Take our 20-question MOT to check on insurance terms of business and some key legal dos and don'ts

1. CP187 (Annex 4) proposed ICOB rules outline specific proposed rules and guidance on the subject of non-investment financial promotion. Which of these is to be regarded as a minimum indication that a financial promotion for a non-investment insurance contract is a non-investment financial promotion?

a) The financial promotion is communicated to more than one person in identical terms

b) The financial promotion is made other than by letter

c) The financial promotion is communicated to more than four persons

d) The financial promotion is made other than by letter signed personally by an approved person.


2. A member of staff posts a statement of demands and needs to a client that includes confirmation that the broker has personally recommended the contract and also explains reasons for personally recommending that contract. What does she need to do as far as record-keeping is concerned?

a) There is no ruling as long as the client has a copy

b) The firm needs to keep a copy of the statement on its files for a minimum of three years from the date on which the recommendation was made

c) The firm needs to keep a copy of the statement on its files for a minimum of seven years from the date on which the recommendation was made

d) The firm needs to keep a copy of the statement on its files until the policy documents have been issued.

3. CP187 (Annex 4) proposed ICOB rules spends some time considering non-investment financial promotion. Which of these is not considered in the list of "musts" when a "NIF" promotion includes a comparison or contrast?

a) Must compare contracts meeting the same needs or which are intended for the same purpose
b) Must not present contracts as imitations or replicas of contracts bearing a protected trademark or trade name

c) Must objectively compare one or more relevant, verifiable and representative features of those contracts which may include price

d) Must not present any comparison that denigrates the declared objective of the FSA to maintain confidence in the financial markets by resorting to unprofessional special offers and resorting to giving an impression that insurance is being sold as some sort of "sale" offering.

4. Chapter 2 of CP187 (Annex 4) proposed ICOB rules is headed "General Rules" (including unfair inducements). Which of these four is not specifically identified as a group to which this chapter applies?

a) A Lloyd's broker

b) A managing agent

c) An insurance intermediary

d) An insurer.

5. CP187 (Annex 4) proposed ICOB rules spends some time considering to what type of business the ICOB rules do not apply. Which of these does not fall into that list?

a) If activities which do fall into the rules (ICOB 1.2.1R) relate to a reinsurance contract

b) Mediation of large risks outside the European Economic Area

c) An authorised professional firm with respect to its non-mainstream regulated activities if it complies with the rules of its designated professional body

d) A firm which simply communicates or approves a non-investment financial promotion.

6. How long is the cancellation period for a general insurance contract for a retail client?

a) Seven days

b) 30 days

c) 31 days

d) 14 days.

7. If you hold your records in an electronic format the FSA would expect those records to be readily accessible for inspection. What does the regulator mean when it says "readily accessible"?

a) That the records would be accessible and available for inspection within two business days

b) That the records would be accessible and available for inspection within five business days

c) That the records would be accessible and available for inspection within five working days of receiving the request in writing from the regulator

d) That the records would be available for inspection within seven working days.

8. In what circumstances can the insurer disclose orally to the retail customer the duration of the cancellation period and the conditions for exercising the right to cancel?

a) If the customer had a Terms of Business Letter for the insurer in the period of insurance which contractually confirmed the authority to do so orally

b) If the sale was conducted by telephone and with the explicit consent of the customer

c) If the client was a market counterparty

d) If the request for cover emanated from the client.

9. It is a common misconception that all regulated firm's records must be kept as hard copies. Broking firms which operate paperless offices and keep their records electronically are concerned. What does the FSA say?

a) That hard copies of all records must be kept for a minimum of seven years

b) That hard copies of all records must be kept for a minimum of three years

c) That there is no need to keep hard copies of any records provided you have electronic records

d) That firms may keep records in an electronic format provided they have taken reasonable steps to ensure that the records accurately record the original information and that the electronic records have not been subject to unauthorised or accidental alteration.

10. Customers can be concerned because they believe that brokers are persuaded by higher commissions that they can earn when they recommend certain policies. How would you allay their fears?

a) You say that some brokers may well work that way, but it is not a common occurrence in the industry

b) You say that brokers are poorly paid and it is a way of increasing their income to allow a reasonable service to be given.

c) You say that that sort of thing never happens.

d) You say that all broking firms are required take reasonable steps to ensure that it does not happen.

