INSURANCE BROKERS An Industry Accounting and Auditing Guide

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INSURANCE BROKERS

An Industry Accounting and

Auditing Guide

Fourth Edition

Robin Oakes, Mark Grice and Sarah Ouarbya,

all of Mazars LLP

145 London Road

Kingston upon Thames

Surrey KT2 6SR

Tel: +44(0) 870 777 2906

Fax: +44(0) 208 247 1184

E-mail:info@cch.co.uk

Website: h.co.uk

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? 2006 Wolters Kluwer (UK) Ltd

ISBN 1-84140-795-X

All rights reserved. No part of this publication may be reproduced or transmitted in any form

or by any means, or stored in any retrieval system of any nature without prior permission,

except for permitted fair dealing under the Copyright, Designs and Patents Act 1988, or in

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of photocopying and/or reprographic reproduction.

Application to reproduce extracts in other published works shall be made to the publishers.

Full acknowledgement to author, publisher and source must be given. Material is contained

in this publication for which copyright is acknowledged. Permission to reproduce such

material cannot be granted by the publisher and application must be made to the copyright

holder.

Crown copyright is reproduced with the permission of the Controller of Her Majesty¡¯s

Stationery Office. Views expressed in this publication are the authors¡¯ and are not necessarily

those of the Institute or the publisher. Whilst every effort has been made to ensure accuracy,

the author and publisher can accept no responsibility for any errors contained in this

publication. Nor can they accept any responsibility for any loss occasioned to any person

acting or refraining from action as a result of any material in this publication.

Note: Use of FSA material does not indicate any endorsement by the FSA of this

publication, or the material or views contained within it.

British Library Cataloguing-in-Publication Data.

A catalogue record for this book is available from the British Library.

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Printed by Krips bv

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Contents

Foreword by Eric Galbraith, Chief Executive BIBA

Preface

Part I Introduction

xi

xiii

1

Chapter 1¡ªThe insurance industry

1.1

Introduction

1.2

Insurance

1.3

Development of classes of insurance

1.4

Direct and reinsurance business

1.5

The insurance market

1.6

Sellers: the insurer

1.7

Intermediaries

1.8

Direct writers

3

3

3

4

9

9

10

13

16

Chapter 2¡ªThe broker¡¯s world

2.1

Introduction

2.2

Matching risks

2.3

Presenting the risk

2.4

Placing risks

2.5

Handling claims

2.6

Brokers and the law of agency

2.7

Errors and omissions

2.8

Corporate structure

2.9

Types of insurance broker

2.10 Trade associations

2.11 Other trade bodies

17

17

18

19

21

22

23

25

26

28

29

30

Part II Regulation

33

Chapter 3¡ªThe FSA and the FSA Handbook

3.1

Introduction

3.2

Scope of the FSA¡¯s regulation

3.3

Obtaining FSA authorisation

3.4

Passporting to or from another EEA state

3.5

Approved persons regime

3.6

Controlled functions

35

35

36

40

41

42

42

v

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Contents

3.7

3.8

3.9

3.10

3.11

3.12

3.13

3.14

3.15

The FSA Handbook

The FSA¡¯s high-level standards

Prudential standards

Business standards

Regulatory processes

Redress

Specialist sourcebooks

Tailored handbooks

Handbook guides

43

44

48

54

56

57

57

57

58

Chapter 4¡ªThe client money rules

4.1

Introduction

4.2

Scope of the client money rules

4.3

Agent of the insurer

4.4

Holding client money

4.5

Segregation and operation of client money accounts

4.6

The client money calculation

4.7

FSA review of the client money regime

59

59

60

60

61

63

65

69

Chapter 5¡ªThe insurance conduct of business rules

5.1

Introduction

5.2

ICOB 1 Application and purpose

5.3

ICOB 2 General rules (including unfair inducements)

5.4

ICOB 3 Financial promotions

5.5

ICOB 4 Advising and selling standards

5.6

ICOB 5 Product disclosure

5.7

ICOB 6 Cancellation

5.8

ICOB 7 Claims handling

70

70

71

73

74

75

78

82

83

Chapter 6¡ªThe retail mediation activities return

6.1

Introduction

6.2

Contents of the RMAR

84

84

84

Chapter 7¡ªAccredited Lloyd¡¯s Brokers

7.1

Introduction

7.2

Accreditation requirements

7.3

Lloyd¡¯s coverholders

88

88

88

90

Chapter 8¡ªPersonal investment firms

8.1

Introduction

8.2

Category of authorisation

8.3

Financial resource requirements

91

91

91

93

Part III Management and Control

101

Chapter 9¡ªOrganisation and structure

9.1

Introduction

9.2

High street broker

9.3

International brokers

103

103

103

104

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Contents

9.4

IT systems and data management

109

Chapter 10¡ªFinancial management

10.1 Introduction

10.2 The high street broker

10.3 International brokers

115

115

115

131

Chapter 11¡ªCorporate governance, internal controls and risk

management

11.1 Introduction

11.2 Corporate Governance

11.3 Systems and controls

11.4 Internal audit

11.5 Risk management

11.6 Conclusion

143

143

143

144

146

148

150

Part IV Accounting and Financial Reporting

151

Chapter 12¡ªBasic accounting and document flow

12.1 Introduction

12.2 Central accounting bureaux

12.3 Premiums

12.4 Claims

12.5 Reinsurance

12.6 Facultative reinsurance

12.7 Treaty reinsurance

12.8 Basic accounting systems

12.9 Accounting for brokerage

12.10 Accounting for claims

12.11 Accounting for reinsurance

12.12 Balances with an insurer or an insured

12.13 Electronic trading systems

153

153

153

154

156

157

157

157

158

159

164

165

166

166

Chapter 13¡ªProfit and loss account

13.1 Introduction

13.2 Profit and loss account formats

13.3 Accounting principles

13.4 Turnover

13.5 Segmental analysis

13.6 Continuing and discontinued operations

13.7 Accounting policies for brokerage

13.8 Fees and commissions

13.9 Claims handling fees

13.10 Expenses

13.11 Deferred brokerage

13.12 Foreign currency gains and losses

13.13 Foreign branches

13.14 Currency hedging

168

168

169

170

171

172

173

174

177

178

178

179

182

183

184

vii

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