Coursework submission rules and important notes
Before commencing work on, or submitting, your coursework assignment it is essential that you fully familiarise yourself with the content of Mixed Assessment Guidelines and Instructions. This includes the following information:
Answers to a coursework assignment should be between 5,000 and 10,000 words in total depending on your writing style.
Arial font and size 11 to be used in your answers.
Important rules relating to referencing all sources including the study text, regulations and citing statute and case law.
Penalties for contravention of the rules relating to plagiarism and collaboration.
Six month deadline from enrolment date for the submission of coursework answers.
The total marks available are 200. You need to obtain 120 marks to pass this assignment.
Do not include your name or CII PIN anywhere in your answers.
Top tips for answering coursework questions
Read the M66 Specimen coursework assignment and the guidance it contains regarding question deconstruction and answer planning.
Read the Learning Outcome(s) and related study text for each question before answering it.
Ensure your answer reflects the context of the question. Your answer must be based on the figures and/or information used in the question.
Ensure you answer all questions.
Address all the issues raised in each question.
Do not group question parts together in your answer. If there are parts (a) and (b), answer them separately.
Where a question requires you to address several items, the marks available for each item is equally weighted. For example, if 4 items are required and the question is worth 12 marks, each item is worth 3 marks.
Ensure that the length and breadth of each answer matches the maximum marks available. For example, a 30 mark question requires more breadth than a 10 or 20 mark question.
The coursework questions link to the Learning Outcomes shown on the M66 syllabus as follows:
Question Learning Outcome(s) Chapter(s) in the Study Text Maximum marks per answer
1 Learning Outcome 1 Chapter 1 10 marks
2 Learning Outcome 2 Chapter 2 10 marks
3 Learning Outcome 3 Chapter 3 30 marks
4 Learning Outcome 4 Chapter 4 20 marks
5 Learning Outcome 5 Chapter 5 20 marks
6 Learning Outcome 6 Chapter 6 10 marks
7 Learning Outcome 7 Chapter 7 20 marks
8 Learning Outcome 8 Chapter 8 20 marks
9 Across more than one Learning Outcome Across more than one chapter 30 marks
10 Across more than one Learning Outcome Across more than one chapter 30 marks
Start typing your answer here:
Question 1 – Learning Outcome 1 (10 marks)
The most appropriate solution for MM Ltd when placing the affinity business, in order to reduce costs is use of binding authority. This works for any class of business, including those of high volume and low value.
Most importantly, MM Ltd should focus on restricted binding authority. This works like pre-agreed rates level or option of authority. This means that the rates to be charged, the terms and conditions have been provided prior to accepting of any risks.
This method will reduce costs in that:
MM Ltd will not have to hire more staff to handle the risks, as the job has already been delegated
Also, since terms and conditions have already been agreed upon, then the risk of having businesses that are beyond the risk profile are reduced. The turn around times will also be reduced.
The disadvantage of using binding authority or restricted binding authority for MM Ltd include:
Reputational risks due to loss of control. The insurance broker bears all the blame if the claims are not paid on time or documentation is not well handled.
Anti Selection – This is where the cover holder MGA has a number of Delegated Authorities. Therefore, the placement of risks maybe skewed, hence may not be profitable to MM Ltd.
Question 2 – Learning Outcome 2 (10 marks)
The significant compliance issues that the syndicate will need to take into account when operating the delegated authority agreement for a new territory include:
Pre-placed consideration – Are there any regulations for the specific class of commercial vehicle fleets. Also, are there any sanctions or trade control issues between the two countries that could affect the delegated authority agreement.
Documentation – This include the language to be used in the contracts. The two will also need to agree on the jurisdiction of disputes and any specific clauses that must be included.
Financial Issues – Currency converting issues should also be considered.
Tax – Usually there are different rates for taxes for different classes. It is important to comply with those under the commercial vehicle fleet, if any. The insurer and the broker also need to agree who will be paying the taxes, depending on the regulations of the various countries.
Routes into the market – Does the insurance broker have licensing or authority to access such business or do they need a local broker?
Another item to consider is the annual compliance return which looks into matters such the staff training, the professional indemnity cover, required licences, reputation and standing.
Question 3 – Learning Outcome 3 (30 marks)
The best role I would adopt as an insurance broker would be that of a cover holder. This may bear some conflict of interest in that; as a broker, the interest should be that of the insured while as a cover holder, it should be that of the insurer.
