Insurance 1a
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Question 1 of 2
1. Question
Below is the start of a short text outlining the fundamental challenge of insurance brokerage.
Read the text below and fill in the gaps with the missing preposition.
Use these words to complete the gaps in the text.on , at , into , in(2) , for(3) , out , with(2) , by(3) , through , of , down-
Fundamentals of Insurance Brokerage – The Challenge.
common any business an insurance broker exists to maximise the return investments made its shareholders. the most basic level this is achieved earning the highest possible margin whilst incurring the lowest possible costs. Paradoxically therein lies the problem, what is true the broker is also true the client. “Cut the middle man” is the cry resounding the boardrooms companies eager to reach their own hard targets. an increasingly globalised market, the competitive pressure has never been so intense. Unfortunately, a broker definition is a middle man.
A client who places his risk directly an insurance company pays a premium which may be broken the following three elements.
Crudely, a broker the situation is this:
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Question 2 of 2
2. Question
This is the second part of the text. Read it and answer the questions below.
Even with a very simplistic hypothesis the challenge is very clear. In order to make money, the broker has two options:
• At least equalise the cost to the client
• Sell added value and persuade the client to accept a higher cost for their cover.If we divide brokers into two groups; small and large entities we can explore various hypothetical options open to brokers and clients.
Large brokers:
- Buying Power: As with any commodity large consumers have the opportunity to enjoy discounts. A broker may pass some of this saving on to the client and still be able to earn a reasonable margin whilst offering a cost attractive to the client.
Example A.
In the example A, above the broker is successful in reducing the cost of cover but the total package to the client is still €1000 in excess of the client placing his risk directly with an insurance company.
Note!If the broker derives this power by placing business from many large clients, this power is substantial, the client receives economies of scale from the total business the broker has. In theory if the number of large clients is small the client may be able to seek discounts based on their large size independent of a broker and save the brokerage fee.2. Administration Costs: If an insurance company is able to offer a competitive premium which become elevated due to inefficient administration, then there is an opportunity for a broker with a good structure to earn a margin.
3. Access to World Insurance Markets: A large broker has the opportunity to place risk in the most competitive markets, this is not usually an option for many clients…
According to the text which of the following statements are TRUE?
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