The MOT test last week was split into two sections - knowledge of the FSA consultation process and interpreting policy terminology. Waltham Pitglow comments on the suggested answers
Here are the answers to questions 1 to 10, dealing with the FSA consultation process:
1a, 2a, 3b, 4b, 5d, 6b, 7a, 8d, 9d, 10d.
Clearly, this was an assessment of how well you have studied the various FSA consultation papers and to demonstrate an ability to identify the relevant sections of the consultation papers as well as to understand what the FSA is considering.
To many it will have been a learning, rather than assessment, exercise and this is a quite acceptable way of using multiple choice questions for 'open book' type learning.
For example, this might be a useful way for staff to learn about a new product. The compliance officer and training officer (perhaps the same person in a smaller firm), can study a new product and identify 20 key aspects (which might include differences from similar policies used). He can then ask the relevant staff to complete the questions while studying the new wording and policy literature.
Then, as an assessment of knowledge you might ask the same staff to complete the same questions a week later - without the information in front of them.
The second half of the MOT was designed to assess the more detailed knowledge of practitioners regarding policy terminology and intent and was a true gap analysis. Here are the answers:
11. The words 'contra proferentum' are sometimes heard in the context of insurance contracts. To what does the expression refer:
d) Ambiguous wording will be construed against the party that drafted them.
A basic principle of insurance and a reminder that if you are aware of ambiguities then they should be pointed out to the underwriter. The courts will not be impressed with a broker who spots an ambiguity before an event and keeps silent in the hope that they will find in the customer's favour if that event occurs.
12. In legal terms, which of these groups of factors must be present for the condition of riot to exist:
c) Three people or more executing a disturbance that might cause alarm to a reasonable person.
What might be termed 'an old favourite' of the examiners, but quite relevant considering the rise of civil unrest. Also a learning point on style of assessment. Is there room for humour? We would welcome practitioners' views on this.
13. A client has insured a stock item of three tonnes of sugar. It is damaged when a fire occurs in an adjacent building. The only cover in force is a standard fire policy. There is no ignition of any of the client's property. What, as his broker, is your immediate advice:
b) The proximate cause would seem to be fire and the insurer would be likely to admit the claim and pursue the third party for damages.
How many of you went for the 'no flame, no claim' option and forgot about the doctrine of proximate cause? When a client has a claim of any substance, a broker may well be called on to give advice. We have seen many cases such as this, where those acting for the underwriter have 'tried it on' hoping that broker and customer will be ignorant of the true responsibility of the insurer.
A reasonably competent broker should have a sound understanding of the principles of insurance, so that proper advice and guidance may be given when a claim arises. Do not rely on the insurer or its agents.
14. You want to explain the meaning of the word 'accident' to a customer effecting a personal accident policy. Which of these would you be right to include in your explanation:
d) The accident must generally (with few exceptions) be external and violent.
This is a wonderful subject for any practitioner to study, as it involves so many of the basic principles of insurance. There is also much fascinating case law (insured persons falling off horses into puddles etc).
If you consider that many personal insurances include personal accident insurance these days, it is perhaps vital that all practitioners have a reasonable grounding in the subject.
15. Under a typical household policy a claim must be made:
d) Within the period of the policy.
The learning point here is that a household policy is a 'claims arising' policy and you cannot make a claim under a policy that has lapsed - or can you?
We would welcome any expert comment on such a situation as this: a slate falls on to a third party's car one day before renewal. The insured is on holiday for three weeks and the broker moves the insurance (as agreed before the insured goes on holiday). The insured finds out about the claim for damage only when the new policy is in force. Which insurer picks up the claim?
16. What is the most satisfactory method, according to case law, of determining whether a broker has acted with a reasonable standard of skill, care and diligence:
b) Evidence that a majority of skilled and experienced brokers would have come to the same conclusion.
Codes of conduct are good evidence of the standards expected, but ultimately the test of advice given is whether the body of opinion among peer practitioners would have been the same.
But be warned, codes of conduct, such as FSA rules, are drawn up after consultation with practitioners, so there is a good argument that such codes and rules do reflect the body of opinion of practitioners.
This is why the FSA is still very keen that all practitioners (small and large) continue giving feedback on their proposals.
17. To what does the term 'continental scale' refer to in terms of insurance:
d) A method of defining benefits under a personal accident policy where the 'bits' of the body are given different respective and graded values.
This is a term all practitioners should understand.
18. There are some facts that do not need to be disclosed under the duty of disclosure. One of these does not fall into that category, which is it:
c) Facts that are known only to the insured's agent.
Believe it or not, we often come across cases where brokers do not have the vaguest idea that knowledge of an agent may be imputed to the principal. This can work both ways where a binding authority is concerned, so be careful.
19. Where an underwriter continues to deal with a claim despite knowing that a breach exists (which gives him the right to avoid) there is a legal doctrine that might prevent the underwriter from exercising his right in the future. Which of these is it:
b) Estoppel
Hmmm...if you picked a) or d) you could be a liability in front of a client. The golden rule is, if you do not know something do not guess. In real situation, it could get you and your firm into trouble. RWA has a view that all multiple choice papers should have a fifth option: " I do not know the answer and I am guessing."
20. What is the safest action to recommend to a client when renewing a professional indemnity policy:
d) Inform all directors, partners and professional staff (in writing and in plain English) what might constitute a 'circumstance' before attempting any of the above.
An interesting learning point here. The majority of problems that arise under claims made on policies, such as professional indemnity and liability policies, are often the result of ignorance about what constitutes a 'circumstance'. Make sure that if you place such insurances, the underwriter gives you a written explanation of what constitutes a circumstance and ensure that this is passed on and explained to customers and relevant staff.
If you are a training manager or compliance officer and have used this questionnaire with staff, do try to consider the points made above. Remember that risk management is the name of the game and the purpose of competence assessment is to find gaps and fill them, rather than to simply credit someone with a pass or distinction.
Golden rule: it is knowing what someone doesn't know or cannot do that is the key to risk management.
Thanks for all the feedback. And don't forget that the FSA is still listening and is looking for feedback from practitioners. Make sure you have your say. It really does matter and time is running out.
ruy.lopez@brokercompliance.co.uk
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