Raising the standard

The Lloyd's and London market introductory test is a multiple choice test carrying 15 credits in the CII's educational framework. The test syllabus covers a broad range of learning objectives aimed at candidates who have recently joined the London market.

It also provides an excellent point of entry to the broader world of insurance qualifications. The test is endorsed by Lloyd's, the International Underwriting Association of London and the London Market Insurance Brokers' Committee, and administered through the CII.

The test can be used by employers as a benchmark when measuring staff competency and assessing training needs.

The syllabus requires candidates to demonstrate knowledge of the basic principles of insurance, the essential elements of contract formation, and also understanding of the legal and regulatory considerations affecting the London market.

London flavour
The course therefore covers a unique mix of traditional and new material, and adds a London 'twist' to some familiar themes.

For example, the test candidates will not just learn that insurable interest depends upon someone having a financial or other interest in a loss caused by an insured peril or event.

The test also provides a flavour of the business written in London by developing the cover of insurable interest to bailees of cargo, restorers of fine art and others with a legitimate interest in the safety of entrusted property.

In terms of presentation of information to underwriters, the course covers not just the duty of the insured to disclose material facts in utmost good faith, but also the role of the London broker in representing their clients' risks to underwriters.

Although a fundamental principle of insurance is that of indemnity, the fact is that many policies, especially those insured in the London market, are variations on, or even exceptions to, this principle.

The test course deals with first loss, agreed value policies and the application of average and deductibles.

Any insurance policy is based on a contractually enforceable promise by the insurer, and in the London market such a policy is secured for the insured by his or her broker. The test teaches students the essential elements of contract and agency law, remembering the rule of thumb that a broker acts as the agent of the insured, though this may be varied to some extent when brokers are administering delegated authority schemes on behalf of insurers.

The importance of agency is also highlighted by special reference to the role of managing and members agents at Lloyd's.

An important element of the test syllabus concerns the regulatory environment. It explains the basics of the FSA regulatory regime in the UK, including reference to the FSA's statutory objectives and regime of approved persons.

Course students will also learn that the UK regime is derived from the EU's single market rules, in which supervision and regulation is carried out by the home state regulator where the regulated firm's head office is located. They will also cover the distinction between risks underwritten on a 'freedom of establishment' and 'freedom of services' basis. The test provides detail on the key insurance directives and also the Insurance Mediation Directive of 2002, which lies at the root of broker regulation across Europe.

This international element is important since the majority of risks insured or reinsured in London come from outside the UK. Although many, if not most, broking and underwriting firms in London are likely to be authorised by the FSA in the UK, students will need to show a basic understanding of these international considerations, including the surplus lines requirements in the US.

The syllabus expects candidates to know that a licence from another country is likely to be needed to be able to sell insurance there, and any product sold is likely to be subject to local marketing and selling rules, not the rules of the FSA.

Failure to observe some of these international rules can jeopardise an insurer's or broker's position with regulators and can expose them to fines and other penalties.

Successful candidates will also be expected to know the basics of the UK data protection legislation, anti-money-laundering rules and also how international trade sanctions may affect the transaction of London market business. 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 CII qualifications

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 When does insurable interest in a non-marine property risk first arise?

A At the inception of the policy

B From the time when loss or liability may be incurred

C When the proposer accepts the underwriter's quotation

D When the value is agreed by the underwriter.

Q2 An average adjuster would be used in which type of insurance claim?

A An aviation insurance claim

B A marine insurance claim

C A non-marine insurance claim

D All types of insurance claim.

Q3 Who permits a managing agent to conduct business at Lloyd's?

A The Corporation of Lloyd's

B The Council of Lloyd's only

C The FSA only

D The FSA and the Council of Lloyd's.

Q4 After a reinsurance risk has been placed, the broker is advised of material information of which the reinsured was not and could not have been aware at the time of placing the risk. What action should the broker take?
A Inform the underwriter at renewal

B File the information

C Inform the underwriter immediately

D Disregard the information.

Q5 The Insurance Mediation Directive requires that...

A all EU member states establish a national public register of authorised intermediaries

B any intermediary with an office in more than one EU member state must apply to the European Commission for permission to trade

C all staff of authorised intermediaries must have passed appropriate qualifications or examinations

D national financial services regulators reduce financial crime.

Answers
Q1. B; Q2. B; Q3. D; Q4. C; Q5. A