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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
2 introducing the business. The expertise of the independent intermediary is, in part, demonstrated by
Chapter 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 (TOBA) with the client. They include such things as:
• risk management advice;
• assisting with the presentation of claims; and
• assisting in recovering any uninsured losses.
What we have considered so far are services provided to clients. Other functions may be carried out by
the intermediary on behalf of insurers, depending upon the TOBA. These could include:
• collecting the premium;
• committing the insurer to cover the risk (if authorised);
• settling claims on behalf of the insurer (if authorised); and
• issuing motor, or other cover notes to give evidence of cover.

E5 Appointed representatives
If an intermediary operates as an appointed representative (AR) of an insurer (known as the principal),
they may only give advice in relation to that insurer’s products. They do not, therefore, carry out the
wider functions that relate to the suitability of different markets, although they continue to have a
responsibility to match a client’s demands and needs with suitable products from the insurer’s
product range.
They may also carry out functions that they are authorised to do by the insurer; this could include
alterations and renewal.
The important thing to note is that the principal takes responsibility for the AR’s activities and so must
have adequate oversight arrangements in place.

F Distribution channels

So far we have considered how the insurance market operates and looked at the components of the
market, i.e. buyers, insurers and intermediaries. In this section, we examine distribution – in other
words the way in which the products are made available to the customer through product marketing.
The distribution channels used for insurance can be divided into two main types: direct and indirect
channels.
• Direct: employees of the insurer sell the insurance products direct to the customer or direct mailing
techniques are used to promote sales.
• Indirect: intermediaries paid by the insurer promote products on the insurer’s behalf.

Consider this…
Think about aspects of product marketing that could be affected by the distribution channel used.