The best way to deal with this would be to split the team dealing with the insured as the broker and the team dealing with the insurer, as the cover holder.
The risk will then be placed, noting the unique nature of the client’s need. It is important that the wholesale insurance broker, who is now acting as the cover holder, to keep proper records. This is to ensure all agreements are captured and can be adhered to.
b) Some of the potential challenges of the wholesale broker in this scenario include:
Reputational risks – Insurance companies may avoid these brokers if they are deemed to be only providing loss making businesses. Their reputation might be at risk, especially if the entire portfolio ends up been loss making. The insurance company might also feel anti-selected. This means that the broker could be having various agreements, and it looks like they specifically chose the loss-making portfolios for this insurance company. This will interfere with the relationship between the broker and the insurance company.
Cost of oversight – The broker will need to either hire people to overlook the agreement or put in cost control measures to ensure that the terms of the agreement are adhered to.
Commissions might be affected – Once an insurer is given a loss-making portfolio, or a portfolio that has a high loss ratio, they might choose to reduce their commission in order to make some profit. This might also be a way to make the broker consider giving the insurer profitable business so that their commission is not affected.
c) Some of the potential challenges of the insurer include:
Not making any profit – If the property portfolio is loss making, and the insurance company still should pay expenses including commission and maybe administration fees, then they will not make any profits.
The financial Standing of the insurer – The insurance company may not be financially strong to handle such high volume, low value property portfolio that has been running losses and has high claims frequency. The insurance company might assume that, in accepting the entire portfolio, then the loss might be averaged. This means that the loss-making accounts might be overshadowed by the profit-making ones. However, it might prove that the claims are too high, which might affect the financial standing of the insurer
Question 4 – Learning Outcome 4 (20 marks)
In order to improve on the delegated authority, as an insurer I would change the level of authority for both underwriting and claims. Regarding underwriting, i would only grant the cover holder the prior submit authority. Therefore, all risks have to be referred to me, the insurer, for consideration and approval. This will ensure that the risks accepted are within the risk profile.
For claims, either remove the authority completely and handle it in-house or move it to a Third-Party Administrator.
b) If no action is taken, then the insurer might suffer a number of challenges including:
There is a reputational risk on the insurer, once the cover holder acts outside the delegated authority. The insurer may not be able to handle the risk that the cover holder has accepted on their behalf, since it lies outside their authority. This could also affect their financial standing since the claims declared or notified may lie beyond their parameters.
The insurer is on risk for a longer period than expected. This could lead to more claims been reported. Some of these claims could be of a higher value than expected. This will definitely lead to high loss ratios and eventually affect the profitability and financial standing of the insurance company.
Responsibility of who is handling what, maybe unclear. Example would be tax payments. Since the contract is not clear on these responsibilities, the insurer might find themselves in a bad position with the regulators affecting their renewal licenses or leading them to be blacklisted.
Potential challenges for the cover holder if no action is taken:
Turn around times for claims payments maybe affected. If the contract is not clear on items like referrals or use of experts for claims handling or documentation, then the cover holder may not get the feedback necessary to handle a claim, on time. They will therefore not be able to respond to their clients within their agreed timelines. Thus, affecting their reputation.
If there is any profit commission in the contract, then the cover holder may not be able to achieve it. This is because the chances of making a profit, when the cover holder has acted outside the delegated authority, are slim to nil.
Insured with statutory insurance covers like motor might be affected. This can happen if there is no proper documentation or if the insurer is unable to ratify a risk that is outside the delegated authority.
Question 5 – Learning Outcome 5 (20 marks)
The two significant issues to be considered when managing two delegated authority agreements include:
Maximum limit any one risk or in the agreement – There is a maximum limit that the cover holder can handle for any one risk., regardless of the number of agreements they might have.
Premium requirements – It is important to note which premium is meant under each delegated authority agreement. The same should be allocated accordingly.
Different Agreements may require different data capturing, coding and reporting requirements. It is therefore important to understand the requirements of the different agreements and ensure that these needs are met accordingly.
Factors to consider when setting up the third delegated authority include:
Claims Handling _ Noting that the third delegated authority is the first one with a claims handling authority, the managing agents should ensure that it has staff equipped to handle such authority. The staff should be trained as regularly as possible to keep them updated with the relevant skills.
The managing general agent should also focus on having an IT system that can assist with claims capturing and recording and reporting. This will ensure Turn Around Times are met. Processes as to how claims are handled should be very clear including notification, referrals, expert opinions, feedback and payment authorities.
