question

consolidator

answer

have built large business from the acquisition of many small firms (i.e. brokers that tend to focus on serving other SME's)

question

broker network

answer

- alternative source of different services - by formal alliances - to share best practice, mutual support, - share investment cost in developing IT, web platforms, compliance solutions etc.

question

market cycle

answer

swing of market between hard and soft market

question

purchasing power parity

answer

takes account of the real price of items and baskets of items in an economy

question

churn

answer

- churn is a measure of customer or employee attrition (turning around) - excessive broker competition my lead to churn - it is more expensive to maintain current business/accounts and to generate new. Cost of churn more heavily on the broker

question

(price) comparison sites

answer

manly in use for personal lines business

question

aldermanbury declaration

answer

- commitment to meet standards of professionalism - these standards will improve the insurance sector - brokers publicly commit to these standards - build public confidence

question

hard market

answer

more demand of capacity than supply

question

soft market

answer

more supply of capacity than demand

question

recession

answer

a period of 2 or more consecutive quarters when the economy shrinks

question

chartered status

answer

- sharpens competitive edge - enhance business performance - promote regulatory compliance - attract talent - evidence of professional status

question

London Insurance Market key figures

answer

3,800 brokers 80% of total premium 8% direct 4% tied agents 2% inhouse broker 2% other 2% banks £30bn net premium domestic UK (plus 4bn Lloyds) 10bn Motor 8bn property 4.5bn A&H 3.3bn GL 2.7 Misc 2bn marine £25bn foreign business

question

SME

answer

companies with turnover less than £15m

question

role of the broker

answer

- understand the client's business and its risk and insurance needs - designing and sourcing most appropriate insurance cover - explaining options and giving reason for advice - negotiating cost, cover and other terms to meet client needs - executing the client's instructions - explaining the needs and behaviour of the markets to the clients - maintaining market relationships - assisting in the negotiation of claims - providing admin support

question

forces behind consolidation

answer

- strong growth in previous period - cosy or weak management - need to increase efficiency and profitability through savings (head count reduction) - increased buying power - provide firm base for expansion into other sectors - acquisitions as a faster route to growth in revenue and profits

question

new forces behind consolidation

answer

- cheap money / debt finance - insurers that favour consolidators by providing higher commission rate - succession problem of many small brokers - emergence of entrepreneurial leaders in small broker firms

question

broker associations

answer

BIBA (2000 firms) LIIBA London IIB (1,100 smaller firms) SIBA Switzerland

question

distribution cost

answer

all the cost an insurer incurs in distributing its products, eg. - commission - branch network staff cost - support of distribution channel - advert and marketing cost

question

MGA

answer

- origin in US - known as binding authority in UK - insurer delegates underwriting and/or claims authority to a third party - insurer to enter a market without own infrastructure - reinsurer use MGA to access direct insurer markets - MGA is more efficient if volume is still small - no need for MGA of full insurance licence - brokers earn extra income with MGA and exclusive distribution of a product- - remuneration of MGA maybe tied to combined ratio targets - alternatives: scheme or panel of insurers

question

direct insurers

answer

...

question

non standard risks

answer

- risks that fall outside the 90/10 rule - e.g. households with value >£50k; motorists with driving convictions - no offer for non-standard risks in direct market - this is market for brokers

question

broking strategy

answer

- insurers request from brokers a portfolio of £100k to £250k premium to provide service - many insurers are selective with which broker they deal with - brokers select insurers that offer more commission and service (not only best terms for clients) - dealing with fewer insurers increases efficiency and decreases distribution complexity - join a broker network (increase commission, better service) - use wholesaler - set up MGA

question

roll over deals

answer

- a broker movers entire portfolio from one to another insurer to get better broking terms - insurer increases market share and operational efficiency - reduction of competition - portfolios come as fast as the go again...

question

distribution complexity

answer

different needs and distribution methods to cater for due to - comparison websites - direct insurers - diversified brokers, aggregators, consolidators, MGAs - insurers being selective wrt brokers

question

auto rating

answer

production of quotes from IT-based system with minimal data, perhaps sourced from 3rd parties

question

price proximation

answer

means a standard margin of the best prices of +/- 10-20%

question

tripartite relationship

answer

insured - broker - insurer - broker has a paramount duty to the insured not the insurer - broker my serve anonymous market data to insurers

question

rules of engagement with insurer

answer

- make insurer aware of client expecations - advise insurer if account is remarketed - maybe give incumbent insurer right of last call - limits of feedback to incumbent insurer - make sure deadlines are understood

question

comparison websites

answer

- approx 17 in UK - no common standards - comparison only on price not on content - sometimes owned by the seller of compared products - these sites increase distribution complexity for insurers

question

information needed to support a broking strategy

answer

- good database of current clients, eg SIC codes, key risk information, claims data last 3 years - understanding insurers performance towards broker - understanding of broker's account profitability

