P81 Q And Answers

Front 1

State five ways in which a company may benefit from setting up their own captive insurance company.

Back 1

Any five of the following:
• Fund retained risk in a structured manner.
• Act as a focus for risk management efforts.
• Deal with claims in a more efficient and timely manner.
• Retain premium in-house, in a potentially more tax efficient way, rather than paying an external
insurer in the form of profit, margin and overheads.
• Provide cover for certain risks that the conventional market is unwilling to write or unwilling to write
at an acceptable premium.
• Access the potentially cheaper and flexible reinsurance market.
• Move in or out of the external market according to the insurance market cycle, potentially writing
more in-house in a hard market.

Front 2

State who is responsible for regulatory status disclosure to the client/customer, in an insurance transaction involving both a producing broker and a wholesale broker.

Back 2

Each broker is responsible for making its own regulatory status disclosure to its customers.

Front 3

Generally there is no contract between sub-brokers and the insured. However, state two occasions in law where a sub-broker may find themselves liable to an insured.

Back 3

• Under the Contracts (Rights of Third Parties) Act 1999.
• In tort.

Front 4

The terms of business agreement (TOBA) includes insurance broker information and
client’s duty of disclosure. List five other areas.

Back 4

Any five of the following:
• Duration of the contract and termination.
• Insurer security.
• Payment terms.
• Client money.
• Conflicts of interest.
• Claims against the firm.
• Limitation of liability.
• Money laundering/data protection/confidentiality.
• Law and jurisdiction.

Front 5

Explain briefly how the FSA defines ‘demands and needs’.

Back 5

The Financial Services Authority describes establishing a customer’s demands and needs as the
process where a broker identifies and clarifies a client’s requirements.

Front 6

Outline what a broker must take into account when checking the suitability of a policy for a customer’s demands and needs.

Back 6

The broker must take into account:
• The level of cover and whether it is sufficient for the risks that the customer wishes to insure.
• The cost of the contract, where this is relevant to the customer’s demands and needs.
• The cover terms and the relevance of any exclusions, excesses, limitations or conditions in
the contract.

Front 7

Describe briefly in what circumstances a broker can make a recommendation that does not meet all of the customers’ demands and needs, and what the broker must remember to do in this situation.

Back 7

A broker can make a recommendation that does not meet all the customer’s demands and needs,
provided that there is no insurance available to the broker that does. The broker must identify to
the customer the demands and needs that are not met by the insurance.

Front 8

State four advantages to an insurance broker in operating a delegated authority facility or scheme.

Back 8

• May be able to negotiate enhanced rates of commission.
• More simplified and faster administration as documents can be issued ‘in house’.
• May have a unique product that is only available to clients through the broker.
• Limited claims handling authority may speed claims service.

Front 9

State two advantages to an insurer in offering a delegated authority to a broker.

Back 9

• Access to profitable revenue stream without the expense of committing its own staff and resources.
• Allows insurers to focus on other areas.

Front 10

Explain briefly why a binding authority must be strictly controlled by a delegated authority agreement between insurer and broker.

Back 10

The delegated authority agreement needs to set out clearly what authority is given to the broker in relation to what the broker is able to bind on behalf of the insurer.

Front 11

List four areas a delegated authority agreement would cover.

Back 11

Any four of the following:
• What risks can be covered and what cannot.
• Rates.
• Limits.
• Cover/wording.
• Claims/agreements.
• Trading restrictions

Front 12

Breadth of cover, flexibility and innovation are three factors that would be taken into account when selecting an insurer. Identify six other factors.

Back 12

Any six of the following:
• Quality of service.
• Price.
• Financial security.
• Capacity.
• Geographical spread.
• Claims service.
• Technical advice and specialist expertise.
• Survey.
• Premium financing.
• Continuity.
• Licenses.

Front 13

The risk manager of Company ABC, a UK headquartered plant manufacturing company with sites in Spain and the USA, has given you the opportunity to review the group insurance arrangements.

Currently each location has independent responsibility for organising their own
insurances locally.
Before reporting back to the risk manager, you consider recommending a global
insurance programme.

State five advantages of a global approach.

Back 13

Any five of the following:
• It offers consistency of cover.
• It provides central control of cover and cost.
• Savings obtained, through group buying.
• It offers simpler identification of losses worldwide.
• It can act as a vehicle for a global approach to risk management.
• It facilitates controlled participation in its own risk by the parent, for example through a captive.
• Premium allocations can be adjusted for claim experience and use as a tool to encourage
better risk management.

