into account in the insurer selection process.

Back 3

(b) Any five of the following:
• Flexible interpretation of wordings.
• Quality of liaison between underwriting and claims functionaries.
• Quality of the day-to-day customer service, especially for high volume classes.
• Rapid appointment of loss adjustors.
• Accuracy of documentation, especially settlement cheques.
• Rapid decision making.
• Openness in communications.

Front 4

3. (a) As a broker you have been given the opportunity to work with a new client that
has relatively complex risks. Explain briefly four key features you need to
ascertain about the client before designing a suitable programme.

Back 4

(a) Any four of the following:
• The client’s business and its markets.
• The client’s exposures, loss experience and risk profile (frequency, severity etc).
• The client’s ability and appetite to retain risk and the market’s expectation of imposed levels of
self-insurance.
• How the client values services surrounding the insurance contract/risk management, claims
handling, and global co-ordination.
• The client’s organisation and management style/centralised v decentralised.

Front 5

(b) Outline three basic areas where the analysis of clients’ data and claims history
is used to support programme design and placement decisions.

Back 5

(b) Any three of the following:
• The correct limits for various property and business interruption exposures.
• Selecting the correct level of deductible and its impact for the insured.
• Evaluating self-insured options in terms of present cost against conventional premiums.
• The policies to be taken out and their terms and conditions.

Front 6

4. (a) Outline four ways that an individual can be guilty of a criminal offence under the
Proceeds of Crime Act (POCA) 2002.

Back 6

(a) Any four of the following:
• Concealing, disguising, converting or transferring criminal property.
• Acquiring, using or possessing criminal property.
• Entering into or becoming concerned with an arrangement which they know or suspect may
facilitate a money launderer to acquire, retain, use or control criminal property.
• Knowing, suspecting, or having reasonable grounds to suspect that a person, or transaction in
the course of their business involves money laundering, but failing to report it as soon as
reasonably practical.
• ‘Tipping off’ a suspected money launderer.

Front 7

(b) Define ‘criminal property’ in relation to the offence of money laundering.

Back 7

(b) Property that the alleged offender knows, or suspects, constitutes, or represents benefit from
criminal conduct.

Front 8

5. (a) Explain briefly the difference between admitted and non-admitted policies.

Back 8

(a) An admitted policy is one under which an insurer can pay claims and/or defend an insured in a particular country. It is the location of the indemnity that matters – if the policy cannot indemnify the insured in the territory where the claim arises, it is non-admitted.

Front 9

(b) Describe briefly the key reasons why the historical custom of using non-admitted policies, in conjunction with covers such as kidnap & ransom and directors’ & officers’ liability, is changing.

Back 9

(b) There is a growing demand from local operations for local claims payment, particularly from
directors and officers (D&O) demanding local protection from the group’s D&O policy. The
difficulty in getting claims monies into an overseas country without a locally admitted policy, for example as result of local tax regimes. Countries are tightening up on the collection of local premium taxes and admitted policies are the simplest way to make payment

Hint 9

Demand
Difficult

Front 10

6. Explain briefly how each of the following landmark court cases have defined or clarified
the duties of a broker.
(a) Hedley Byrne v Heller (1963) and Youell v Bland Welch and Co (1990).

Back 10

(a) Care has to be exercised when advice is given, even where there is no formal contract in place.

Front 11

(b) Harvest Trucking v Davis (1991).

Back 11

(b) It is a broker’s duty to warn their client if the policy contains any unusual, limiting or exempting provisions.

Front 12

(c) GNER v JLT Corporate Risks (2006).

Back 12

(c) A broker owes a continuing duty after placement of cover to ensure that the insurance
requirements were carried out, or to warn the client promptly if they could not be achieved.

Front 13

(d) Alexander Forbes Europe Limited v SBJ Limited (2002).

Back 13

(d) Brokers may not apply a lower standard of care when dealing with sophisticated insurance buyers or other brokers.

Front 14

7. (a) Identify six of the basic activities of a broker in relation to claims.