question

example of broker strategy for larger firm

answer

- Micro SME: auto rating, MGA, decline non standard risks - SME: MGA or panel of insurers - Medium: faclities and panel, need portfolio underwriting - upper medium: open market, defined criteria, standard term - large and global: open market, wording criteria - PA: broker facility - Excess PL: preferred online services

question

example of broker strategy for smaller firm

answer

- Micro SME: single insurer with internet facility, no mktg - Small: panel of four insurers - private motor: facilities - HNWI: limited binder, service criteria - Medium: open market

question

Insurer review meeting

answer

- business bound, quoted not bound, not quoted - future renewals, re-marketing accounts - new business, upcoming submissions - service issues - claims - developments at insurer and at broker - market cycle - marketing campaigns, support and funding - market research by broker

question

executive director

answer

- agents appointed by the shareholders to look after the interests of the company - work full-time in the company - have a management responsibility

question

non-executive director

answer

- part-time appointments selected for their expertise - attend board meetings - run sub-committees e.g. risk, audit, remuneration - independent view - they assist the executive directors

question

joint stock company

answer

- structure of investment by individuals whose liability is limited to the value of their share

question

function of the board

answer

- board meetings on monthly basis - review strategy - take resolutions, strategic decisions - appoint, assess and dismiss officers (CEO, etc)

question

organisational structure

answer

- traditional hierarchical structure - matrix organisation - delayered flat hierarchies - centralised, decentralised, empowered, BPR, TQM

question

segmentation

answer

identification of similar client groups in the market with similar behaviour and qualities. Match these clients' segment needs with similar products and processes. criteria: - is segment large, defined, accessible, viable, profitable enough - competition, growing, shrinking, niche - location, virtual, distribution channels - special expertise, resources required

question

practice structure

answer

staff working in a organisational structure and at the same time in a practice which cut across traditional structures and that may be organised to serve a special client segment. - similiar challenges like in matrix structure

question

matrix structure

answer

is where conventional hierarchical structure is in place but individuals have additional functional tasks

question

claims advocacy

answer

derived from the law of agency, the broker has a duty to serve clients in claims irrespective when a claim is made or whether teh insured is still a client of the broker roles: - full claims service, broker negotiates claims with insurer - claims principal role - consultative or advocate: notification and support - added value: advice, claim reports, - postbox claims service - no role

question

business strategy

answer

brokers - grow business organically - target new customer groups - grow through specialisation - grow by acquisition and mergers use SWOT and PEST

question

management accounts

answer

separate P&L can be used to drive a segment-wide approach to high quality service

question

criteria for claims support

answer

- who pays - quality of insurers' claims service - clients' expectation

question

first notification of loss FNOL

answer

insurers opened call centres to deal quickly with the FNOL

question

job of the most senior manager

answer

- get the strategy right - select the right people, senior team - robust execution, quality, efficiency - watch the cash - keep it simple and focused no business can survive, if it needs a genius to to manage it

question

Organisation of broker firms

answer

- need understanding of clients' needs - strategy easy to understand and implemented - highly skilled staff, incentives - offer progressive careers - division of the business in sales, customer service, new business, consulting, broking, specialist broking, back office - LoB, private, commercial, industrial - outsourcing and off-shoring - niche specialists, pure reinsurance, consolidators, UK-only, large global, wholesale, ecommerce, - key account manager, technicians - geography, locations

question

management reporting

answer

- financial: budget, revenue, cost, debtors, cashflow - business targets: clients won, lost, new biz pipeline, retention ratio, hit rate new business, internal audit complaints - stakeholders: staff turnover, staff feedback, client survey, insurer rating, clients at risk

question

core competency

answer

non-core competencies may be cleaning, call centres, IT support, accounting, pay-roll and other back-office functions

question

outsourcing (+/- and challenges *)

answer

contracting out of a service or a function that was previously performed in house by own staff + outsource co's work for less money + focus on core competencies + gain benefits from specialisation - loss of managerial control - loss of "hey Jo" support - hidden cost * threat to IP and confidentiality * quality * credit risk, solvency of outsourcing partner * bad publicity * client relationship

question

off-shoring

answer

outsourced function "overseas", outside of own country usually in low labour cost; off-shoring includes outsourcing to a second and to a third party.

question

project management, keys to success

answer

- needs of the business (aligned with vision, review bus processes..) - planning (scope and req's, measure of success, pragmatism) - management - implementation - solutions

question

buying styles

answer

insurance purchase can be - a distress purchase, because it is mandatory - concious risk transfer action - based on lowest price - considering long-term relationship

question

hygiene factors

answer

...