Front 14

State five disadvantages of a global approach.

Back 14

Any five of the following:
• The parent company needs to control from the centre, which may conflict with the culture or
managements style.
• It could upset local relationships.
• It may cost more in aggregate terms.
• It can cause legislative problems.
• It reduces choice of insurers.
• The premium invariably has to be allocated between subsidiaries and may need to be paid
locally. This can cause conflict if not seen to be fair.
• Subsidiaries may be forced to ‘buy’ cover that either does not apply or has limits that are
considerably in excess of their individual exposure.

Front 15

Outline what is meant by admitted and non-admitted policies and explain how
each would operate in respect of Company ABC.

Back 15

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, not where a policy was issued. If the policy can
indemnify the insured in the territory where the claim arises and/or the insured is sued, the policy
is admitted.
If the policy does not indemnify the insured in the territory where the claim arises and/or the
insured is sued, the policy is non-admitted.
For example, a policy issued in one EU territory is valid (admitted) in another. So for Company
ABC, if insurance was arranged in the UK under a global programme and a loss occurred in
Spain, the insurer is able to respond by paying the claim in Spain. If it were a liability claim, the
insured could also be defended against claims brought in the Spanish courts. This is an admitted
policy.
If the claim occurred at their site in the USA, and the policy was issued in the UK, the insured
would have to defend themselves in the US courts and/or get the payment into the USA. Whilst
possible, local taxes would have an impact. This is a non-admitted policy.

Front 16

State six ways that an insurance broker can demonstrate best practice when
presenting and explaining renewal terms to a client.

Back 16

• To convey the terms accurately and concisely to the client.
• To ensure that the client understands, particularly important aspects of the cover and the terms and
conditions.
• To ensure that the client understands where the cover on offer does not match their requirements.
• Provide a record of the advice to the client.
• Bring special payment or standard credit terms to the clients attention.
• Provide full details of the insurers.

Front 17

Explain the purpose of a suitability statement and what it needs to record.

Back 17

The purpose of the suitability statement is to ensure that customers have the necessary information to make an informed choice about whether or not to buy a specific insurance contract and whether a contract continues to meet their demands and needs.
It needs to record:
• the customer’s demands and needs;
• how the recommendation addresses these demands and needs;
• the reasons for the recommendation.

Front 18

Following a loss where a locally issued policy has not responded, explain using
examples, the effects the difference in conditions and difference in limit clauses might
have on the cover available. In your answer, explain the effect such a clause might
have where there is no underlying insurance policy.

Back 18

The effect of the difference in conditions (DIC) and difference in limits (DIL) clauses (the two are usually combined), is to top up the cover available under a local policy to the same global tandard that the master policy provides.
The intention is for the master policy to indemnify the insured where a locally issued policy’s response is
less than the insured would have been entitled to under the master policy.
For example, the master property policy for Massive Group includes cover for ‘accidental damage’.
A local admitted policy is issued in Sydney on insurer’s standard wording, which only provides cover for ‘fire and specified perils’, and none for accidental damage. Under the DIC condition, the master policy will ‘step down’ and provide cover for accidental damage in Sydney.
It is not always necessary for the operation of the DIC or DIL clause to have an underlying policy for the
master to sit over. This would be the case in countries where it is not common practice to purchase business interruption or product liability cover, for example. In such cases it is essential that the insurer agrees, and/or includes, a statement which allows the master policy to act as a local non-admitted primary policy, where there is no specific local policy inplace.
Model

Front 19

State the FSA’s definition of an insurance intermediary.

Back 19

Any natural or legal person who, for remuneration, takes up or pursues insurance mediation, or a
firm carrying on insurance mediation activity other than an insurer.

Front 20

State the five main implications of the introduction of statutory regulation for
insurance intermediaries.

Back 20

• It is a criminal offence to carry on regulated activities without authorisation, unless an exemption applies.
• Regulated firms must establish that the insurers or other brokers they deal with are properly authorised or exempt.
• Brokers must check the register of relevant ‘competent authorities’ to establish the regulatory status of any intermediaries they deal with in the UK and other EEA countries.
• Regulated firms are supervised by the Financial Services Authority (FSA) and must adhere to its rules and principles to maintain their authorisation.
• Broking firms and individual approved persons who breach the rules and principles may be subject to FSA enforcement action, such as fines.