If there are different requirements for each agreement in terms of claims or underwriting, it’s important for the needs to be isolated and staff to be informed on how to handle or apply the different rules.
In underwriting, it is important to adhere to the underwriting authority extended in each agreement. It could either be Prior Submit contract, Pre-agreed rates authority or Full binding authority. The Managing General Agent has to consider that each of the agreement could be having a different authority which has to be adhered to and ensure there is no mix up on the same. They should therefore not go beyond the level of authority agreed upon, under the various agreements.
The different classes of risk, including those in the overseas handled by the third agreement should also be considered. Some of the items to look into include Tax implications of the various classes of business. Commission agreements could be different. Territorial requirements example, some territories may not allow export of such services. Conversion of currency should also be agreed upon in advance.
Question 6 – Learning Outcome 6 (10 marks)
Some of the appropriate course of action BDM Ltd would need to take regarding the claims issues, in order to improve customer service and customer retention include:
Encourage the insurance company to either employ people experienced in Claims Handling or those that are currently handling the claims, are trained accordingly. They should be trained regularly to ensure they are upto date with the particular skill.
Since the claims handling by the insurance company is poor, and BDM Ltd doesn’t have any one with skills to handle claims, then a Third-Party Administrator can be appointed. Advantage here is that most TPAs have capable systems to handle claims
Limiting the authority given to the cover holder MGA, is also an option. This could be based on the Financial size of the claim or Factual Matrix. Financial Size limit means that claims above a certain amount should be referred to the insurers for assessment. Factual Matrix means that regardless of the size of the claim, there are situations that have been agreed upon in the binder where the insurer has to be alerted before the said claim is analysed or settled.
Another way of improving on customer service, is to ensure that the correct process is followed:
Notification – Claims should be notified within the agreed upon timelines. The required documentation should also be provided. Fraud detectors should also be included for certain claims.
Decision Making – There should be timelines regarding claims review, and if there are any questions or follow ups to be made, then his should be done within the agreed period. Feedback should also be given as soon as possible and a record of all these put together.
Expert Management – There are situations where special expertise is required in certain claims, this should be clearly indicated and recorded in the files. The fee should be monitored to ensure they don’t beyond the claim amounts.
Payment – All payment processes should be followed. This is either in terms of claims or fees. Processes in terms of signing off of claims of certain amounts and record keeping should be followed. Loss funds should also be handled as required and agreed upon, with only the authorised personnel.
Communications – All types of communications, whether written or telephone, should be clearly recorded within the files.
Referrals to insurers should follow the correct criteria, they should be well dated and responded to within the correct timelines
Complaints handling – Every complaint should be captured. This is in terms of the nature of the complaint and how it was resolved.
Question 7 – Learning Outcome 7 (20 marks)
Poor data and reporting could contribute to the failure to achieve the profitability predicted by the cover holder in the following ways:
If the wrong data is captured or the data is captured wrongly, then the analysis and results therein, will give misleading results. Such results may lead the company into making decisions that are not profitable to the company
Poor data and reporting could also lead to delay in turnaround times. This might interfere with opportunities that the Company might have taken up that would boost the profitability of the company.
In case there is a gap or issue in the business, this may not be sported in time where there is Poor data and reporting. Hence the cover holder may lose out and may not be able to make the necessary adjustments on time, which may affect profitability.
Good data and reporting also ensure that the loss ratios are computed early. If there is an issue that could lead to a huge loss than expected, then the cover-holder will be able to restructure and ensure some profitability is achieved. Failure to which, the business may end up in a loss.
God data capturing and reporting reduces costs. This is by ensuring the work is completed at first round, and no extra funds are required to repeat the work. When work has to be repeated, extra budget is required which interferes with the profit.
Poor data and reporting will also lead to customer dissatisfaction. Which eventually will chase away the clients. With lesser clients than projected, profitability will go down as the income or revenues will be less than predicted.
Projection and benchmarking based on poor data and reporting could also interfere with profitability. This is because decision will be made based on these projections which are inaccurate
Data and reporting can be improved in the following ways:
By been captured correctly. This means the data has to be complete, accurate and of good quality. It should also be captured in the correct format as agreed between the various parties in the agreement. Items which are key such as tax and any other regulatory requirements should be captured as accurate as possible.