question

business relationships

answer

My objective is to become regarded as a trusted advisor with whom the client can discuss business issues. good relationships cause / lead to - reduced cost (knowledge how the clients ticks) - better returns for the broker - more cross selling - better retention rates, clients may even pay higher fee if service is good - improved problem solving, identify and deal with problems before they get serious - more referrals (most cost effective source of new business)

question

defining excellent service, broker services include

answer

- advice on insurance and market developments - detailed knowledge of markets - negotiation with insurers - checking policies and documentation - collecting premium - assisting in claims negotiations - agenda the renewal, year cycle

question

client TOBA's

answer

TOBA are good practice and describe scope and standard of services that the broker will offer. For larger clients there are separate SLA. TOBA inlcude: services provided, disclaimer for insurer failing, retention of records, claims support, duty of disclosure, premium, broker remuneration, cancellation, complaints, data protection, governing law, use of sub agents, insurers, conflict of interest, use of e-mail, instructions from, limitation of liability, claims against the firm

question

incentivisation

answer

low basic salary and bonus tied to specific performance

question

retention ratio

answer

amount of business retained after lost/non renewed business. ideal >95%

question

business headwinds

answer

image of "Gegenwind", upcoming issues that prevent you from achieving a goal

question

client self serve

answer

desire and trend for clients to self-serve via web

question

tripartite relationship

answer

broker, client, insurer

question

hunters in sales process

answer

hunters get the energy from wining a new client, networkers, independent, excited, not always good to follow thru

question

farmers in sales process

answer

builds and cultivates relationship within relationship, turn a customer from good to great, loyal, nurturing, collaborate in teams,

question

pipeline management

answer

a pipeline is a desired number of developing business prospects to become clients and generate needed new business to grow at a planned rate

question

cold calling management

answer

if there is no relationship, the oly way to start is to pick up the phone and call... 4 options, can be combined - create competitive atmosphere with league tables - incentivise staff for achieving goals - dedicate staff - contract outside

question

structured selling

answer

miller heimann

question

client satisfaction

answer

- early warning system of problems, solve pro-actively - improved client relationship help to anticipate - identification of own strengths weaknesses - satisfaction to be continuously monitored

question

KPI

answer

key performance indicators (used in SLAs and incentive programs)

question

KCO

answer

key client outcomes (used in SLAs)

question

client obligations towards

answer

- timeliness of critical decisions, - delivery of information, - access to senior management, access to information

question

annual renewal cycle

answer

- diary systems for renewal prompts - annual service plans - open item list - mid-term review of broker performance - policy registers - renewal report for each policy

question

prospect generation

answer

- networking: attend seminars and conferences, organise events with topics for your clients, social and business networking - relationship bldg: use introducers, reciprocal arrangements with professional service providers, maintain relationship with job changers, with cross-directorship-holders - Marketing: run campaigns, mail shots and cold calling, ads are expensive, rather sponsorships, market research ,

question

first meeting with prospect

answer

- confirm meeting in advance - prepare and send an agenda - collate known data about the prospect - set objective for meeting: build rapport, understand the business, get insight into insurance and RM business - have a list of questions, but let the prospect lead - listen to the max: let prospect speak - record the discussion in writing and report to the prospect - seek actions that allow repeated contact - ensure all outcome of meetings is recorded in CRM

question

Overrider (contingent commissions)

answer

payment on the entire account basis, may be dependant on growth and profitability or retention of business with one insurer

question

additional brokerage

answer

for collecting premium, preparing policies, claims handling

question

administration fees

answer

added to SME business where brokerage may be low

question

brokerage on net rated business

answer

being paid by both sides as "double agent"

question

fees for services

answer

e.g. services to insurers like providing market and segment data

question

work transfer payments

answer

work performed on behalf of insurer, like premium allocation and collection

question

Spitzer affair

answer

as a consequence to the Spitzer affair, large US and UK brokers ceased taking override commission. AON reversed its decosion in 2009 and Marsh in 2010. Willis sticks to it.

question

fee calculation method

answer

- by simple estimation - by time recording systems

question

transparency

answer

see discussion paper dp08/2 on www.fsa.gov.uk.

question

Advantages of brokerage

answer

- simple to operate - easy to share between brokers, tip providers - increases along with premium increase . easier for broker to negotiate income - income painless for the client - pays for work done for client and insurer

question

disadvantages of brokerage

answer

- rates can be reduced by insurer - difficult to budget for variable commission - income linked to premium not to work done - little incentive for broker to reduce premiums - not transparent - it contributes to the total premium cost

question

advantages of broker fee

answer

- transparent - a regulatory requirement - direct reflection of work and quality - framework to charge for extra services - meet demand of client - more professional approach - easier to budget income (for contracts that renew)

question

RFP

answer

Request for proposal

question

disadvantage of broker fee

answer

- produce less income than brokerage - tend not to charge for work done for the insurer - smaller brokers have advantage because of lower overhead - based on time spent, difficult to reflect added value - competition has made them too "low" - calculation of fees for smaller contracts can be difficult -

CII 930 Advanced Insurance Broking; Part 1 – Flashcards

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