Front 21

Mrs Spencer has bought a new car for the family nanny to use whilst she is living with
them. Mrs Spencer contacts her broker to arrange insurance cover. Although the nanny has a recent speeding conviction, Mrs Spencer forgets to mention
it.
(a) Explain briefly the disclosure obligations that Mrs Spencer has with regard to the
nanny’s speeding conviction and the consequences of non-disclosure.

Back 21

(a) • Their nanny’s conviction is a material fact.
• All material facts must be disclosed when requesting cover.
• Non-disclosure of this fact could allow insurers to repudiate any subsequent claim and cancel the policy ab initio.
• Mrs Spencer does not need to be asked specifically about this, it is her responsibility to
disclose all material facts.

Front 22

(b) Explain briefly two ways a broker can ensure a customer is aware of what should
be disclosed.

Back 22

(b) Brokers could:
• Explain the duty to disclose all circumstances material to a policy, what needs to be disclosed and the consequences of failure to make such a disclosure.
• Ensure that the customer is asked clear questions about material facts, either verbally or using a proposal form.

Front 23

(c) The Marine Insurance Act 1906 clarifies the duties of brokers regarding the provision of ‘material facts’. Under Section 19 of the Act, describe briefly what the broker must disclose.

Back 23

(c) Brokers must disclose:
• Every known material fact, including facts which in the ordinary course of business ought to have been communicated to them.
• Every material fact which the insured is bound to disclose, unless it comes to the insured’s
attention too late to communicate to brokers.

Front 24

(d) The Court of Appeal in CTI v Oceanus (1984) brought in the concept of ‘a prudent underwriter’. In relation to materiality, explain briefly how the judge interpreted the Marine Insurance Act 1906 in this case. (2)
14.

Back 24

(d) The judge in this case interpreted the act as saying that something was material if the prudent insurer would have wanted to take it into account in deciding whether to accept the risk and if so on what terms

Front 25

State four circumstances when an insurance broker can act as an agent for both
the insured and the insurer.

Back 25

Any four of the following:
• When issuing motor cover notes.
• When operating binding authorities.
• Settlement of claims under delegated authority arrangements.
• Completion of proposal forms.
• When acting for the insured and the reinsured.

Front 26

Outline five main requirements of the law of agency between an insurance
broker and their principal.

Back 26

Any five of the following:
• Perform all their principal’s lawful instructions personally and in a timely fashion.
• Exercise reasonable skill and care in the performance of their principal’s instructions.
• Act at all times in the best interests of their principal, to avoid conflicts of interest.
• To disclose to their principal fully any circumstances which may give rise to the appearance of a conflict.
• Make full disclosure to their principal of their personal interest in any transaction.
• Account to their principal for all monies they may have received on their principal’s behalf.

Front 27

You are the claims manager of the yacht division of a large insurance broker. You take
a call from an ex-client whose business you recently lost to another insurance broker.
They report a potential claim from a crew member who injured themselves on board, at
a time when you were the holding insurance broker.
(a) Outline four examples where you might have a duty or desire to deal with this claim.

Back 27

(a) • If the service agreement clearly specifies that you agreed to deal with all claims arising in the period where you arranged cover.
• If the service agreement is unclear and the client’s expectation is that you should deal with the claim.
• If there is potential for errors and omissions, and you wish to protect your position.
• To win back the business you lost, by doing a good job and demonstrating your capability.

Front 28

(b) State six general activities that you may be expected to perform when dealing
with any claim.

Back 28

(b) Any six of the following:
• Advising the client as to whether the loss is insured or not.
• Giving immediate notification of losses to insurers.
• Advising the client of their rights and obligations under the policy.
• Arranging for the completion of appropriate claims forms.
• Ensuring that, where necessary, adjusters are appointed and briefing the client on the role of
the adjuster.
• Assisting the client in preparing the necessary documents and information in support of the claim.
• Collecting claim payments from insurers.
• When a major loss occurs, attending site meetings with the adjuster and the insurer’s
personnel.
• Post loss surveys.
• Making staff available who are experienced in the adjustment of complex claims, to assist
the client in negotiations with the insurer.

Front 29

State the four categories of client a broker may deal with, as specified by the
Financial Services Authority.