Back 14

(a) Any six of the following:
• Advising the client as to whether the loss is insured or not.
• Giving notification of losses to insurers.
• Advising clients of their rights and obligations under the policy.
• Arranging for the completion of claims forms if required.
• Ensuring that adjusters are appointed where necessary and briefing the client on the
adjuster’s role.
• Assisting the client in preparing documents and information in support of their claim.
• Collecting claim payments from the insurer.
• For large losses, attending site meetings with adjusters etc.

Front 15

(b) State the subject covered by the Financial Services Authority’s Insurance: New
Conduct of Business Sourcebook (ICOBS) 8.3.3, which is relevant to brokers’ involvement in claims, and describe briefly the requirements this places on the
broker.

Back 15

(b) Conflicts of interest. A firm should not put itself in a position where its own interest or any duty to an insurer conflicts with its customer duties, or if it does, it should have the customer’s prior informed consent.

Front 16

8. (a) State the statutory objectives of the Financial Services Authority (FSA) under the
Financial Services and Markets Act 2000 and for each identify how the FSA aims to achieve them.

Back 16

(a) Market confidence: maintain confidence in the UK financial system – by supervising providers,
monitoring transactions and market surveillance.
Public awareness: promoting public understanding of the financial system – by helping people to
become informed consumers and manage their financial affairs more effectively.
Financial stability: contributing to the protection and enhancement of the UK financial system – by
determining and reviewing a financial stability strategy in consultation with the Treasury.
Consumer protection: securing the right degree of protection for customers – by authorising only
firms and individuals satisfying the necessary criteria and expecting them to maintain standards
once authorised.
Reducing financial crime: – by combating money laundering, fraud, dishonesty and criminal
misconduct such as insider dealing.

Front 17

(b) The FSA refers in its rules and guidance to information being provided by
authorised firms in a ‘durable medium’. Outline what is meant by this phrase

Back 17

(b) A format that allows the storage of information in such a way that it is accessible for future
reference. Allows the information to be reproduced without changes.

Front 18

9. (a) Identify five examples of service standards typically defined by a broking firm in
its client service agreement.

Back 18

(a) Any five of the following:
• Delivery of renewal terms.
• Completion of premium allocation under a global programme.
• Issue of post-renewal documentation.
• Production of minutes after meetings.
• Resolution of queries.
• Payment of agreed claims.

Front 19

(b) List two headings typically found in a client service plan

Back 19

(b) Any two of the following:
• Date.
• Person responsible.
• Task.
• Purpose/objective.

Front 20

10. (a) Outline the key issues to be considered in regard to currency exchange rates in
connection with global programmes.

Back 20

(a) The exchange rates used to denominate sums insured/limits; premiums and claims should all be
clearly agreed at the outset. On claims, it is prudent to set the exchange rate to apply at the time
the loss is paid. Rates should be reviewed at least once a year. Clients will usually have a set of
rates for internal use and it would be useful to obtain the master insurer’s agreement to their use.

Front 21

(b) Identify the two key implications for premium allocations in global programmes,
as stated in the guidelines issued by the Organisation for Economic
Co-operation and Development.

Back 21

(b) • The pricing of goods and services between subsidiaries must be on an ‘arms length’ basis.
• Allocations must reflect the underlying risks of the subsidiary and its claims experience

Front 22

11. The compensation payable by the Financial Services Compensation Scheme for claims
under compulsory insurance may differ from the coverage of a general insurance policy. Give four brief examples of such circumstances and state the difference in each case.

Back 22

Any four of the following:
• Employers’ liability (EL) where £5,000,000 is the maximum because this is the compulsory legal requirement whereas insurers normally grant £10,000,000 cover.
• Motor third party property damage is limited to £1,000,000 whereas most policies provide cover at £20,000,000 for cars and £5,000,000 for commercial vehicles.
• EL policies commonly extend cover to include non-employees e.g. volunteers, but claims from such
people are not protected by the Financial Services Compensation Scheme because the relevant law
does not make it compulsory.
• There is no protection for claims on a motor policy for own damage i.e. fire, theft or accidental damage.
• There is no protection if the insured is exempt from taking out statutory cover e.g. a public authority is exempt from EL under the relevant act.

