Andrew Smith highlights some of the key areas of the new Lloyd's and London market introductory test
When Ralph Waldo Emerson, the 19th-century American writer and poet wrote that London was the "epitome of the world, and the Rome of today", there is probably very little chance that he was thinking of the London insurance market.
But what could be more appropriate? Today, London continues to be a magnet for much of the world's insurance business and offers unrivalled access to decision making underwriters, underwriting knowledge and expertise.
The influence of London is felt around the country and around the world, with international respect for the standards and benchmarks that London sets.
One way of helping to promote those standards is to take the Lloyd's and London market introductory test. This test is an entry-level multiple choice test which covers a wide range of subjects relevant to business practice in London today.
It builds on the success of, and replaces, the old Lloyd's introductory test, which was introduced in 1986 and quickly became the benchmark test for people who were new to the Lloyd's market. Around 1,500 candidates took the old test each year in four sittings.
The new test has been designed by a group of market practitioners representing Lloyd's and its underwriters, the IUA company market and the London Market Insurance Brokers' Committee, supported throughout the process by the CII.
The first sitting of the new test took place at the beginning of June. It is no longer just appropriate for Lloyd's practitioners, but has appeal for anyone working in or with the London market.
Successful candidates will demonstrate a basic level of knowledge and competence across a broad syllabus, which includes the range, diversity and basic key cover features of products underwritten in London, and the functions and roles of, and relationship between, underwriters and brokers.
The test carries 15 credits in the CII's educational framework and provides an excellent point of entry to the broader world of insurance qualifications.
The test teaches knowledge not just of the mainstream property and casualty classes, but also of what might be termed the more specialist classes such as political risks, credit and contingency insurance.
The syllabus also covers in some detail the typical cover provided by a marine or aviation policy. For example, the marine section explains the concepts of general and particular average and the concept of "sue and labour". The aviation section also covers satellite and space risks. The objective is to give the student an overview of the main forms of cover available and the types of losses and liabilities which typically give rise to claims.
Reinsurance accounts for a significant proportion of premium underwritten in London and the test teaches the key features of, and differences between, the main methods of reinsurance. Students will learn that the essence of quota share or surplus reinsurance is that the cedant and reinsurer share the risk, whereas with non-proportional reinsurance the parties share losses.
The syllabus also requires candidates to identify the most appropriate type of reinsurance in a given scenario and to demonstrate what they have learned by calculating amounts ceded to reinsurers.
The role of rating agencies and issues surrounding reinsurer security and selection are also included.
An insurance or reinsurance contract placed in London cannot generally be concluded without the involvement of brokers and underwriters and the test syllabus requires candidates to understand the roles and responsibilities of the various parties.
This includes the duties and standards of care owed by a broking firm to its clients (both retail and commercial), the obligations a broker has to insurers when showing risks to underwriters - and the relative roles and responsibilities of the leading and following insurers in the London subscription market.
The test expects students to develop an appreciation of the factors involved in pricing a risk, including the concepts or market and economic price, and to understand the operation of the market cycle.
Candidates will also be expected to know the basics and importance of portfolio management, aggregation control and catastrophe modelling. IT
' Andrew Smith is a member of the Lloyd's and London market introductory test assessment subcommittee and has been extensively involved in the evolution of the previous Lloyd's introductory test into the new test
Further information about the test and details of how to enter it are available from CII customer service on 020 8530 0830 and can also be found at www.lloydstraining.co.uk
Take the test
Test yourself with these questions taken from the Lloyd's and London market introductory test specimen paper:
Q1 A vessel's seaworthiness in a contract of marine insurance is dealt with by:
A An express warrant
B A condition precedent
C An express condition
D An implied warranty
Q2 What is commonly referred to as reinsurance to close?
A The expenses incurred in connection with placing a Lloyd's syndicate into run-off
B The premium a Lloyd's syndicate pays in order to transfer outstanding liabilities to a successor syndicate
C The ultimate loss ratio on a binding authority
D The use of reinsurance to secure support in a direct insurance programme
Q3 When a broker makes an insurance transaction in the market:
A He is responsible to the London Market Insurance Brokers' Committee for the transaction
B He is the principal in any insurance transaction
C He is an agent of his principal, the insured
D Any party may be the principal in insurance transactions, depending upon the terms of their relationship
Q4 What is a risk-mitigation programme?
A A controlled withdrawal from a class of business by an insurer
B The output of an assessment visit carried out by the FSA
C A set of rules stating the procedures for reporting a suspected money laundering activity
D A technical term for the report issued by a loss adjuster on the cause of a loss
Q5 In order for a reinsurer to quantify its aggregate exposures, what specific figure MUST be estimated?
A Average sum insured over the economic cycle
B Incurred but not reported (IBNR) loss allowance
C Probable maximum loss
D Reinsurance to close premium
Q1. D; Q2. B; Q3. C; Q4. B; Q5. C