Back 29

• Policyholder. Includes anyone who is entitled to make a claim under the policy direct to the insurer.
• Customer. A policyholder who arranges the policy.
• Consumer. A private individual who is acting for purposes which are outside their
trade or profession.
• Commercial customer. A customer who is not a consumer.

Front 30

2. (a) State what ICOBS stands for, and when it came into force.

Back 30

a) • ICOBS stands for Insurance: New Conduct of Business sourcebook.
• It came into force on 6 January 2008.

Front 31

(b) Explain the purpose of ICOBS and to whom it applies.

Back 31

(b) • The Financial Services Authority (FSA) uses ICOBS to reinforce its principles
through specific rules.
• ICOBS provides the rules and guidance that are of specific relevance to those
involved in general insurance.
• ICOBS has allowed the FSA to move to a more principles-based approach.
• This approach puts the focus on outcomes for customers, rather than processes
within firms.
• The FSA believe that reference to ICOBS will help achieve the ‘Treating
Customers Fairly’ principle.
• ICOBS applies to any firm or individual providing general insurance and any firm
providing ‘insurance mediation services’.

Front 32

c) List the eight headings of ICOBS.

Back 32

(c) • ICOBS 1 Application.
• ICOBS 2 General matters.
• ICOBS 3 Distance communications.
• ICOBS 4 Information about the firm, its services and remuneration.
• ICOBS 5 Identifying client needs and advising.
• ICOBS 6 Product information.
• ICOBS 7 Cancellation.
• ICOBS 8 Claims handling.

Front 33

3. (a) State the Financial Services Authority’s definition of an insurance intermediary.

Back 33

(a) Any natural or legal person who, for remuneration, takes up or pursues insurance
mediation, or a firm carrying on insurance mediation activity other than an insurer

Front 34

(b) When the UK Government made general insurance subject to statutory regulation, two EU directives were implemented into English law. State the two EU directives.

Back 34

(b) • EU Insurance Mediation Directive (2002).
• EU Directive on the Distance Marketing of Consumer Financial Services (2002).

Front 35

(c) State the five main implications of the introduction of statutory regulation for
insurance intermediaries

Back 35

(c) • It is a criminal offence to carry on regulated activities without authorisation, unless
an exemption applies.
• Regulated firms must establish that the insurers or other brokers they deal with are
properly authorised or exempt.
• Brokers must check the register of relevant ‘competent authorities’ to establish the
regulatory status of any intermediaries they deal with in the UK and other
European Economic Area (EEA) countries.
• Regulated firms are supervised by the Financial Services Authority (FSA) and
must adhere to its rules and principles to maintain their authorisation.
• Broking firms and individual approved persons who breach the rules and principles
may be subject to FSA enforcement action, such as fines.

Front 36

4. Mr Clark has bought his son a new car before he goes to university. Mr Clark contacts his broker to arrange cover. Although his son has a speeding conviction, Mr Clark forgets to mention it.
(a) Explain the obligations that Mr Clark has with regard to his son’s conviction and the consequences of not disclosing this fact

Back 36

(a) • His son’s conviction is a material fact.
• All material facts must be disclosed when requesting cover.
• Non-disclosure of this fact could allow insurers to repudiate any subsequent claim
and cancel the policy ab initio.
• Mr Brown does not need to be asked specifically about this, it is his responsibility
to disclose all material facts.

Front 37

(b) Explain briefly two ways in which a broker can ensure a customer knows what should be disclosed when arranging cover.

Back 37

(b) Brokers could:
• Explain the duty to disclose all circumstances material to a policy, what needs to be disclosed and the consequences of failure to make such a disclosure.
• Ensure that the customer is asked clear questions about material facts, either verbally or using a proposal form.

Front 38

5. (a) (i) State the function of the proposal form, and why it must be signed by the client.

Back 38

(a) (i) The function of the proposal form is to present standardised information that will
enable the insurer to underwrite the risk. The client must sign the proposal form and warrant the truth of the information, thereby satisfying the obligation regarding disclosure of material facts

Front 39

(ii) List three types of risk where a proposal form would normally be required.

Back 39

(ii) Any three of the following:
• Small package risks.
• Personal lines such as motor, household and craft insurance.
• Fidelity guarantee or ‘crime’.
• Professional indemnity and errors and omission covers.
• Directors’ and officers’ liability and employment practices and pension trustee liability.