Front 23

12. (a) Explain briefly the key characteristics of multi-line or cross-class programmes.

Back 23

(a) The classes are integrated to give combined cross-class retention with a combined aggregate. An
integrated insurance policy covering the same classes then sits above the cross-class retention.
The client purchases monoline ‘towers’ of cover to the limits they desire.

Front 24

(b) Identify four advantages and four disadvantages of the multi-line/cross-class
approach compared to conventional programmes.

Back 24

(b) The advantages.
Any four of the following:
• Client has only two numbers to think about – the retention for each loss and the aggregate
(compared with different amounts under different policies).
• The cross-class aggregate retention will be less than the sum of individual aggregates.
• Wider cover.
• They can facilitate higher retentions than would be feasible under monoline programmes.
• Economy of scale in the cover premium.
• May facilitate retention by a funding vehicle, such as a captive.

The disadvantages.
Any four of the following:
• Mixing long and short-tail claims can be problematic.
• Replacing individual policy limits with one overall aggregate reduces cover.
• A claims ‘tail’ is transferred to the insured.
• Can be inflexible in response to significant changes in the client’s company structure.
• Can be difficult to unwind if the business or management’s attitude changes.
• Can lead to complications as most insurers have different capacities and treaties for long and short-tail business.
• Monoline excess insurers will often not ‘drop down’ below their attachment points resulting in ‘clash’ exposures where a single event results in claims under more than one class.
• The market available is narrower thus reducing competition

Front 25

13. Identify what the following organisations do in relation to the insurance industry.
• AIRMIC
• LIIBA
• SOCA

Back 25

• The Association of Insurance and Risk Managers represents those responsible for risk management and insurance within their own companies.
• The London & International Brokers’ Association represents the interests of insurance and reinsurance brokers operating in the London and international markets.
• The Serious Organised Crime Agency is the organisation to which suspicions or evidence of money laundering must be reported.

Front 26

14. List eight objectives of a good risk submission to an insurer

Back 26

Any eight of the following:
• To make the underwriter want to read it and respond positively.
• To demonstrate a sound grasp of the client’s business and risks.
• To explain positively the key features of the risk.
• To be alert to particular features of a risk or the specific information needs of the market.
• To contain all the key information the insurer needs to rate the risk.
• To present all material and relevant information.
• To be concise rather than long-winded.
• To represent the client’s best interests.
• To ensure that all information is recorded and acknowledged by the insurer(s).

Front 27

15. Identify six signs that could indicate an insurer is facing financial difficulty.

Back 27

Any six of the following:
• Rapid expansion, especially when excellent results are produced contrary to market trends.
• Petty delays in settling claims and return premiums.
• Unusual claims reserving practices.
• An unreasonable stance on large claims.
• Constant pressure on brokers to increase volume.
• Style and demeanour (of the ‘pride before a fall’ variety).
• An overbearing and dominant chief executive.
• Credit rating down-grade.

Front 28

2011

Back 28

october

Front 29

1. According to the Fraud Act 2006 a person is guilty of fraud, among other things, if they
commit the offence of ‘abuse of position’. Identify seven potential ways this can occur
in an insurance broking firm.

Back 29

Any seven of the following:
• Inappropriately accepting or supplying services to or from colleagues, friends or relatives.
• Not accounting for all money received e.g. premiums, refunds or claims.
• Misappropriation of client or insurer money.
• Falsifying customer details to obtain business that would otherwise be turned down or be more expensive.
• Issuing false cover notes or certificates.
• Accepting inducements to favour one insurer over another.
• Falsifying expense claims.
• Misusing company assets or property.
• Falsifying company records to conceal wrongdoings

Front 30

2. (a) Identify five key factors that determine a typical insurer’s underwriting capacity
for a given risk.

