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Roles and Parties in General Insurance

Role of Parties in General Insurance

General Insurance

Bloodstock and livestock insurance are defined as ‘general insurance’. General insurance cover is offered for short periods, usually one year, unlike personal life cover, annuities and superannuation which fall under the umbrella of ‘life insurance’.

General insurance is about indemnity. The owner of an asset or property seeks to transfer risk to another party i.e. an insurer. The risk may be that the property becomes damaged, is destroyed or becomes permanently lost. The owner (insured) pays a premium to the insurer, being the reward for accepting or insuring his risk. The insurer issues an insurance policy (also known as a contract of insurance), specifying the period of cover, the specific risks covered, and the amounts to which the owner becomes entitled if and when the policy responds to a loss. When a loss occurs, the insured can lodge a claim against the insurer for the amount of the loss as stated in the policy. The insurer discharges its obligations by paying this amount to the insured.

The insured and the insurer are not always the only two parties involved with the arranging and placing of insurance cover. Other participants in the general insurance industry include:

  • Intermediaries, such as brokers e.g. E-Quine Insurance Services Pty Ltd or agents/authorised representatives;
  • Alternative insurance product providers – underwriting agencies;
  • Reinsurers – designed to spread risk.

Simply explained, an owner of an asset or property purchases an insurance product from an insurer (or underwriting agency acting with substantially the same authority as the insurer with whom it is contracted), either directly or through a broker or agent (authorised representative) intermediary. The owner of the asset or property becomes the insured (or assured). Very often the insurer elects to share the risk with another insurer, known as a reinsurer. The effect is identical to a bookmaker laying off a large bet with another bookmaker – a sharing of risk, to limit exposure to manageable levels.

Insurance products are sold and disseminated in many ways:

  • Directly by an insurer to the insured (e.g. telephonically, on-line by internet, calling at the insurer’s office);
  • By Underwriting Agencies, where the insurer authorises the underwriting agency to issue the insurance policy on its behalf. In other words, the underwriting agency possesses the insurer’s pen to bind insurance covers (under a delegated binding authority), and by so doing is acting on behalf of the insurer. The bloodstock and livestock insurance industries are dominated by underwriting agencies who hold exclusive ties with specialist insurers;
  • By Authorised Representatives of an insurer, who act as an agent of the insurer and sell the insurer’s product to the customer;
  • Through Brokers who act on behalf of the client and who have no allegiance or ties to any insurer, and are therefore not influenced or compelled to sell a specific insurance product. The role of the broker is to assess and analyse the client’s needs and to source appropriate insurance products from an insurer or underwriting agency. This is E-Quine Insurance Services field of expertise. We source insurance quotes from our selected network of specialist and reputable underwriting agencies. Collectively they represent all the major bloodstock insurers, including Lloyd’s of London, QBE and Amlin.

Insurance Brokers

An Insurance Broker is a professional adviser to an insurance customer. In Australia a broker has to hold an Australian Financial Services (AFS) licence.

The roles of a broker include, to:

  • Assess and analyse the needs of the client;
  • Source appropriate insurance products from an insurer or underwriting agency;
  • Negotiate with an insurer or underwriting agency on the basis of terms and price;
  • Compare and contrast various insurance products;
  • Advise the client;
  • Arrange the policy of insurance;
  • Assist in notification, preparation and negotiation of claim settlements, if required.

E-Quine Insurance Services Pty Ltd is a licensed Insurance Broker.

Generally Insurance Brokers are remunerated as follows:

  • Commission based on a percentage of the premium charged;
  • Broker administration or policy fee;

Authorised Representatives or Agents

Authorised Representatives are agents who are contracted and authorised to sell insurance products on behalf of one or more insurers, underwriting agencies or brokers. In Australia authorised representatives are not required to hold an Australian Financial Services (AFS) licence. Consequently, the authorising insurers, brokers and underwriting agencies are responsible for the accountability and performance of their authorised representatives.

Underwriting Agencies

Underwriting agencies are companies contracted to an insurer. The insurer has authorised the underwriting agency to issue insurance products on its behalf. When this occurs, the underwriting agency is acting in accordance with the insurer’s delegated binding authority. The underwriting agency is compelled to operate within the limits imposed by the insurer otherwise it will be in breach of its contractual obligations to its insurer. Limits imposed include the type of risk that the underwriting agency may accept, the location and age of the risk, the premium rate to be charged in terms of an approved rating schedule and a maximum sum insured.

In Australia an underwriting agency has to hold an Australian Financial Services (AFS) licence.

Generally Underwriting Agencies are remunerated as follows:

  • Commission based on a percentage of the premium charged;
  • Broker administration or policy fee;
  • Percentage share of the underwriting profit derived from the successful performance of business written under the binding contract that the underwriting agency operates for its insurer.

Virtually all specialist intermediaries in the bloodstock insurance industry have become underwriting agents of an insurer. The trend in recent times has been for insurers to secure ties with underwriting agents to protect market share.

By comparison, E-Quine Insurance Services Pty Ltd is modelled as a conventional specialist insurance broker, which have all but disappeared and assumed the role of underwriting agents instead.

Insurance Product Providers

Companies that offer general insurance products in Australia include:

Authorised Insurance Companies

To conduct general insurance business in Australia, an insurer must be licensed in terms of the Insurance Act 1973 (Cwlth). If the insurer also provides financial services, it also needs to hold an Australian Financial Services licence.

Lloyd’s of London

Lloyd’s is the world’s best known insurance brand. Lloyd’s is not an insurance company. It is an insurance market, a society of members, both individuals and corporations who group themselves into various underwriting syndicates, to pool capital and spread risks. The syndicates assume liability under contracts of insurance based on risks that an appointed professional underwriter accepts on their behalf. The underwriter is expected to generate profits for participating syndicate members from the acceptance of insurance risks.

Accredited Lloyd's brokers bring business to the Lloyd’s market, using their specialist knowledge to negotiate competitive terms and conditions for their clients. The risks placed with underwriters originate from clients and other brokers and intermediaries all over the world. Collectively the syndicates underwriting at Lloyd's form one of the world's largest commercial insurers and a leading reinsurer.

Any insurance broker can access the expertise and resources of Lloyd’s by making contact with an accredited Lloyd’s broker.

Lloyd’s underwriters are authorised to carry on insurance business in Australia with the contracts of insurance being subject to Australian laws. Lloyd’s is not considered to be a foreign insurer because it is an authorised insurer under the Australian Insurance Act. Lloyd’s is represented in Australia by its general representative based in Sydney.

Unauthorised Foreign Insurers (UFI) or Direct Offshore Foreign Insurers (DOFI)

UFI’s or DOFI’s are used to describe an insurer who is domiciled outside Australia but who offers and sells insurance products to clients who reside within Australia, usually through brokers or underwriting agencies licensed in Australia. While UFI’s and DOFI’s are able to offer insurance products in Australia, they are not regulated by the Australian Prudential Regulation Authority (APRA). Such insurers are not subject to the provisions of the Insurance Act, which established a system of financial supervision of general insurers in Australia.

UFI’s or DOFI’s write a small percentage of general insurance in Australia. They have however, provided much needed additional capacity in specialised insurance lines, especially in the wake of the market turmoil and contraction that resulted from the demise of HIH.

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