Front 40

(b) Following receipt of Mrs Platt’s home proposal form, insurers have issued terms to you, her broker. They also point out to you that terms are offered ‘subject to the fitting of new window locks’. In order to fully comply with
contract certainty, describe what should be explained to Mrs Platt in relation to this subjectivity.

Back 40

(b) To comply with contract certainty, it is essential that any subjectivity is made clear to
Mrs Platt as to:
• Who needs to do what, by when and to what standard?
• The terms and/or cover that apply until the locks are fitted.
• The consequences if it is not done.
• If Mrs Platt can not comply with the subjectivity, insurers must be informed
immediately and a practical amendment to it agreed.

Front 41

6. Explain briefly the purpose of the suitability statement and list what it should record.

Back 41

The purpose of the suitability statement is to ensure that customers have the necessary
information to make an informed choice, about whether or not to buy a specific insurance contract and whether a contract meets and continues to meet their demands and needs.
It needs to record:
• The customer’s demands and needs.
• How the recommendation addresses these demands and needs.
• The reasons for the recommendation.

Front 42

7. As the chief operating officer of a UK-based insurer, you and your board of directors
are considering expanding the business by writing new classes of business in the UK
and opening new offices in the EU and the Middle East.
(a) State what your company will need to do before it can write new classes of business in the UK.

Back 42

(a) The Financial Services Authority requires that insurance companies hold a valid and up to date license for each class of business they write in the UK. To write a new class the insurer would need to apply for a new licence.

Front 43

(b) Explain, with reasons, whether it would be more complicated to have a new operation outside the EU than it would be to open a new branch within the EU.

Back 43

(b) Insurance companies wanting to operate outside their own country of domicile/
registration need to obtain a license to do so from each country where they want to do
business. In the EU, the Freedom of Services legislation would allow this insurer the
flexibility to operate in other EU territories by means of branch offices. If they wanted to set up outside the EU, the company would need to create a separately registered company costing more to set-up and administer and tying up capital in each country of operation.

Front 44

8. (a) Describe the three principal ways in which the majority of business is transacted at Lloyd’s.

Back 44

(a) • Traditional ‘face-to-face’ broking with accredited Lloyd’s brokers.
• The use of delegated authorities given to brokers and agents, primarily in the UK
and the USA.
• The business that Lloyd’s syndicates have set up outside of Lloyd’s through which the majority of private and commercial motor and personal lines business is written.

Front 45

(b) Lloyd’s is known as a ‘subscription’ market. Describe its operation.

Back 45

(b) 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 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. A completed slip with no amended terms, binds those initialling to issue a policy on the same terms. The cover required on the slip can be for all the risk or for any required proportion of it.

Front 46

Using an example, explain the effect that a Difference in Conditions (DIC) or a Difference in Limits (DIL) clause might have on the cover available, following a loss where a locally issued policy has not responded. In your answer, refer to the effect such a clause might have where there is no underlying policy.

Back 46

The effect of the Difference in Conditions (DIC) and Difference in Limits (DIL) clauses (the
two are usually combined), is to top up the cover available under a local policy to the same global standard that the master policy provides.
The intention is for the master policy to indemnify the insured where a locally issued policy’s response is less than the insured would have been entitled to under the master policy. For example, the master property policy for Massive Group includes cover for ‘accidental
damage’.
A local admitted policy is issued in Sydney on insurer’s standard wording, which only
provides cover for ‘fire and specified perils’, and none for accidental damage. Under the DIC condition, the master policy will ‘step down’ and provide cover for accidental damage in Sydney. It is not always necessary for the operation of the DIC or DIL clause to have an underlying policy for the master to sit over. This would be the case in countries where it is not common practice to purchase business interruption or product liability cover, for example. In such cases it is essential that the insurer agrees, and/or includes, a statement which allows the master policy to act as a local non-admitted primary policy, where there is no specific local policy in place.

Front 47

10. (a) State six factors against which claims statistics should be reviewed, in order that they are analysed in their correct context.

Back 47

(a) • Premium.
• Rating Base.
• Previous Loss Estimates.
• Client Structure.
• Type of Loss.
• Time.

Front 48

(b) State the aim of the Electronic Claims File (ECF) initiative

Back 48

The aim of the Electronic Claims File (ECF) initiative is to do away with paper records and the need to copy the same paper records to co-insurers and insurers on other layers.