Back 30

(a) Any five of the following:
• Its perception of the risk (good, bad or indifferent).
• The risk profile in terms of trade/occupation and construction.
• The insurer’s size.
• Reinsurance – its availability and the insurer’s willingness to use it.
• The value at risk and how the insurer chooses to evaluate the maximum possible loss.
• Insurers existing relationship with client/broker.

Front 31

(b) State the percentage level of ‘lead line’ typically expected by the leader on a
commercial fire risk as opposed to a marine risk.

Back 31

(b) • Commercial fire risk 20-30% v Marine 5%

Front 32

3. (a) Outline the key issues involved in striking a balance between corporate and local
deductibles in programme design.

Back 32

(a) • Local deductibles need to be large enough to cover small, frequent losses and provide an
incentive to manage risk and minimise losses.
• Local deductibles also need to be at a level that the local operation can withstand without
disrupting the business.
• Corporate deductibles should reflect the group’s ability to retain a higher level of risk and
maximise premium discounts.

Front 33

(b) If a local operation’s values/turnover is below the level of the group’s deductible, identify the possible solutions you might recommend to solve the problem.

Back 33

(b) • Negotiate a lower deductible for specific properties/sites.
• Buy back a lower deductible under the local policy.
• Arrange a lower deductible for new subsidiaries/acquisitions to ease them into the programme.

Front 34

4. Outline five of the key provisions of the EU Insurance Mediation Directive
(2002/92/EC).

Back 34

Any five of the following:
• The directive does not apply to insurance and reinsurance mediation services for risks outside the
EU.
• Intermediaries must be registered with a competent authority in their home state; to do so they must
fulfil professional requirements as to appropriate knowledge and ability and be of good repute.
• Registered intermediaries may pursue their activity anywhere in the EU both by means of freedom
of establishment and freedom to provide services.
• Member states must protect customers against the inability of the intermediary to pay the premium
to the insurer or to pay the claim monies or return premium to the insured.
• Member states may impose sanctions against unauthorised intermediaries; insurers that use the
services of unauthorised intermediaries; and intermediaries that infringe the provisions of the
legislation.
• Complaints procedures must enable customers to register complaints about intermediaries and
receive replies.
• A list of information is included that should be supplied by the intermediary to the client, prior to the
issue of the initial insurance contract.

Front 35

5. As a broker, you have a new client with multiple interests across the UK and overseas.
Identify eight attributes you would look for in selecting an insurer related to its
geographical spread.

Back 35

Any eight of the following:
• Sufficient spread of operations nationally and worldwide to support your client’s local activities.
• An understanding of the procedures involved in the management of global insurance programmes.
• The ability of the central underwriting area to mandate its overseas operations.
• The ability to provide specialist local claims handling facilities.
• Experience in the insured’s business sector.
• Where relevant, an ability to write local covers outside of the terms of the global programme.
• The ability to be flexible in the allocation and distribution of premiums around the world.
• Efficient internal accounting operations.
• Sufficient capacity to write worthwhile limits.
• Make sure insurer is licensed to write the relevant class(es) of business in the UK

Front 36

6. Explain briefly four basic characteristics shared by most self-insured programmes.

Back 36

Any four of the following:
• The client has a retention much higher than a standard deductible, say £50,000 – £250,000 each
loss, or even more for larger risks.
• The full policy limit operates either in excess of the deductible or the deductible forms part of the
limit.
• The sum of all retentions is limited to an aggregate amount that is set above expected losses
typically by a multiple of 1.25 (higher for property); and small losses are usually excluded from
contributing towards it.
• Some insurers apply an adjustment factor to each loss settlement to cover the cost of handling
claims, whilst others include these costs in the premium for the cover in excess of the retention and
aggregate.
• Claims can be handled by the insurer, the insured or by a third party, such as a loss adjuster or
lawyer specialising in claims.

Front 37

7. Describe briefly four ways an insurance broker might provide support to a client with a
commercial motor policy, following damage to the client’s vehicle caused by a collision
with another vehicle.

