This month's MOT test looks a little more at behavioural aspects of competence and takes a little peek at CP160 (did you read it?). Remember that it remains a diagnostic tool to help you find gaps and is not intended to confer the moniker of `competent', however well you or your staff do.

In particular, the exercise in Questions 11 to 20 will show up some interesting results (and stimulate healthy debate). Do try to make sure that no one gets a chance to revise before answering the questions.

Suggested answers will be published next week and we will be starting a series of articles on how to assess competence for advisers involved in business insurance for customers.

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

a) A small commercial customer
b) A high street customer
c) A private customer
d) A commercial customer.

2. Which of these is not a statutory objective of the FSA under the FSMA?

a) Maintaining market confidence in the financial system
b) Promoting practitioner awareness of the financial system
c) Providing the appropriate degree of protection of consumers
d) Reducing the opportunities for financial crime.

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?

a) Consider whether you should continue acting for the client
b) a) above and write to the client confirming your view that it should be disclosed and the possible effect of not disclosing
c) a) and b) above and tell the underwriter anyway
d) Just disclose the fact to the underwriter anyway. It is your duty to do so.

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?

a) Under the ABI Code of Conduct, the insurer is not allowed to do this
b) At law the insurer is allowed to do this
c) At law the insurer is not allowed to do this
d) Under the FSMA this is unfair practice and not permissible.

5. As a supervisor you are advised by a member of staff advising the public that he believes 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?

a) Consider that the member of staff is incompetent and put him on an urgent training course
b) Immediately gather all policy wordings that your firm uses which incorporate a `pairs and sets' clause and compare the wordings
c) As b) above, but make sure that you circulate all relevant staff with a written report of your findings
d) Do nothing. It is not a matter that presents a risk to the customer

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
b) An event that leads to litigation
c) An event that leads to more than one complaint
d) An event that involves dishonesty on the part of a member of staff.

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
b) Authorised firms must explain to the private customer in writing if the amount proposed to be paid differs from the amount claimed
c) Private customers must be informed in writing if their claim is denied
d) If a broker is involved in the transaction, the insurer must advise the broker in writing of any proposed settlement terms before the insured is asked to agree to those terms.

8. A member of the public asks a broker to arrange fire insurance on a commercial property which he 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
b) Irrespective of market practice, the broker should have asked for instructions in writing and confirmed the extent of the cover at the time of placing the risk
c) The cost of the additional perils is probably a maximum of 10% of the total premium
d) Even if the broker had confirmed the actual cover placed, he is still exposed to a claim of negligence if the actual wording was not conveyed to the insured.

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?

a) Do nothing. The insured has the duty of disclosure, not you
b) Write to the customer highlighting this particular insurer's definition of main driver and point out that if the son fits that description it should be disclosed
c) As b) but also reminding the customer of the effect of a breach of the duty of disclosure
d) Recommend an `any driver cover' to get over the problem.

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

a) Read the figures to the customer
b) Send a copy of the table to the customer
c) Do nothing, insurance is your business not property valuation
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.

11-17. 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?

18 - 20. Mr Jones owns a 35-storey skyscraper in Saltash and employs his wife in a little business making up and delivering cardboard boxes in his company-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?

©RW Associates/Insurance Times

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