Take our 20-question MOT to check on you knowledge of FSA regulation and policy terminology

This week, it is MOT time and we have

commissioned two experts to put together a questionnaire that will not only take some time, but will, in all likelihood, mean a certain amount of research and reading.

The first ten questions relate to FSA regulation and you would do well to search the FSA website (the key consultation papers). The second ten relate to key risks that arise when a broker has little or no knowledge on a subject.

All the questions emanate from actual problems and negligence that have arisen in the market over the years or they emanate from specific questions posed at regulatory road shows, training courses or consultancy work undertaken by the experts.

It is also intended to be a key learning exercise, so do make sure that you keep a copy of the questions to work with the answers.

No question is easy, but quite a few of the questions will not be as difficult as they first seem. You may, however, need to think hard about some of the principles of insurance.

Most of the technical answers will have been covered in the CII Certificate Of Insurance Practice. This is, perhaps, a little time consuming at the moment for those responsible for getting ready for FSA authorisation but, nonetheless, an excellent first proper qualification for insurance practitioners.

Good luck and, as ever, we welcome healthy debate about the answers which will be published next week.

1. In discharging its regulatory responsibilities the FSA is expected to have regard to how many principles of good regulation:

a) 7

b) 8

c) 9

d) 10.

2. Some people suggest that FSA regulation will damage the industry, but one of the principles of good regulation does provide some reassurance that this should not be the case. Which is it:

a) The principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction

b) The principle that, ultimately, UK legislation overrides EU legislation

c) The principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be equivalent to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction

d) The principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be greater than the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction.

3. The FSA is proposing to introduce its existing high level principles to insurance intermediaries. Which principle sets out the expectations of a firm with regard to its management and control:

a) Principle 4

b) Principle 3

c) Principle 6

d) Principle 8.

4. The approved persons regime, sets out principles that outline the expectations of the regulator on such individuals. What are they:

a) Propriety, skill, care and diligence, to observe proper standards of market conduct and to deal with the regulator in an open way

b) Integrity, skill, care and diligence, to observe proper standards of market conduct and to deal with the regulator in an open way

c) Integrity, skill, care and diligence, to observe prudent standards of market conduct and to deal with the regulator in an professional manner

d) Integrity, skill, care and diligence, to observe proper standards of market practice and to deal with the regulator in a professional manner.

5 In addition to the expectations of the individuals themselves, the FSA expects the management to do what:

a) Ensure the business is organised so that it can be controlled efficiently, exercise due skill, care and diligence in managing the business for which he is approved person, and ensure the business for which he is responsible complies with regulatory requirements

b) Reasonably ensure that the business is organised so that it can be managed effectively, exercise due skill, care and diligence in controlling the business for which he is responsible and ensure the business for which he is the approved person complies with regulatory requirements

c) Ensure that the authorised firm is organised so that it can be managed effectively, exercise due skill, care and diligence in operating the business for which he is responsible and ensure the business for which he is responsible complies with EU requirements

d) Ensure the business is organised so that it can be controlled effectively, exercise due skill, care and diligence in managing the business for which he is responsible and ensure the business for which he is responsible complies with regulatory requirements.

6. At which date does the FSA expect to be able to accept initial applications from and when will the discounts being offered for early application cease:

a) June 2004 and January 2005

b) January 2004 and June 2004

c) January 2004 and January 2005

d) November 2003 and June 2004.

7. From what date will intermediaries that trade within the UK, be required to ensure that a firm who provides them with business is authorised to do so:

a) 14 January 2005

b) 14 January 2005

c) 31 December 2004

d) 30 June 2005.

8. In its guidance, the FSA has provided an example of when an approved person may be considered in breach of their regulation. Which of the following is it:

a) Failing to take all steps to maintain a high level of understanding about an issue or part of the business that he has delegated to an individual or individuals (whether in-house or outside contractors)

b) Failing to take all steps to maintain an appropriate level of record-keeping about an issue or part of the business that he has delegated to an employee

c) Failing to maintain at all times an appropriate level of understanding about an issue or part of the business that he has delegated to an individual or individuals

d) Failing to take reasonable steps to maintain an appropriate level of understanding about an issue or part of the business that he has delegated to an individual or individuals (whether in-house or outside contractors).

9. If you are currently selling insurance products, or offering insurance to your clients, what are your options for authorisation under the new regime:

a) Apply to the FSA to be directly authorised

b) Seek appointed representative status

c) Stop undertaking the activities that are regulated

d) All of the above.

