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Chapter 2 The insurance market 2/15

Key points

The main ideas covered by this chapter can be summarised as follows:
Structure of the insurance market Chapter
• The insurance market is made up of buyers, insurers, intermediaries, price comparison websites (aggregators) and 2
reinsurers.
Insurers
• Limited liability/proprietary companies are owned by their shareholders.
• Mutual companies are owned by their policyholders.
• A captive insurer is owned by a non-insurance parent company that provides insurance primarily to its parent
company.
• Composite insurers accept several types of business, whilst specialist insurers accept only one.
Lloyd’s
• Lloyd’s is not an insurer but an organisation providing facilities for the placing of risks in its market.
• The risks are carried by syndicates, who appoint managing agents who employ an underwriter to accept risks on
the syndicate’s behalf.
• Business at Lloyd’s is placed by means of a Market Reform Contract (traditionally known as a ‘slip’), containing
details of the risk. A Lloyd’s broker takes the slip to a lead underwriter who indicates what percentage of the risk
they are willing to accept and on what terms. Other underwriters are then approached to fill the slip until all the risk
has been covered.
Intermediaries
• An insurance broker is an individual or company that acts as a representative of the client and/or the insurer.
• An insurance agent is appointed by an insurer to secure new business.
• The term ‘broker’ is used in the insurance market to refer to those who offer truly independent advice.
• The services that intermediaries provide for their clients vary and depend on what sort of intermediary they are (e.g.
whether they are an independent intermediary or an appointed representative). They also provide services to Reference copy for CII Face to Face Training
insurers.
Distribution channels
• Distribution of insurance products can either be direct, i.e. the insurer’s employees sell the products, or indirect, i.e.
intermediaries are paid by the insurer to promote products on their behalf.
• Many insurers delegate some authority to intermediaries to act on their behalf.
Price comparison websites
• An price comparison website is an internet service that collects and analyses data from different sources that
enables the consumer to compare prices on a particular insurance product.

Reinsurance
• Reinsurance is the way that insurance companies insure the risks they have accepted. They may wish to do this to
increase their capacity for a particular risk or to protect their portfolio from the impact of many associated small
losses or the effects of a very large potential loss.
• Reinsurers can purchase insurance for the risks they have accepted – this is known as retroceding.