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Chapter 2 The insurance market 2/7

The complexity of many commercial risks and the large premiums involved often render a broker service
invaluable.

E2 Agents Chapter

An insurance agent is appointed by an insurer to secure new business and service existing business for 2
the insurance company. An agency agreement lays down the specific authority to act for a principal (i.e.
the insurer) with the objective of bringing the principal into a legal relationships with others.
General insurance contracts entered into by an agent, within its authority, will be binding on the insurer.
In fact, all acts carried out by the agent in their agency agreement have the same effect as if they were
carried out by the insurer.

E3 Lloyd’s insurance brokers

It is worth pointing out at this stage that the term ‘broker’ is frequently used in the insurance market. At
To be registered,
one time, it was necessary to be formally registered to use this term. Nowadays, in practice it tends to be brokers must satisfy
only those offering truly independent advice that use the term in their titles. the Council as to their
expertise
However, it is the Council of Lloyd’s that registers insurance broking firms to act as Lloyd’s brokers. This
title will be retained, even though access to Lloyd’s has been granted to a wider range of intermediaries
by virtue of Legislative Reform (Lloyd’s) Order 2008. To be registered, brokers must satisfy the Council as
to their expertise, integrity and financial standing. Once appointed, the words ‘and at Lloyd’s’ may be
used on letterheads and name plates. The requirements of Lloyd’s are in addition to those of the UK
Financial Conduct Authority (FCA) for authorised persons. However, Lloyd’s no longer has its own
separate code of conduct for Lloyd’s brokers, relying instead on the FCA rules for authorised persons.
An intermediary that is not itself a Lloyd’s broker and does not wish to pursue the new direct routing
possibilities, may access the Lloyd’s market by using the services of a Lloyd’s broker. This effectively
creates a chain of supply. In these circumstances the Lloyd’s broker is termed a ‘wholesale’ broker and
the originating intermediary a ‘sub-broker’ or ‘producing broker’. Reference copy for CII Face to Face Training

E4 Services provided by intermediaries

The main distinguishing feature of an independent intermediary, which includes Lloyd’s brokers, is the
fact that they are acting on behalf of the client when placing business, not on behalf of the insurer in
introducing the business. The expertise of the independent intermediary is, in part, demonstrated by
making a recommendation as to the most appropriate insurer to place the risk with.

The intermediary must be capable of offering advice on the basis of a fair analysis of the market and
remuneration from the insurer is traditionally a percentage of the premium payable, though increasingly
there is a tendency for intermediaries to charge a fee for their services instead.

The services that intermediaries provide for their clients vary considerably. Independent intermediaries
will all:
• decide the best market in which to place the risk;
• negotiate terms and conditions initially and for mid-term changes;
• provide advice to the client regarding the detail of the policy wording;
• review client needs;
• negotiate renewal; and
• advise the client on the validity of claims.
There are further services that may be provided and these will be specified in the Terms of Business
Agreement with the client. They include such things as:

• risk management advice;
• assisting with the presentation of claims; and
• assisting in recovering any uninsured losses.