Regularity of reporting should be as per the agreed timelines. This will ensure that all the parties are up-to-date with anything and everything that might affect the productivity of the business. Reporting regularly will ensure that any issues that might lead to reduced profitability, is captured on time and any errors dealt with early enough. The management will therefore have enough time to make relevant adjustments in time and ensure that profitability is achieved even with any hiccups along the way.
IT system should also be improved or serviced as often as possible. This will ensure that updated technology is used. The system used should be capable of producing relevant reports at any one time of the year. The data should also be backed up in an offshore location. Thus, when there is a catastrophe like the floods, data is not entirely lost. This will also reduce on business interruption which is costly and affects on the profitability.
Question 8 – Learning Outcome 8 (20 marks)
The two items regarding operations that might have affected the revenue targets of the business include, but not limited to
Too much authority given to the cover holder. This could be authority given in terms of claims handling or full authority where application of rates is concerned. Since there have been breaches to authority in placement of risks and areas like double signature where claims are paid, the insurer will be forced to look into the matter.
Lack of proper monitoringor any kind of monitoring at all can lead to a major impact on the revenue targets. Some of the items that can go wrong even without the knowledge of the one delegating the authority include; the one with the named authority can leave the company and be replaced, maybe internally. The terms and conditions also have to be well laid down to ensure that the auditing is straight to the point. The type of risk to be accepted under the portfolio should also be monitored. Lack of which may result to risks that are beyond the capability of the insurer, and therefore lead to a loss.
The two items above i.e. too much authority given to the cover holder MGA and lack of proper monitoring can be addressed as follows:
In terms of pricing, prior submit method should be effected. This means that the cover holder MGA will have to get approval before placing any risk. Therefore, the risks placed will be analysed to ensure that they match the insurer’s risk profile. Authority on claims can also be removed and given back to the insurer or to a Third-Party Authority. This might reduce the Turn-Around-Time for claim payments and reduce the complaints from the clients.
Monitoring should be done on a regular basis
Items to be monitored should be stated in advance, so that both parties are very clear.
Once the audits are done, the results should be discussed with both parties. If the recommendations are not adhered to, then severe steps will be taken like cancelling of the delegated authority. A re-audit should therefore be set up as soon as possible.
Question 9 – Across more than one Learning Outcome (30 marks)
Consideration taken before offering a delegated authority agreement
Cost implications and Profitability – from a financial perspective, the agreement has to result into profits. The insurance has to analyse the previous performance of the insurer broker to ensure that they have the ability to make profits. Costs such as hiring people to manage the delegated authority or cost of oversight and monitoring, should be surpassed by the benefits thereof.
Compliance with regulator – The said insurance broker has had a recent fine with regards to bribery, in a different territory. The insurer also wants to expand to overseas territory. It is important the Insurance broker confirms if it’s the same territory and same line of business that they are concerned with, that the insurance company is black listed. Either way, they have to be clear with the insurance broker that this is not in line with their ethics. If this insurance broker is the only one with the said skills to enable the insurance company to diversify into the overseas territory with this line of business, then the terms and conditions have to be clear.
XYZ Insurance has also to look into reputational risks. If they have to go into this contract with the said insurance broker, how will their reputation be affected.
The experience and track record of the team handling the business. The individuals handling the particular business need to be interviewed. It is important that they understand the terms and conditions of the agreement and follow through. It is also important that the rest of the staff support them accordingly. If the individual assigned to this task happen to leave the organisation, then XYZ insurance has to be notified and also get involved in selecting a new one. The staff also has to be regularly trained inorder to stay abreast with the required skills for the said risks.
Been that XYZ is an insurer at Lloyds, then other items to be looked into at the application & approval process include – financial standing of the insurance broker, their professional indemnity adequacy and whether all regulatory requirements are in place, e.g licenses.
significant issues you would need to consider when drafting the delegated
Type and Level of authority to be issued: This is in terms of underwriting and claims. In underwriting, the level of authority would either be full authority contract, prior submit contract or pre-agreed rates contracts.
In claims, it s should be clear if any authority has been issued at all, or if a Third-Party Administrator will be contracted. If there is authority to the insurance broker then the processes should be clear in terms of notification, expert management, referrals, complaints handling, record keeping and issues around loss funds.
It should also be clear the extent of authority in terms of geographical locations and classes of business that is acceptable.
These items around underwriting and claims will form the basis of monitoring and evaluation.