Back 37

Any four of the following:
• The broker may assist in reporting the claim to the insurer and on the completion of an accident report form by the driver or the client.
• The broker should advise the client on the procedural aspects involved in the claim and how these vary if an approved repairer is involved.
• Where appropriate, the broker may advise on the potential implications for future renewal
underwriting and premiums, and possible risk mitigation measures available.
• The client should be advised to forward any communication from a third party immediately and without acknowledgement.
• If the third party appears to be responsible for the client’s damage, the broker may assist in recovering uninsured losses and where the client has an uninsured loss recovery (ULR) cover, the broker should forward details to the ULR provider and monitor progress of the recovery

Front 38

8. (a) Explain briefly an insurance broker’s fundamental duty under the law of
agency, in regard to protecting their client’s interests.

Back 38

(a) Agents must act in their principal’s best interests and not for their own benefit unless they make a
full disclosure and receive their principal’s permission.

Front 39

(b) Outline how the duty is reinforced by the Financial Services Authority.

Back 39

(b) The duty to manage any potential conflicts of interest is one of the Financial Services Authority’s eleven Principles for Business. It has set out a number of recommendations as to how firms should assess, manage and mitigate possible conflicts of interest.

Front 40

(c) State how a broker should normally explain its general obligations in this area
to its clients.

Back 40

(c) Through a form of disclosure in its terms of business agreement, which will usually state that the broker will disclose the conflict immediately and agree the relevant steps to end or manage it accordingly.

Front 41

(d) Give four brief examples of specific conflicts that a broker might need to cover
in its explanation to its clients.

Back 41

(d) Any four of the following:
• Lineslips, binding authorities and other facilities – when they are used and how the broker
earns income from them.
• Use of sub-agents or other companies within the broking firm – how they will be remunerated.
• Reinsurance – If the broker is also acting as a broker to the insurers with whom the client’s
policies are placed.
• Close links with a particular insurer – especially where the broker is partly or wholly owned by the insurer.
• Contingent commissions/overriders and other inducements paid by insurers and others to brokers – for placing business volumes.

Front 42

9. (a) The term ‘classified but restricted’ is typically used by broking firms to describe
insurers that may only be used in given circumstances. Identify four types of
restriction that may be applied

Back 42

(a) • Geography.
• Types of business.
• Client must be furnished with critical information about the insurer.
• Only to be used on client’s express instructions.

Front 43

(b) Describe briefly the key actions brokers should take before seeking to deal with
an unclassified insurer.

Back 43

(b) • Check internally to ensure that your firm has no existing rationale for wishing to avoid the
insurer.
• Seek the agreement of your senior management before approaching the insurer.

Front 44

(c) Identify the actions you should take when a client gives instructions to use an insurer when you have recommended otherwise.

Back 44

(c) • Ensure the client’s instructions are in writing.
• The instructions should specifically confirm that the client’s wishes contravene your
recommendations.

Front 45

(d) Explain briefly the difficulties a client faces in contemplating a switch of insurer
mid-term following the declassification of the original insurer, for example,
following a credit rating reduction.

Back 45

(d) • Alternative cover could be more expensive.
• The original insurer may not be prepared to cancel or may cancel but without return of
premium, thus again adding to costs.
• Dual cover may exist leading to contribution complications on claims.
• Cancelling mid-term can lead to awkwardness around existing claims.
• For losses reported after cancellation, the original insurer may insist on strict interpretation of
claims notification conditions

Front 46

10. (a) According to a key principle within the Data Protection Act 1998, data must be
fairly and lawfully processed. Explain briefly what this means in practice.

Back 46

(a) • Data must be fairly and lawfully obtained.
• The subject must have been informed and agreed to their personal data being processed.
• The processing must be necessary for specified reasons e.g. the placing of insurance.

Front 47

(b) Under the terms of the Data Protection Act 1998, the data subject has various
rights. Identify six of these rights.