11. One of your staff has just had a meeting with a customer in the office and has made some personal recommendations to him. The staff member knows that he must provide a statement to the client of his demands and needs in writing before the contract is concluded. Which of these circumstances is one where this information can be provided orally?

a) If the client comes into the office outside normal office hours

b) If the client requests the information orally

c) If the client is a commercial customer

d) If the client is an existing customer.

12. One of your staff is talking to a client on the telephone about a potential contract. She is not clear about how to deal with the statement about the clients demands and needs. What answer should you give her?

a) The statement of demands and needs must be given to the client in writing before conclusion of the contract

b) The statement of demands and needs must be given to the client on a durable medium if he asks for it

c) The statement of demands and needs must be given to the client on a durable medium immediately after the conclusion of the contract

d) The statement of demands and needs must be given to the client on a durable medium within 14 days of the conclusion of the contract.

13. Private customers often say they do not understand the jargon they encounter when they are dealing with the insurance matters. What assurances could you give them about the way that brokers will communicate with customers under FSA rules which should appease their concerns?

a) That when a firm communicates information to a client it will do it in a way that is clear, fair and not misleading

b) That firms will do their best, but insurance has always been full of jargon.

c) That the customer has a legal obligation to find out if there is something they do not understand

d) That you can understand their concerns, but the law of contract dictates that the contract provider may use any terms it wishes.

14. Which of the following items of information is not required to be kept by the insurer for the duration of the claim plus for a period of a minimum of three years after it has been settled?

a) Details of the claim

b) A record of each communication with the client including the date on which it was made

c)The date the claim was settled and details of settlement

d) The original claim form .

15. When you originally concluded a motor contract with a retail client it was done over the telephone. That client now wants to deal with your office by e-mail. What do you tell him?

a) That as the contract was concluded over the telephone he should carry on with that form of communication

b) That the client may use any form of communication which is compatible with the contract

c) That all forms of communication that take place after the conclusion of the contract must be in writing

d) That the client may use any form of communication other than electronic mail unless it is confirmed also in a durable medium.

16. You act for a commercial client who wants to insure his factory premises. What is the FSA's proposed ruling on the subject of commission disclosure?

a) The firm must disclose the commission that it receives in connection with the contract, in cash terms, in writing after the contract is concluded

b) The firm may refuse to disclose the commission that it receives in connection with the contract

c) The firm must disclose the commission that it receives in connection with the contract, before it is concluded, in cash terms, in a durable medium as long as the client asks

d) The firm must disclose the commission that it receives in connection with the contract, in cash terms, in a durable medium irrespective of whether the client asks or not.

17. Your broking firm recommends products that are chosen from a panel of insurers. What would you say to a customer who wants details of this panel?

a) You do not have to show your customer the details if you do not want to

b) The customer has a right to see it if he wishes and that you will supply the details on a durable medium

c) You tell the customer that you are prevented from releasing the list by virtue of the Data Protection Act

d) You advise the customer he cannot see the list because it is a confidential document.

18. A retail customer writes to tell you that he wishes to cancel his contract within the cooling-off period; he wants to know if he has to repay the £200 claim settlement for a lost camera . What do you tell him?

a) The insurer is entitled to receive a return of this amount within 14 days of cancellation

b) The insurer is entitled to receive a return of this amount no later than 10 working days from cancellation

c) The insurer is entitled to receive a return of this amount no later than 30 days from cancellation

d) The insurer is entitled to receive a return of this amount without undue delay and no later than 30 days from cancellation.

19. A retail customer, Mr Jones, calls you to instruct you that he wants to cancel his household policy within the cooling-off period; he wants to know if he will incur a penalty. What do you advise him?

a) He will only have to pay for the time on risk

b) Mr Jones will be allowed to withdraw from the contract, rescind the agreement without any penalty

c) There will be no penalty as long as he takes out another policy with your firm in the next calendar year

d) There will be a fixed cancellation penalty of which you are obliged to advise him in the next 14 days.

20. A retail customer rings you to tell you that she wants to cancel her household policy within the cooling off period. You realise that you have failed to give her any information on his cancellation rights to date. What do you tell her?

a) In accordance with your firm's terms of business she will only have to pay for the time she was insured for

b) In accordance with your firm's terms of business she will only have to pay for the time that she was insured for; plus a fixed service charged limited by the FSA to £10

c) She will have to pay a penalty for the early cancellation of her policy anyway

d) The firm is not allowed to charge her anything because you omitted to inform her of her cancellation rights and the charges that might usually be levied on early cancellation.

  • This page is edited by RW Associates, specialists in training, compliance and competence. Email,
    www.brokercompliance.co.uk
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