Front 49

11. IQV, a large commercial client of your broking firm, has invested in a programme of
risk management for the last two years. They are now in a position to retain some of the risk that they had transferred to their insurers. Their risk manager has asked you for advice on self-insurance, in terms of how much and what risks to retain.
(a) Explain what is meant by the terms ‘passive’ and ‘active’ risk retention.

Back 49

(a) 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 made to deal with it. Active risk retention of risk arises when an organisation takes a conscious decision to bear the cost of any losses resulting from a recognised risk

Front 50

(b) State what IQV will need to calculate in order to decide how much loss it can afford within its own operations.

Back 50

They will need to calculate:
• The single largest amount the business can afford to retain.
• The aggregate of losses the business can afford to retain over a given time,
ignoring the common, low-level and frequent losses.

Front 51

(c) List three other considerations IQV will need to take into account when deciding how much risk to retain

Back 51

(c) The business will also need to consider:
• The value of losses it already retains under existing policy excesses or deductibles.
• The savings it may obtain by assuming certain levels of risk, for example in premium reductions from the insurer.
• The nature of the risks being retained – liability claims may take many years to settle, others are more immediate.

Front 52

(d) State the two techniques that the risk manager may employ when projecting the
future costs of risk retention

Back 52

(d) Two other techniques:
• Probability analysis.
• Extrapolation of past loss data

Front 53

12. (a) Property surveys are one of the specialist risk consultancy services that may be offered by a broker. List five others.

Back 53

(a) Any five of the following:
• Business continuity plans.
• Business interruption reviews.
• Health and safety in the work place.
• Motor fleet risk management.
• Environmental risk surveys.
• Post loss control surveys.
• Disaster recovery services.

Front 54

(b) Describe the two main functions of property surveys and give an example of each

Back 54

(b) The two main functions are:
• Underwriting surveys to determine the risk information needed by insurers to
underwrite the risk. For example a home may be surveyed to determine security or occupancy.
• Risk management surveys to provide the client with an expert assessment of the
inherent risk and making recommendations to eliminate or control those risks. For example, a recommendation to fit smoke detectors or fire blankets in the kitchen.

Front 55

13. (a) The Financial Services Authority (FSA) provides guidance on record keeping in three key areas when dealing with requests from the FSA and enquiries from customers. State three areas where it is advised to record and retain
documentary evidence.

Back 55

(a) Any three of the following:
• The reasons for any recommendation.
• What documentation was provided to the customer?
• How claims were settled and why.
• Customer complaints.

Front 56

(b) State, giving reasons, what should be included on all generic standard documents.

Back 56

(b) They should include a date and reference number for identification, as it must be
possible to trace which version has been given to the customer

Front 57

14. (a) Describe the broking chain from the insured to insurer where a sub-broker is involved in the placement. Include a diagram in your answer.

Back 57

a) The original retail broker usually remains liable to the insured for any defaults of the
sub-brokers or wholesale broker and as such there is rarely a contract between insured
and the wholesale/placing broker.

Front 58

(b) Describe the case of Fisk v Brian Thornhill and Son (2007) and explain why the placing broker was found to be in breach of his duty to the insured.

Back 58

(b) The Court of Appeal confirmed that the placing broker (Thornhill) was in breach of his
duty to the insured in not making clear (via the producing broker, Fisk) that a new
policy with different insurers and on different terms and conditions was being
suggested by him. Breach of duty to the insured by the placing broker for:
• Failing to obtain a satisfactorily completed proposal form, as required by insurers before placing cover.
• Providing warranties on behalf of the insured, without authority, that the building was of standard construction, when it was in fact thatched.
• Failing to warn the insured of new insurers and different policy terms and conditions.

Front 59

(a) Explain briefly the term ‘delegated authority

Back 59

(a) When a broker, other intermediary or specialist agency has negotiated an exclusive
scheme with an insurer that allows for the placement of risks, this is known as
delegated or binding authority.

Front 60

(b) Outline the role and function of a managing general agent (MGA).

Back 60

(b) With their origins in the USA, a firm that manages a delegated facility, whether broker
or otherwise, is known as a Managing General Agent. It is normally a corporate entity that has been given delegated underwriting authority from an insurer, acting as though it were the insurer. The staff of the MGA will have specific expertise in a given sector. This means the insurer can gain access to a profitable stream of revenue, without the
expense of committing its own staff and resources, allowing it to focus on other areas

Front 61

GR

Back 61

YT