Last week we set questions that examined a broker's approach to compliance. Here we publish suggested answers with explanations.

1.You are asked to advise a greengrocer with a turnover of £350,000 ...

Last week we set questions that examined a broker's approach to compliance. Here we publish suggested answers with explanations.

1.You are asked to advise a greengrocer with a turnover of £350,000 per annum on insurance matters .Under the FSA 's CP160, what is it proposed that this client will be classed as?

c)A private customer. Strange as it may seem, the FSA is proposing that smaller commercial customers are classed as such. What do you think? Perhaps you could organise a workshop among staff to discuss the implications. That would be quality CPD in itself, but remember to record the outcome.

2.Which of these is not a statutory objective of the FSA under the Financial Services and Markets Act (FSMA)?

b)Promoting practitioner awareness of the financial system. A simple attention to detail type question (very important, for example, when dealing with policy documents that you are not used to).Practitioners should read public documents .Deduct a mark if you feel like complaining that this is unfair. A court will not give you a second chance if you misread something or do not pay attention to detail. Also, in response to those who complain about using 'which are not 'type questions - there are many 'nots' in policy documents.

3.You are a broker and a client tells you about a fact that you believe is material but refuses to disclose that fact to the underwriter. What should you do?

b)a)above and write to the client confirming your view that it should be disclosed. The GISC says that a)is the correct answer, but go further and think risk management. If you chose b)or c)send us your reasoning. Is a broker a party to an insurance contract between the insurer and insured and is the broker not bound by rules of confidentiality?

4.Under a business combined insurance for a company turning over £20m a year,a large theft loss occurs and the insurer avoids the policy due to non-compliance with a stillage warranty. Which of these is correct?

b)At law the insurer is allowed to do this. It may seem unfair but it is true.

5.As a supervisor you are advised by a member of staff advising the public that they believe that under a 'pairs and sets ' clause, an insurer will pay the full value of a pair of Ming vases when one is destroyed, if the insured hands over the remaining vase to the insurer. You are fully aware that under the standard 'pairs and sets 'clause, the insurer will pay only half the value of the pair even though the remaining vase is worth much less than half the value of the pair. What action should you take?

c)As b)above but make sure that you circulate all relevant staff with a written report of your findings.

The answer is of course subjective but the learning point is about the need for a super- visor to think wider, about what might be an immediate problem and to close gaps in knowledge that might exist beyond the member of staff in question. It also points to the need to respect an apparent lack of knowledge. You may be wrong.

6.Which of these is the most correct definition of a 'notifiable event'under GISC rules?

a)An event which may influence the manner in which the GISC might see fit to supervise a member.

The modern regulator wants you to advise if something has gone seriously wrong and/or you become non-compliant and cannot put things right easily and in a short time.

6*.Which is the correct statement in relation to commissions paid by premium finance organisations to brokers?

c) If the broker is an agent of the insured they could, at law, be deemed a 'secret profit 'if not disclosed.

If you do receive such payments you might do well to clarify the situation with your legal advisers and the regulator. We have heard of brokers asking the finance house to increase the interest charged so that a payment can be made. What do you think of that?

7.The FSA has proposed certain procedures and rules regarding the settlement of claims for private customers. Which of these is not included?

a)Once settlement has been agreed, any payment must follow promptly and at the latest within five working days.

8.A member of the public asks a broker to arrange fire insurance on a commercial property which he/she does, but automatically includes fire, lightning, aircraft and explosion in the cover. Six months later the policy is issued and the client is furious claiming that the broker is 'ripping him off 'and demanding a refund. Which of these statements is not correct?

a)It is market practice to insure these additional perils anyway, so the broker has nothing to worry about.

Believe it or not this was a real complaint against a broker. The answer is subjective but the learning point is that the public can complain about anything and it is best to let them have a policy wording as soon as possible (even a specimen)and or a break- down of the key features.

9.You are asked by a customer to insure a ten-year-old Ford Fiesta. The family have two existing vehicles insured with you and the main driver for the new vehicle is notified as the husband. An additional driver is the couple 's son and you notice from the date of birth given that his seventeenth birthday coincides with the date requested for inception of cover. What should you do?

c)As b)but also reminding the customer o fthe effect of a breach of the duty of disclosure.

Don 't forget to mention the effect of a breach of a duty or non-compliance with a condition. It is important. Never take short cuts if you suspect non-disclosure even with an important client. It has a habit of coming back at you and biting you in the future.

Remember that the public will sometimes innocently stretch the truth to reduce premiums.

10.A customer is insuring house buildings with you and asks for guidance on the sum insured. Fortunately you have seen an RICS table of factors for calculating the figure and you have a copy with you. What should you do?

d)Send a copy to the customer, but confirm in writing that you are not an expert on the matter and that he should take professional advice if in any doubt.

There is a balance to be struck between wishing to help a customer and entering the realms of giving advice in an area where you have limited expertise. Always take the safe route and advise the client about areas in which you do not have experience or professional acumen.

If you do not the customer may be entitled to rely on your advice as being informed and claim any losses arising from acting on the advice you gave.If in doubt refer the matter to your supervisor.

11 to 17.There are seven main types of cover under a typical business combined arrangement for non-specialist risks (each of which might be split into sub-sections so be quite general in your approach).

What are they? The purpose of this question is to highlight the following:

Were you or your staff able to list at least seven?

How did that match up with the actual policies you or they advise upon?

If the list was not comprehensive should you or they be advising?

Did the list miss any of the following: fire; theft; business interruption; transit risks; liability; engineering/inspection; money; motor?

This is most important to help you realise that if you are considering the assessment of competence of anyone advising on such a contract that there are quite a number of different technical assessments that will need to be considered.

18 to 20 Mr Jones owns a 35-storey sky- scraper in Saltash, employs his wife, and they run a little business making up and delivering cardboard boxes in his com- pany owned white van. He works on the top floor and all other floors are vacant (he likes the view).In which three areas of his business (and its assets)might the insurance industry satisfy statutory requirements?

Employers' liability; motor; and engineering/ inspection of the lift (surely you do not expect Mr Jones to walk up and down 35 storeys? If you thought of any others let us know. This sort of case study can be particularly useful if an adviser is dealing with risks that he does not visit.

So how did you get on? We hope you found the exercise useful and if you found some of the questions or answers a little obtuse just remember that advising the public on complex insurance policies can be a little like that at times. Next month we will be back to technical questions.

This page is edited by RW Associates, specialists in training, compliance and competence. Email,

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