Payments to the insurance broker need to be considered and clearly indicated in the contract. If it’s commissions, it should be clear the rate of commission for the various classes of business. Profit commissions can be included to encourage profitable business, though there are risks involved therein that needs to be looked into. Overrides, which are over and above the usual commissions and fees, mostly based on any other services provided, should be clearly stated.
It should also be clear how much XYZ insurance is expecting to make out of this contract. The main aim for such a contract is revenue growth.
Period of contract – It should be clear how long the contract is for and issues around termination of contract either due to lapse of the contract or underperformance.
Once audits are done, it should be clear if the agreement is profitable as initially expected. If not, are the reasons as to why there is underperformance rectifiable through a re-audit, or should the contract be cancelled.
(c) Explain, with justification, four significant issues you would need to consider prior to renewing the delegated authority agreement after its first year of operation.
Profitability – The main aim for entering into a delegated authority is to make profits or generate revenue. The projected and expected revenues are agreed upon at the onset of the contract. If this has not been achieved by the end of the period, then there should be a discussion as to why it was not achieved and if it can actually be achieved if renewal is confirmed.
Authority – Did the insurance broker at any one-time step outside the delegated authority. This could be in terms of risks they undertook or geographical locations that lay outside what was agreed to.
Financial issues – Is the insurance broker still financially stable? Are they able to handle items such as loss fund and remitting of premiums within agreed timelines? Have they filed the necessary returns?
Monitoring and auditing – How did the insurance broker fair in the audits? Were there any items that they had been requested to amend that they did not? Does the delegated authority agreement cost more due to having oversight of the insurance brokers?
Question 10 – Across more than one Learning Outcome (30 marks)
The significant actions you should take to make the delegated authority agreement profitable for you, as the insurance broker include:
Change of authority from prior submit to pre-agreed rates, or even full authority. Since the broker is already making profits, it means that they have adhered to the requirements of the insurer and should be allowed an extent of the authority. The pre-agreed rates or full authority will ensure that the broker is able to handle more clients faster, increasing their clientele and hence increasing the commissions
Improve on data capturing and reporting. This is by ensuring a better system is in place. This will help in management of time and better handling of the available resources. If there is a gap, then it will be quickly identified and the insurance broker will have the time to ensure profitability for themselves
The insurance broker can also negotiate on their payment terms. On top of the commissions, they can also negotiate for profit commissions and overrides. Profit commissions will be based on profitable business they issue and the overrides will be based on the amount of business they provide, over and above what is agreed.
The insurance broker should also ask for authority to handle claims. Especially now that the insurance company is doing a poor job in that area. An increase in delegated duties, will result to an increase of payments or remuneration. They only need to ensure that they have the capability to handle claims. A loss funds can be established to ensure that turnaround times are met and the insurance broker will not have to use their own funds.
The insurance broker can also entre into agreements with other insurance companies, this is in other classes that this particular insurer is not into. Therefore, for those risks that this particular insurance company does not cover, then the insurance broker can still benefit and make extra revenue by getting into agreements with other insurance companies
The response of the Insurance company to the above actions include:
Monitoring and auditing of the new authority has to be increased. Though the insurance broker has done well over the past five years, as to how they adhered to the agreement and ensured profitability for the insurance company, a new authority will require tighter oversight to ensure it is not abused.
Improving on data capturing and reporting could also be a plus for the insurance company. However, they need to ensure that confidentiality is maintained. Also, service level in terms of reporting standards and record keeping should be agreed upon.
Offering profit commissions may entice the broker to stop paying valid claims which is against regulations and may lead to complaints. Overrides may also result to quantity business instead of quality business. The insurance company will therefore need to increase oversight and ensure this conflict of interest is dealt with accordingly.
On the suggestion of loss funds, there is a risk of mishandling of the funds. The insurance broker could either mix the clients monies with the loss funds or use the funds from one loss fund to handle claims of another agreement. The insurance company should ensure that there are different accounts to handle the loss funds from that of the client.
An insurance company might be a bit sceptical if the broker is in agreement with various insurance companies. It could result to issues like anti-selection, where one insurance company is given the riskier business as opposed to the other, if the insurance companies operate the same risk classes.
Referencing must be completed before submission
Sources must be referenced in the body of your answers as well as in your reference list. See the M66 Specimen coursework assignment for examples of how to reference correctly in text and in your reference list.
Charlotte Warr LLB (hons) FCII – P66 Delegated Authority, The Chartered Insurance Institute 2016.