Back 47

(b) Any six of the following:
• To know what personal data is being processed about them.
• To get the data about them put right if it is wrong or to stop it being processed altogether.
• To be compensated if the individual suffers damage or distress by its incorrect processing.
• To be given a copy of personal data in return for a fee.
• To be informed of any logic in automated decision-making processes relating to them
e.g. underwriting calculations.
• To prevent processing likely to cause unwarranted damage or distress.
• To prevent processing for purposes of direct marketing.

Front 48

11. Cancellation rights apply to most general insurance policies for consumers. Describe
briefly three circumstances where they do not need to apply.

Back 48

Any three of the following:
• A travel and baggage policy or similar short-term policy of less than one month’s duration.
• A policy the performance of which has been fully completed by both parties at the consumer’s
express request before the consumer exercises his right to cancel.
• A pure protection contract of six months’ duration or less which is not a distance contract.
• A pure protection contract effected by the trustees of an occupational pension scheme, an employer
or a partnership to secure benefits for the employees or the partners in the partnership.
• A general insurance contract which is neither a distance contract nor a payment protection contract,
sold by an intermediary who is an unauthorised person (other than an appointed representative).
• A connected contract which is not a distance contract

Front 49

12. (a) State the three simply stated steps for preventing complaints, and errors and
omissions claims.

Back 49

(a) • Do it right – first time.
• Ask if you don’t know.
• Put it in writing.

Front 50

(b) Identify the three key Financial Services Authority requirements for authorised
firms in regard to complaints.

Back 50

(b) • The firm must have a formal complaints procedure.
• The procedure must be communicated to customers.
• The firm must manage complaints in accordance with its stated procedure.

Front 51

13. Lloyd’s is known as a subscription market. Describe its operation.

Back 51

• A subscription market is one where the risk is shared amongst a number of participating
underwriters who ‘follow’ the terms set by the lead underwriter.
• The first to write a line becomes the lead underwriter for the insurance, even though a subsequent
underwriter may write a larger line.
• The leader sets the terms of the contract and signs the slip for the percentage of the risk it has
agreed to write.
• The broker then takes the slip around the market until the total amount required is underwritten.
• If more than the amount required is underwritten, then each underwriter’s line is reduced
proportionately.
• Initialling the slip creates a contract of insurance and binds the underwriter, under the law, to cover
the risk in question.
• The cover required on the slip can be for all the risk or for any required proportion of it.

Front 52

14. (a) Describe briefly three disadvantages of a captive insurance company from a
client’s point of view.

Back 52

(a) Any three of the following:
• Uncertainty – The client exchanges the broadly known cost of a conventional programme for
the uncertainty of a self-insured programme.
• Long-term risk retention – The client takes on responsibility for funding future years’
claims – the claims 'tail' traditionally retained by insurers and for some liability covers,
particularly employers’ liability, this can last many years.
• Impact on finance and debt management – Financing alternatives may be deducted from the
client’s overall debt facilities and thus impinge on the working capital of the business; trust
accounts, if used, divert cash from the business at a lower rate of return.
• Higher costs – Initial set-up charges, for example associated with a feasibility study, actuarial
report, articles of incorporation etc; and ongoing administration costs and commitment such as
management, underwriting/loss adjustment expenses and fronting fees.
• Unrelated Business – Many captives write outside business or business unrelated to the
parent, in order to achieve tax deductibility for the parents business. The problems associated
with this business may not have been considered.

Front 53

(b) Explain briefly the reasons why captives are usually established in ‘off shore’
territories.

Back 53

(b) • The Financial Services Authority would treat a captive set up in the UK like any other
insurance company, making it subject to all of its rules and guidance which would be
disproportionately expensive.
• There is a relatively lighter regulatory regime and lower rates of taxation.

Front 54

15. List the six sections of the Market Reform Contract.

Back 54

• Risk details.
• Information.
• Security details.
• Subscription agreement.
• Fiscal and regulatory.
• Broker remuneration and deductions.