10. The FSA has issued a number of consultation papers relating to the regulation of general insurance. Assuming you are likely to be a compliance officer under the FSA regime, which of these should you be reasonably well acquainted:

a) CP159.

b) CP160

c) CP174

d) All of the above.

11. The words 'contra proferentum' are sometimes heard in the context of insurance contracts. To what does the expression refer:

a) Insurers may not give preferential treatment to one partner over another in a professional indemnity claim

b) It is the direct cause not the indirect cause of a loss that insurers should take into account

c) It is contrary to public interest to insure illegal acts

d) Ambiguous wording will be construed against the party that drafted them.

12. In legal terms, which of these groups of factors must be present for the condition of riot to exist:

a) A group of at least 12 persons causing a disturbance, which must include damage to property or injury to a third party

b) A group of people with odd haircuts, strange clothing and poor personal hygiene, chanting intelligibly for at least five minutes without a break

c) Three people or more executing a disturbance that might cause alarm to a reasonable person

d) A group of at least 12 people acting in a threatening manner, causing actual physical damage or personal injury to third parties not being part of the group.

13. A client has insured a stock item of 3 tonnes of sugar. It is damaged when a fire occurs in an adjacent building. The only cover in force is a standard fire policy. There is no ignition of any of the client's property. What, as his broker, is you immediate advice:

a) As there is no flame, there is no claim. He must seek recovery from the third party

b) The proximate cause would seem to be fire and the insurer would be likely to admit the claim and pursue the third party for damages.

c) There is no flame and, therefore, no claim but the client could seek recompense from the third party via the ombudsman scheme

d) Under the Financial Services and Markets Act, this situation would be covered by the rules that allow the FSA to prosecute an authorised firm that does not settle all losses in a reasonable period of time.

14. You want to explain the meaning of the word 'accident' to a customer effecting a personal accident policy. Which of these would you be right to include in your explanation:

a) The policy excludes loss arising from the insured's negligence

b) All policies exclude accidents that occur when the insured is under the influence of alcohol

c) The event that causes the loss must always be 'natural' to be covered

d) The accident must generally (with few exceptions) be external and violent.

15. Under a typical household policy a claim must be made:

a) Within six years of the discovery of the loss

b) Within three years of the discovery of the loss

c) At the time of the discovery of the loss

d) Within the period of the policy.

16. What is the most satisfactory method (according to case law) of determining whether a broker has acted with a reasonable standard of skill care and diligence:

a) Evidence that a broker has complied with a regulator's code of conduct

b) Evidence that a majority of skilled and experienced brokers would have come to the same conclusion

c) Evidence of compliance with the employer's procedures manuals and own code of conduct

d) Evidence that the broker has sufficient appropriate qualifications.

17. To what does the term 'continental scale' refer to in terms of insurance:

a) A scale of rating devised by Lloyd's in relation to certain marine risks operating in European inshore waters only

b) A scale of maximum charges that EU states may claim from authorised motor insurers for the provision of emergency services

c) The EU equivalent of the Beaufort scale that all insurers must use when establishing the existence of 'storm' and 'tempest' under the special perils extension of a fire policy

d) A method of defining benefits under a personal accident policy where the 'bits' of the body are given different respective and graded values.

18. There are some facts which do not need to be disclosed under the duty of disclosure. One of these does not fall into that category, which is it:

a) Facts that diminish the risk

b) Facts about which the insurer waives disclosure

c) Facts that are known only to the insured's agent

d) Facts that are a matter of common knowledge.

19. Where an underwriter continues to deal with a claim despite knowing that a breach exists (which gives him the right to avoid) there is a legal doctrine that might prevent the underwriter from exercising his right in the future. Which of these is it:

a) Prejuris flexum

b) Estoppel

c) Uberrimae fidei

d) Dictum regis.

20. What is the safest action to recommend to a client when renewing a professional indemnity policy:

a) Ask all directors or partners if they are aware of circumstances that might give rise to a claim

b) As above but inquire of all professional staff (those giving advice) also

c) As b) but ask for the response to be in writing and signed

d) Inform all directors, partners and professional staff (in writing and in plain English) what might constitute a 'circumstance' before attempting any of the above.

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

    To download a PDF of this article as it appears in the magazine click here PAGE 24 .

    PAGE 25 .